On 13 March 2017, the plaintiff issued summons claiming against the defendants, jointly and severally, one paying the other to be absolved, payment of:(a) US$368,706=62 being capital;(b) US$20,654=10 being interest;(c) Interest on the sum of US$368,706=62 at the rate of 18% per annum subject to change from time to time ...
On 13 March 2017, the plaintiff issued summons claiming against the defendants, jointly and severally, one paying the other to be absolved, payment of:
(a) US$368,706=62 being capital;
(b) US$20,654=10 being interest;
(c) Interest on the sum of US$368,706=62 at the rate of 18% per annum subject to change from time to time with effect from 26 of November 2016 to date of payment;
(d) Costs of suit on a legal practitioner and client scale and collection commission as provided for under the law society of Zimbawe by-laws (1982).
At the commencement of trial, on 27 August 2018, by consent of all the parties, the claim was amended in paragraph 16 of the declaration as follows:
(i) By the deletion of the Capital amount of US$368,706=62 and the substitution thereof with the amount of US$361,034=23.
(ii) By the deletion of the interest amount of US$20,654=10 and the substitution thereof with the amount US$28,246=49.
The total amount being claimed by the plaintiff coming up to US$389,362=72.
The plaintiff's claim, as amplified in the declaration, is premised on the following synopsis:
“9. In or about November 2015, at Harare, Plaintiff and first defendant entered into an agreement in terms of which plaintiff extended to first defendant a loan of US$373,000. The loan was accessed through first defendant's operating account.
10. Interest was to accrue on the facility at the rate of 12 per cent per annum subject to change from time to time, but, in the event of first defendant defaulting on making due and punctual payment of any installment, the arrears were to attract interest at the rate of 18 per cent per annum subject to change from time to time, further, first defendant agreed to pay bank charges regarding the administration of the account.
11. The loan advanced of US$373,000 was repayable to plaintiff as follows:
(a) US$2,000 on the 30 of November 2015;
(b) US$1,500 on the 30 of December 2015;
(c) US$2,000 on the 30 January 2016; and, thereafter, US$15,200 per month with effect from the 28 of February 2016 until full payment.
12. It was a term of the agreement that in the event of first defendant defaulting on making due and punctual payment of any instalment, the total outstanding amount thereunder would immediately become due and payable.
13….,.
14. Second, third, fourth, fifth, sixth and seventh defendants bound themselves jointly and severally as sureties and co-principal debtors with first defendant for payment of any and all monies due to plaintiff by first defendant.
15. On diverse occasions, defendants defaulted on making due and punctual payments under the agreement resulting in the total outstanding amount under the agreement, as at the fifth of November 2016, in the sum of US$389,360=72 falling due and payable on the 25th of November 2016.”
DEFENDANTS PLEA
All the seven defendants deny that the amount of US$373,000 the plaintiff claims arises from the loan agreement.
The first defendant denies that it is liable to the plaintiff for the capital sum of US$361,034=23 (as amended), or at all, arising out of the loan agreement signed on 16 November 2015 because only US$350,000 in capital was actually lent and advanced to the first defendant and the entire capital debt was repaid in full on 30 December 2015 - less than two months after 16 November 2015.
The agreement terminated in sixty (60) days in terms of the loan or facility agreement.
And the agreement does not have a survival clause.
Paragraph 24 of the facility cancels all previous agreements and this meant that even the balance on the first defendant's account is not covered by the agreement in question.
The first defendant denies liability under the facility and contended that the plaintiff actually recovered more interest than was lawfully due to it.
The first defendant also denies liability for any legal costs as it does not owe the plaintiff any money under the facility in question, and, if the plaintiff is successful, it would only be entitled to normal costs.
The defendants contend that all the suretyship deeds are void for vagueness in that they cover unlimited liability. The liability under suretyship must contain a limit in monetary terms.
The defendants further challenge the validity of the suretyship for they were not all authorized by the second defendant's Board of Directors. The second defendant challenges the company resolution for having been signed by an incompetent company representative.
The acknowledgement of debt alluded to by the plaintiff is challenged by the first defendant because it was not typed by its representatives. Equally so, the resolution signed by Ms Blumears was a nullity, the second defendant avers.
The first defendant denies defaulting payment. It denies owing the plaintiff any amount and also deny being liable to payment of the plaintiff's claims.
On 30 May 2017, the defendants sought to amend their pleas.
They added, that, if at all, the first defendant was liable ex contractu the loan agreement of 16 November 2015, the first defendant will dispute the amount owing since provisionally, as at the end of 2016, the first defendant's credits against debits had brought the first defendant's debit balance to less than US$109,000.
The defendants further contend, that, either the purported acknowledgement of debt or the loan agreement, or both, contravene section 12 of the Money Lending and Rates of Interest Act and consequently invalid and unenforceable.
The second defendant further pleaded that its act of suretyship fails to comply with the requirements of section 12 of the Money Lending and Rates of Interest Act for an instrument of debt as defined in that Act and the purported act of suretyship is therefore of no force or effect as an instrument of debt.
The second defendant's act of suretyship had expired by reason of the effluxion of time, having been signed more than three years before the grant of the loan as claimed for; it was signed on 23 May 2012.
The second defendant further pleaded, that, neither of the mortgage bonds filed reflect that they were surety bonds for debts owing by the first defendant to the plaintiff and accordingly do not bind the second defendant to the plaintiff for this purpose. Further, the mortgage bonds filed amount to a disposal of the whole or a greater part of the second defendant's assets in the absence of formal approval of a general meeting of shareholders as required by the Companies Act, and, for that reason, they are of no force or effect.
It reiterated that the registration of the mortgage bond in favour of the plaintiff was not authorised by the second defendant and that the plaintiff, as lender, clearly over-reacted and unlawfully requested the mortgage bonds.
The third, fourth, fifth, sixth and seventh defendants challenged the suretyships and validity of the mortgage bonds and contravention of the Money Lending and Rates of Interest Act.
Some of the suretyships were also signed long back, in February 2011; they had expired, the defendants aver.
The defendants pray for the plaintiff's claim to be dismissed with costs.
DEFENDANTS CLAIM IN RECONVENTION
Due to the invalidity of the suretyships alleged in the pleas, the defendants pray that their respective purported suretyships be declared null and void and of no force and effect.
The second defendant, in its counter-claim, also prays that the plaintiff be ordered to issue formal consent according to deeds registry requirements for the cancellation of mortgage bonds registration nos 1557/2013 and 1656/2013 allegedly passed by the second defendant in favour of the plaintiff, and, with the said documents of consent, to release to the second defendant the deeds of the said mortgage bonds and deed of transfer no.1998/1975 made in favour of the second defendant on 7 May 1975.
The third and fourth defendants further pray that the plaintiff be ordered to issue formal consent, according to deeds registry requirements, for the cancellation of mortgage bonds reg nos. 2416/2011 and 4889/2011 allegedly passed by the third and fourth defendants in favour of the plaintiff, and, with the said documents of consent, to release to the third and fourth defendants the deeds of the said mortgage bond and deed of transfer no. 8573/95 made in favour of the third and fourth defendants on 15 December 1995.
The defendants jointly further pray for costs of suit in respect of this claim in reconvention.
PLAINTIFF'S PLEA TO DEFENDANTS CLAIM IN RECONVENTION
The plaintiff, in its plea to the defendants claim in reconvention, contends that the defendants executed open guarantees which are valid, lawful, and enforceable.
It further avers, that, the second defendant's suretyship was and is properly constituted and was extended premised upon a valid resolution by the defendant company.
The acknowledgement of debt was also properly executed by the first defendant and is valid.
The plaintiff added that due process was equally provided in the execution on the guarantee by the second defendant, and the plaintiff was unaware that the third and fourth defendant's daughter unlawfully signed the guarantee and does not admit same.
The plaintiff denies that its representatives interfered in the execution of the guarantee by the second defendant. It argues that the guarantee is hence valid and enforceable.
The plaintiff contends further, that, due process was followed in the registration of the two bonds.
According to the plaintiff, the second defendant's resolutions were made and powers of attorney issued. The bonds were properly registered and are valid. As a result, according to the plaintiff, there is no legal basis on which the second defendant's guarantee and mortgage bonds should be cancelled.
The plaintiff prays for the dismissal of the defendant's claim in reconvention with costs.
AGREED JOINT ISSUES FOR TRIAL
1. Whether or not the first defendant is indebted to the plaintiff in the sum of US$361,024 as capital and US$28,246=49 as interest under and in terms of the loan agreement signed by the parties and dated 2 November 2015.
2. Whether or not the second, third, fourth, fifth, sixth and seventh defendants are jointly and severally liable together with first the defendant for the capital and interest amount claimed under and in terms of their respective deeds of suretyship.
3. Whether or not the second defendant's first and second mortgage bonds numbers 1557/13 and 1655/13, in favour of the plaintiff, are valid and enforceable, and whether or not the said bonds be declared null and void and cancelled.
PLAINTIFF'S CASE
On 27 August 2018, the plaintiff opened its case by calling Cuthbert Gunundu. He is a university graduate holding a Bachelor of Business Studies, a Masters Degree in Business Administration, a holder of a diploma certificate in Institute of Bankers of Zimbabwe, and is employed by the plaintiff as an Account Relationship Manager.
He has been employed by the plaintiff since January 2008.
His job entails managing customers account, more particularly the customer's operating account, receiving credit applications for borrowing to assess credit worthiness of the borrower and make recommendations to the Credit Committee, to approve or reject a credit application.
Once a resolution to lend to the customer is made, he will monitor performance of that client's account to ensure that the borrower performs in line with the terms of the facility.
When there is a deviation by the borrower, the witness would make recommendations for call up or otherwise of the debt.
These are the major roles of his job.
He knows the first defendant as a long outstanding customer of the plaintiff. The second to seventh defendants are guarantors to the first defendant. He testified, that, since 2011, when he was assigned to manage the first defendant's account, the plaintiff demanded the requirement of guarantees to safeguard its moneys loaned out.
From 2011, the plaintiff received guarantees, in terms of security guarantees as well as mortgage bonds against the third and fourth defendants properties. The security guarantees proferred by the third and fourth defendants were for unlimited lifespans until the defendants have paid their debts in full.
In 2013, the witness told the court that the first defendant approached the plaintiff for further borrowing and the first defendant's directors were advised, by the plaintiff, that, the plaintiff would need further security. At that stage, the third defendant indicated that it had associates to cover and provide security for the debt.
Sometime in 2015, the first defendant submitted an application to get assistance from the plaintiff through a loan to pay off its existing debt.
At that stage, the witness stated that the first defendant had failed to meet its obligations.
The first defendant then approached the plaintiff to access a loan whose proceeds the first defendant would then use to pay off its existing debts. That fresh application, of 2015, culminated into a fresh loan agreement which is the agreement dated 2 November 2015.
As at the date of the loan agreement, the witness told the court that the first defendant owed the plaintiff a total of US$373,000.
The terms of that loan agreement was that the Bank had to be secured, and, in terms of clause 6 of the agreement, the security was already in the hands of the plaintiff.
As a result of the 2 November 2015 agreement, the plaintiff advanced a loan to the first defendant to pay off the debt, a loan draw down of $350,000; and, that amount was to pay off the first defendant's outstanding debt.
On 30 December 2015, the second entry on the bank statement shows that there was a loan repayment of $350,000 and the witness told the court that to the plaintiff it was a debit to show that it was a new loan account.
The witness denies that the first defendant repaid the amount on 30 December 2015; there was no settlement on the account.
The witness denied the assertion made by the defendants, that, the plaintiff had sued under the wrong agreement.
He further added, that, the first defendant was using its operating account.
The witness also explained, that, the customer signed an acknowledgment of debt cited on pp10-12 of the plaintiff's bundle of documents, p202 of the record of proceedings. The document, the witness said, was executed by the third defendant and did so on behalf of the first defendant. He added, that, although the loan agreement shows a figure of $373,000 and the acknowledgement of debt bears an amount of $377,299=70 the two (2) documents relate to the same transaction.
Asked by the plaintiff's lawyer to explain, the witness stated that by 6 November 2015 the first defendant owed the plaintiff $377,299=70, the facility letter dated 2 November 2015 showed $373,000, and the acknowledgement of debt, dated 16 November 2015, was the date the acknowledgment of debt was executed.
The acknowledgment of debt was sent to the first defendant on 31 October 2015, and, by that date, the amount due to the plaintiff from the first defendant was $377,299=20; from time to time, the first defendant was periodically depositing money into the operating account and this resulted in gradual reduction of the first defendant's obligation.
However, from 2 November 2015 the first defendant failed to meet its obligations.
The witness further explained to court, that, the defendants provided two forms of security, the guarantees and mortgage bonds, contained on pp67-69 of the plaintiff's bundles.
The second defendant executed it for registration.
In 2012, the borrower applied for an increase to its loan facility and that is when the security was made.
The witness insisted that all the documents were properly executed and the resolution on p69 of the bundle was authentic and valid.
Mr Gunundu was cross-examined by counsel for the first, third, fourth, fifth, sixth and seventh defendants and was put to task to explain the capital debt of $373,000 and the $361,024 and also $350,000 and he had difficulties to explicitly define such figures.
Tasked to explain why the plaintiff would write on its statement that the second entry on the statement of 30 December crediting the first defendant's account with an amount of $350,000, the witness stated that it was a “confirmation” of the loan advanced to the first defendant.
Further, under cross examination, the witness averred that the loan agreement of 2 November 2015 permitted the plaintiff to factor in the old debts.
Pressed to explain clause 12 of the facility letter, on p16 of the record; that clause 12 cancels and invalidates all previous agreements, the witness admitted that the plaintiff was bound by that clause.
He could not produce a letter or application to show that the first defendant applied to the plaintiff for a loan to facilitate funding an existing debt.
Commenting on clause 2 of the facility letter relating to “working capital requirements” he testified that a letter application for a loan to pay off existing debt includes or encapsulates working capital requirements.
He failed to explain precisely the purpose of the loan, he could not satisfactorily explain the purpose of $350,000 whether it was for settling previous debts or was for working capital requirements; if it was for payment of old debts, then, it ceased to be for working capital.
On the aspect of surety, he agreed that the surety agreements violated section 12 of the Money Lending and Rates of Interest Act [Chapter 14:14] but insisted that they are valid.
The defendants, after signing the 2 November 2015 loan agreement, did not provide securities to cover the new loan.
On the aspect of the in duplum rule schedule, the witness computed the figures starting from 1 October 2015 and did not commence on 2 November 2015. The calculation patently included past debts and recapitalised the interest and he could not answer the question put to him, whether it was not proper to calculate the figures with effect from the date of the new loan.
He denied that the amount due to the plaintiff is at least $108,000 however the entries on the bank statement were debited based on the new loan not on the old debts.
He also admitted that the acknowledgment of debt, on p9 of the plaintiff's bundles was prepared by the Bank using a blank form which is later completed by the customer and the customer provides handwritten information to an existing format and the figure on the acknowledgement of debt $377,499=70 was written by the plaintiff.
He had difficulties of explaining the signature on the acknowledgment of debt.
The witness was referred to p6 of the bundle by counsel for the second defendant and asked to comment on the aspect of the declaration by the plaintiff, that, the plaintiff's claim is based on the 2 November 2015 agreement and no other, and he agreed.
He agreed with the second defendant's defence lawyer that the whole cause of action is premised on the 2 November 2015 agreement.
He agrees further that the $350,000 was for working capital.
He could not, however, agree that on 30 December 2015 the first defendant paid off the borrowed $350,000 clearly acquitted by the narrative.
He confirmed that the 2 November 2015 agreement is a stand-alone agreement and cancels all previous facility letters.
On the security and mortgage bonds, he concurred with counsel for the second defendant, that, the amounts of $437,500 was not registered for the 2015 November loan agreement but were meant for loans for 2013.
The mortgage bonds were executed for the 2013 agreement not for the 2 November 2015 agreement.
There was no accompanying resolution by the second defendant authorising the third defendant to represent the second defendant in any capacity, yet the 2013 agreement was totally distinct from the 2015 loan agreement.
The resolution captured on p70, the resolution by the second defendant's directors, was prepared by the plaintiff Bank and it does not authorise a power of attorney to pass a mortgage bond. It also does not provide for registration of a continuing covering bond, nor does it identify any property which is going to be covered by the mortgage bond.
Relating to the causa of the mortgage bond, he admitted that the second defendant was not indebted to the plaintiff.
On p99 of the record, it is clear that the second defendant was not granted any loan by the plaintiff and the $375,000 was not loaned to the second defendant by the plaintiff.
On p105, the clauses on the surety bonds do not reflect the truth about the entire transactions, the witness confirmed under cross-examination, because it appears that the surety bond was passed by the debtor itself.
The witness does not know as to who signed the documents and was not there when such documents were signed.
He was at pains in marrying the documents prior to November 2015 with the 2015 loan agreement which is the cause of action for the plaintiff.
He sought to rely on the clauses of the mortgage bond which speak of continuing cover and failed to explain the practicality of clause 12 of the 2 November 2015 agreement.
The witness had difficulties to explain what transpired relating to figures and signature on documents and legality of the documents contained on the plaintiff's bundle.
He did not impress as a good witness, moreso when he was subjected to a protracted cross-examination by the defendants legal practitioners. He did not fare well in evidence in chief and under cross examination.
He did not know much, even on basic issues of practices and interpretation of a simple loan agreement.
If clause 12 of the loan agreement cancelled all past agreements, how can the witness resort to previous debts to calculate the capital debt?
How can the witness “confirm” a loan facility after a month from the date the loan was signed and then enter into its own books the inscription “loan repayment $350,000?”
The capital sum of $373,000 keeps changing and no comprehensive statement to explain that continuous change of figures was produced and no good explanation by the plaintiff's witnesses was proferred.
This court cannot prepare a contract for the parties, it will interpret what is on paper and draw conclusions from such.
The duty to clarify the terms of the agreement lies with the plaintiff through its witness; Mr Gunundu left a lot of issues hanging.
The second witness to be called by the plaintiff was Mr V.S. Nyangulu, a registered legal practitioner, a Conveyancer and Notary Public.
He was conveyancer in the registration of the second defendant's first and second mortgage bonds (numbers 1557/13 and 1655/13) in favour of the plaintiff.
According to the witness, valid and proper resolutions were passed authorising him to attend to the bond registration process which was executed by the second defendants representatives. He added, that, all due process was followed pertaining to the registration of the mortgage bonds and there is no legal basis for their setting aside.
The witness also pointed out, that, on instructions, the Bank would normally send an e-mail stating that it wants to have a bond registered by him; the Bank will forward the copy of the title deed then he prepares the relevant papers. He would then prepare a power of attorney to pass a bond, a resolution by the company borrower, and send the papers back to the client Bank via email.
The Bank will download the documents, print them out, and send to client borrower for signing.
After all the papers are signed, the Bank submits them, together with the requisite on original title deeds, to the conveyancer who then lodges them with the Registrar of Deeds.
He is the one who prepared and registered all the documents on p294 of the record and the one on p293. Otherwise, all the other processes were done by the plaintiff.
He is the one who prepared the power of attorney which he filed with the Registrar of Deeds, including the mortgage bond on p303. He also prepared the resolution accompanying the power of attorney.
He admitted that the documents before the court, attached to the plaintiff's bundle, are mortgage bonds and not surety mortgage bonds; however, they are relevant to the loan under consideration and they are a continuous cover, the borrower will continue to draw money from the lender, and, according to Mr V.S. Nyangulu, paragraph 2 of Schedule of the Mortgage Bond provides for a continuing cover.
After the witness evidence, counsel for the first, third, fourth, fifth, sixth and seventh defendants did not have questions to the witness.
Counsel for the second defendant questioned the witness about the legal requirements of a mortgage bond as well as surety bonds, more particularly on the aspect of the causa which can either be a loan or a surety.
The witness acknowledged, that, the causa on both documents was not accurately captured and admitted that once the causa is defective the entire document is a nullity.
He was also put to task on the authenticity or otherwise of a power of attorney and/or a resolution and again admitted that the documents before the court had shortcomings.
A power of attorney must accurately describe the causa and prepared by an authorised person for a specific purpose. The resolution of a company must be prepared and signed by the appropriate agents and Directors of the body corporate.
The power of attorney on p293, the witness admitted, was not authorised. He also admitted that the second defendant, as a company, cannot execute any document and has to do that via an agent by power of a resolution and name a natural person, and, the plaintiff has failed to prove all these essential elements.
He further acknowledged, that, the power of attorney on p293, which authorized to pass a mortgage bond in the sum of $375,000 becomes the causa to pass a mortgage bond and not to pass a surety mortgage bond.
On p302 of the record, the witness does not know the identity of the person who executed the document, and, the power of attorney at p293 does not pass the test of a valid document.
At p294, the mortgage bond itself on the causa, the identity of the debtor is not correct; one cannot be both surety and borrower.
On p295, the declaration, which is the basis of the acknowledgment of debt, is falsely stated. Both the declaration and the causa are incorrect.
The effect is that the documents are a nullity and also subsequently invalidates the mortgage bond.
The witness also admits, that, on p302 of the record, authority that is given to a legal practitioner to pass a mortgage bond and not a surety mortgage bond. He also admitted on p303 the debtor shown there is not the correct one. The same applies to the declaration on p309. Both are invalid. He finally admitted that the power of attorney had shortcomings that go to the root of the documents.
The effect of the cross examination completely resulted in the destruction of the mortgage bonds, surety bonds, and requisite powers of attorney to pass mortgage bonds, more particularly, relating to the 2 November 2015 loan agreement.
The plaintiff then closed its case.
The first and third to seventh defendants indicated that they wished to make an application for absolution for instance. The second defendant also made the same indications.
In their application for absolution the first and third to seventh defendants argue that the issues for determination in this mater are:
(i) Whether or not the plaintiff led sufficient evidence, on the face of it, to establish its case against the defendants in respect of the pleaded cause of action.
(ii) Whether or not the plaintiff's evidence prima facie established valid sureties and mortgage bonds for that pleaded cause of action.
The cause of action pleaded by the plaintiff, the defendants submitted, against the first defendant is that in or about November 2015, at Harare, the plaintiff and the first defendant entered into a loan agreement in terms of which the plaintiff loaned and advanced to the first defendant the amount of $373,000 through the first defendant's operating account with the plaintiff and that the first defendant defaulted on making due and punctual repayment in terms of the agreement resulting in the first defendant owing the total sum of $389,360=72 made up of the capital sum of $361,034=23 and interest of $28,246=49.
The cause of action against the second and seventh defendants was pleaded as arising out of them having bound themselves jointly and severally, as sureties and co-principal debtors with the first defendant for the due payment of any and all monies due to the plaintiff by the first defendant under the loan agreement.
The plaintiff attached to its summons a statement of account pleaded to reflect the transaction history of the loan account. That statement of account showed that on 15 November 2015 the plaintiff credited the first defendant's operating account with the amount of $350,000 described as “loan draw down” under reference number LD 1532 460482, and, further, on 30 December 2015 the operating account was credited with the same amount of $350,000 described as “payment of principal” under the same reference number LD 1532460482.
The defendants submit, that, the net effect of these entries was to restore the first defendant's previous overdrawn overdraft facility.
The plaintiff also attached copies of surety agreements with the third to seventh defendants all of which predated the pleaded loan agreement having been made:
(a) By third defendant on 25 February 2011;
(b) By fourth defendant on 25 February 2011;
(c) By fifth defendant on 25 February 2011;
(d) By sixth defendant on 25 February 2011;
(e) By seventh defendant on 25 February 2011;
Further, the plaintiff's cause of action against the third and fourth defendants, the plaintiff attached mortgage bond numbers 2416/2011 and 4889/2011, dated 19 April 2011 and 4 August 2011 respectively, by the third and fourth defendants against a property they co-own as a certain piece of land situate in the District of Salisbury, called Stand 7 Greencroft Township Ascot of Subdivision A and B of Mabelreign measuring 2392 square metres.
The respective mortgage bonds contain the same causa clause stating that “the Appearer” declared that whereas that mortgagors have been granted certain loan credit and/or other facilities by NMB Bank Limited in respect of the mortgage bonds.
The two mortgage bonds also contain the same declaration stating that “the Appearer hereby acknowledged the mortgages to be truly and lawfully indebted and held firmly bound into and on behalf of the Bank in the capital sum arising from and being money lent and advanced or to be lent and advanced or re-advanced.”
The defendants submitted, that, Cuthbert Gunundu contradicted in material respects the particulars of the plaintiff's claim as pleaded and as amplified by the documentary evidence attached to the summons and declaration.
Under cross-examination by the defence, the witness insisted that the loan agreement was not to finance the first defendant's working capital needs but to refinance existing indebtedness; he could not, however, produce the written application made by the first defendant to refinance existing debt.
To Mr Gunundu, the loan described in the agreement of 2 November 2015 as being to refund working capital requirements meant the same thing as the refinancing of existing debt, and, further, that the narration on 31 December 2015 (there was debit entry of payment of principal) was a mere confirmation of the loan amount which had been credited on 20 November 2015.
According to the defendants, the documentary evidence produced by the plaintiff shows that the loan amount was repaid and narrated as such on 31 December 2015.
The defendants further submitted that the 2 November 2015 loan agreement was repaid and what may be owed to the plaintiff, by the first defendant, may be from the old debt.
The defendants argued that the plaintiff is estopped from disputing that the loan advanced on 2 November 2015 was repaid on 31 December 2015 and cited cases for that submission.
Similarly, the plaintiff is estopped from disputing that the loan was for funding the first defendant's working capital requirements.
The defendants went on to argue, that, the plaintiff cannot claim the amount of $361,034=23 as capital arising out of the loan agreement of 2 November 2015 because only $350,000 was credited to the first defendant's account under the loan agreement and the rest of the amount up to $361,034=23 relates to monies advanced earlier in terms of prior credit facility agreements otherwise not pleaded as part of the plaintiff's cause of action.
The amount of $361,034=23 being claimed relates to money advanced earlier than 2 November 2015 in terms of some other agreements, which amount clearly includes both old capital and old interest in circumstances where the plaintiff has not provided the in duplum schedule relating to those agreements.
The defendants also argue, that, the acknowledgement of debt, dated 6 November 2015, does not take the plaintiff's case any further.
In the declaration, the plaintiff has not pleaded any cause of action founded on the acknowledgement of debt. Secondly, as an instrument of debt, the acknowledgement of debt does not bind the first defendant because no evidence was led as to any resolution of the first defendant authorizing the acknowledgement, the acknowledgement does not bear the name of any official of the first defendant authorised to execute it, and who so executed it, and the acknowledgement was not executed by any official of the first defendant authorised or otherwise as it does not bear any such official signatures.
As a result of the foregoing, the third to seventh defendants argue that the plaintiff has not managed to prove their liability to it of the principal debt given that their liability is pleaded and arising out of them having stood as surety to the first defendant's indebtedness.
As the application for absolution relates to the registration of continuing covering mortgage bond which was not outlined, the third to seventh defendants submitted that the plaintiff produced a Board resolution dated 21 May 2012 which allegedly authorized it to register a mortgage bond against the second defendants property; that authority was not for a continuing covering mortgage bond.
None of the defendants ever authorised the plaintiff to register a continuing covering mortgage bond. The plaintiff was only authorised, by the surety mortgage bond, to register just one surety mortgage bond in respect of the loan that was advanced to the first defendant in 2012 and not any time thereafter.
The plaintiff's purported rights, arising from the registration of a continuing mortgage loan that was not authorised, cannot be saved from the inevitable consequences of invalidity; the defendants argued and they cited Elsie v Johnson ZW SC49-17.
The sureties executed by the third to seventh defendants were all executed on 25 February 2011 in respect of some facility arrangement availed to the first defendant in 2011 but in respect of which the plaintiff gave absolutely no evidence.
The plaintiff seeks that these sureties be held to bind the third to seventh defendants in respect of the loan agreement of 2 November 2015.
The defendants argued, that, the surety agreements cannot found a valid cause of action against the third to seventh defendants on account of the fact that having been executed on 25 February 2011 the underlying indebtedness arising out of them, as of that date, prescribed three years after 25 February 2011, that is, on 25 February 2014 by virtue of section 15(d) of the Prescription Act [Chapter 8:11].
The fact that the surety agreements are invalid because they contravene section 12 of the Money Lending and Rates of Interest Act [Chapter 14:14] in that they did not state the amount actually lent to the borrower.
Thirdly, the fact that the plaintiff did not obtain the consent of the third to seventh defendants when the terms of the first defendants indebtedness were materially altered when the plaintiff and the first defendant entered into the loan agreement of 2 November 2015 which was materially different from the overdraft facilities in respect of which they were or equally given in 2011.
On the issue of mortgage bonds, the third to seventh defendants submitted that a mortgage bond which contains a false causa and a false declaration is invalid, of no force or effect, and unenforceable; they referred the court to MHISHI M.L a Guide to the Law and Practice of Conveyance in Zimbabwe, 2004…,.
Mr Nyangulu did not refer to mortgage bonds executed over the property of the third and fourth defendants.
However, the defendants urge the court to equally apply the principle of the law relevant to the third and fourth defendants property which were executed or registered by Mr Sobusa Gula Ndebele who was not called by the plaintiff to give evidence.
The third to seventh defendants contend, that, the mortgage bonds relied upon in respect of third and fourth defendants are the same as those relied upon as against the second defendant.
Both bonds contain false causa and false declaration since they state that they are for monies lent and advanced to the third and fourth defendants when it is common cause that no monies were lent and advanced by the plaintiff to the third and fourth defendants.
Hence, the third and fourth defendants are that the mortgage bonds that were registered by Mr Gula-Ndebele, at the behest of the plaintiff or in favour of the plaintiff, as against the third and fourth defendant's Mabelreign immovable property, are invalid and of no force or effect and unenforceable against the two defendants.
The bonds allegedly also contravene section 45 of the Deeds Registries Act [Chapter 20:05] in that even therein there are continuing bonds, the third and fourth defendants liability under each of them is uncapped.
In any event, the unlimited surertyship agreement from which they are founded is contrary to public policy for its attempt to provide an unlimited surety.
The first and third to seventh defendants pray for absolution and also pray for the cancellation of the two (2) mortgage bonds registered against their Mabelreign property.
The second defendant also applied for absolution, and, in addition, it prays for the grant of its counter claim at the close of the plaintiff's case on the basis that the facta probanda has been resolved in its favour at the close of the plaintiff's case, and, as such, the second defendant believes that there is no need for evidence to establish the same.
According to the second defendant, the plaintiff's evidence has established the following:
1. That there was resolution to pass a mortgage bond in respect of the first bond;
2. That both mortgage bonds are generally covering bonds as opposed to surety mortgage bonds;
3. That the causa is money lent and advanced;
4. That the plaintiff never in fact lent and advanced any money to the second defendant;
5. That the causa in respect of the bonds is in fact false; and
6. That one cannot be a surety for one's own debt.
The second defendant further added, that, the plaintiff relies on the mortgages. The plaintiff had the onus of establishing that the mortgages were complete and regular on the face thereof. An incident of this onus was the duty to begin. The plaintiff failed to discharge this onus, it meant that the only material before the court is the second defendant's admitted claim.
The second defendant prays for a judgment in its favour.
The second defendant associates itself with the first and third to seventh defendants facts laying the basis for the application for absolution, inclusive of the submissions made by the first and third to seventh defendants.
However, the second defendant added that the plaintiff's case is that it entered into a facility agreement. That agreement resulted in the first bond, which was intended to be a surety mortgage bond.
The truth, according to the second defendant, is that no surety mortgage bond was registered, but a continuing general covering bond predicated on money lent and advanced.
It is common cause that no money was lent and advanced. The plaintiff never related with the second defendant.
The plaintiff testified, that, the first arrangement was not honoured; the result was a refinancing agreement, but, from the evidence led by the plaintiff, it did not consult the second defendant on the plaintiff's own case, there was novation, but it was novation without recourse to the surety discharges, the surety, and all security.
In any event, the plaintiff admitted that a new arrangement came into place, it would therefore not sue on the old arrangement.
On the face of the documentary evidence, the money advanced to the principal debtor was paid off within just over a month of the advance. The second defendant contends that the net effect of the evidence on the principal debt and alleged sureties is:
(a) The agreement between the plaintiff and the principal debtor was novated;
(b) The plaintiff's claim had been compromised as between the plaintiff and the principal debtor;
(c) The obligations between the plaintiff and the principal debtor were materially and prejudicially altered;
(d) There was prejudicial extension of time within which to meet the alleged conditions of the contract as between the plaintiff and the principal debtor;
(e) There was prejudicial agreement not to enforce as between the plaintiff and the principal debtor.
A guarantee extends to the obligations which flow from the contract itself, the suretyship agreement could not apply to that new agreement - a novation by the agreement between the parties.
The plaintiff's claim was grounded on the fact, that, this novation agreement between the plaintiff and the principal debtor was not effected as desired, but, a novation releases the surety.
The plaintiff is opposing the application for absolution.
The plaintiff submits that its claim against the first defendant is based on a credit facility agreement dated 2 November 2015. The amount available under the agreement was not exceeded US$373,000 and the repayment made was provided.
The credit facility cancelled all the previous agreements between the plaintiff and the first defendant and is the only source of any obligations currently due to the plaintiff by the defendants.
The plaintiff further contends, that, the first defendant was indebted to the plaintiff from a previous facility at the time the agreement dated 2 November 2015 was executed.
Mr Gunundu told the court the facility was availed to the first defendant to settle the previous debt which was now due. The plaintiff cites clause 12 of the agreement (2 November 2015) which cancelled all previous agreements.
It argued, that, the defendants are estopped from alleging the existence of any other valid agreement apart from this one - the cause of action.
According to the plaintiff, the credit facility dated 2 November 2015 was executed to enable the first defendant to settle a previously existing debt.
On the issue of clauses 2 and 3 of the agreement which states that the facility is for working capital requirements, the plaintiff submitted, that, there is a standard definition of the term 'Working Capital Requirements'.
To the plaintiff, such a term includes debt refinancing; the debtor would be freed from the obligation of settling a debt at once, thereby releasing funds for working capital.
The plaintiff admits that it credited the first defendant's account with a sum of US$350,000 on 20 November 2015. These were the loan proceeds from the agreement dated 2 November 2015. The same account was debited with a sum of US$350,000 on 30 December 2015 under the narration of “payment of principal”. To the plaintiff, it was a confirmation of the loan and the first defendant's debt under the agreement dated 2 November 2015.
The plaintiff insists that it has established a case on what it can and should succeed. It moves the court to put the defendants to their defence and explain their offer of $108,000, $250,000 and $292,000.
The plaintiff also contend, that, the acknowledgment of debt is not the cause of action but was of requirement of 2 November 2015 agreement and the acknowledgment reflects that the first defendant's name signed off on the acknowledgment, it is witnessed, and the witnesses are known, the amount of debt is reflected. The third defendant (Rodney Gallaghan) has to explain why he signed off the acknowledgment by writing “Formscaff (Private) Limited” and the witnesses have to explain.
On the issue of the third to seventh defendants suretyship agreements, the plaintiff argued that even though the suretyships were executed in 2011 they all cover current and future debts, they cover unlimited amounts, and they have unlimited lifespan hence the suretyship agreements are valid and enforceable.
To the plaintiff, the issue of prescription does not arise at all and the date of execution does not matter.
The plaintiff adds, that, section 12 of the Money Lending and Rates of Interest Act does not apply to the suretyships; they are not instruments of debt.
The plaintiff dismisses the defendants suggestion by all sureties, that, they should be released from suretyships because there was a material variation of the principal obligation.
It says that this point was not pleaded by the defendants and thus should not be considered.
The plaintiff urges the court to put the defendants to their defence so as to explain the signatures on the powers of attorney; the plaintiff makes the same averments relating to powers of attorney and the resolutions.
It wants the defendants to explain as to who signed the documents and relies on section 12 of the Companies Act.
The plaintiff further contends, that, the defendants attack on the causa on the mortgages bonds is misplaced and insist that the mortgage bonds are valid, and, further, submit that it may not be necessary to state the cause of debt in a bond.
It argues, that, there was no contravention of section 45 or any other provision of the Deeds Registries Act.
The mortgage bonds are continuing covering security.
To the plaintiff, clause 2 of each bond provides for continuing cover for the second, third, and fourth defendants liability to the plaintiff however arising, whether directly or indirectly. That would cover the second, third, and fourth defendants suretyships and such cover is to the value of each bond.
As for the counterclaim in respect of the second, third, and fourth defendants, the plaintiff submitted that the counter-claim cannot be granted in the absence of the establishment of their cause; they have to give evidence.
As a result, the plaintiff prays that the application for absolution be dismissed with costs since it is frivolous and misplaced.
