Civil
Trial
MUZENDA
J:
On the 13 March 2017 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 the 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 the 27 August 2018, by consent of all
the parties the claim was amended in para 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 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 60 days in terms of the loan or facility
agreement.
And
the agreement does not have a survival clause.
Para
24 of the facility cancels all previous agreements and this meant
that even the balance on first defendant's account is not covered
by the agreement in question.
First
defendant denies liability under the facility and contended that the
plaintiff actually recovered more interest than was lawfully due to
it.
First
defendant also denies liability for any legal costs as it does not
owe plaintiff any money under the facility in question and if
plaintiff is successful, it would only be entitled to normal costs.
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, second
defendant avers.
First
defendant denies defaulting payment. It denies owing plaintiff any
amount and also deny being liable to payment of plaintiff's claims.
On
the 30 May 2017 the defendants sought to amend their pleas.
They
added that if at all first defendant was liable ex contractu the loan
agreement of 16 November 2015, first defendant will dispute the
amount owing since provisionally as at the end of 2016 first
defendant's credits against debits had brought 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.
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.
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.
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 plaintiff and accordingly do not bind second defendant
to 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
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
Money Lending and Rates of Interest Act.
Some
of the suretyships were also signed long back in February 2011, they
had expired defendants aver.
The
defendants pray for 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 counterclaim also prays that 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 second defendant in
favour of plaintiff and with the said documents of consent to release
to second defendant the deeds of the said mortgage bonds and deed of
transfer no. 1998/1975 made in favour of second defendant on 7 May
1975.
The
third and fourth defendants further pray that 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 third and fourth defendants in favour of
plaintiff and with the said documents of consent to release to third
and fourth defendants the deeds of the said mortgage bond and deed of
transfer no. 8573/95 made in favour of third and 4th defendants on 15
December 1995.
Defendants
jointly further pray for costs of suit in respect of this claim in
reconvention.
PLAINTIFF'S
PLEA TO DEFENDANTS CLAIM IN RECONVENTION
Plaintiff
in its plea to the defendants claim in reconvention contend that
defendants executed open guarantees which are valid, lawfully and
enforceable.
It
further avers that 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 first defendant
and is valid.
The
plaintiff added that due process was equally provided in the
execution on the guarantee by second defendant, and plaintiff was
unaware that third and fourth defendant's daughter unlawfully
signed the guarantee and does not admit same.
Plaintiff
denies that its representatives interfered in the execution of the
guarantee by second defendant. It argues that the guarantee is hence
valid and enforceable.
Plaintiff
contends further that due process was followed in the registration of
the two bonds.
According
to plaintiff second defendant's resolutions were made and powers of
attorney issued. The bonds were properly registered and are valid. As
a result according to plaintiff there is no legal basis on which
second defendant's guarantee and mortgage bonds should be
cancelled.
Plaintiff
prays for the dismissal of defendant's claim in reconvention with
costs.
AGREED
JOINT ISSUES FOR TRIAL
1.
Whether or not first defendant is indebted to 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 second, third, fourth, fifth, sixth and seventh
defendants are jointly and severally liable together with first
defendant for the capital and interest amount claimed under and in
terms of their respective deeds of suretyship.
3.
Whether or not second defendant's first and second mortgage bonds
numbers 1557/13 and 1655/13 in favour of 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 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 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 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$373,000-00.
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 2nd November 2015 agreement the plaintiff advanced a
loan to the first defendant to pay off the debt, a loan draw down of
$350,000-00 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 $350,000-00 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 $373,000-00 and the acknowledgement of debt bears an amount of
$377,299-70 the 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 2nd November 2015 showed $373,000-00 and the
acknowledgement of debt dated 16 November 2015 was the date the
acknowledgment of debt was executed.
The
acknowledgment of debt was send 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 the 2nd 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 Advocate W. Ncube and was put to task
to explain the capital debt of $373,000-00 and the $361,024-00 and
also $350,000-00 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 30th December crediting the first
defendant's account with an amount of $350,000-00, 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 $350,000-00 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 $108,000-00
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 Mr L Uriri and asked to
comment on the aspect of the declaration by the plaintiff that the
plaintiff's claim is based on 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 2 November 2015 agreement.
He
agrees further that the $350,000-00 was for working capital.
He
could not however agree that on 30 December 2015 the first defendant
paid off the borrowed $350,000-00 clearly acquitted by the narrative.
He
confirmed that the 2 November 2015 is a stand-alone agreement and
cancels all previous facility letters.
On
the security and mortgage bonds he concurred with Mr Uriri that the
amounts of $437,500-00 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 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 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 $375,000-00 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 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 $350,000-00?”
The
capital sum of $373,000-00 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 second defendant's 1st and
2nd 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 para 2 of Schedule
of the Mortgage Bond provides for a continuing cover.
After
witness evidence Advocate Professor Ncube did not have questions to
the witness.
Mr
Uriri 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
accompany 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
authorised to pass a mortgage bond in the sum of $375,000-00 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 2
November 2015 loan agreement.
The
plaintiff then closed its case.
The
first, 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, 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, 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 plaintiff loaned and advanced to the
first defendant the amount of $373,000-00 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 from
the due payment of any and all monies due to the plaintiff by the
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 $350,000-00
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 $350,000-00 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 3rd defendant on 25 February 2011;
(b)
by 4th defendant on 25 February 2011;
(c)
by 5th defendant on 25 February 2011;
(d)
by 6th defendant on 25 February 2011;
(e)
by 7th defendant on 25 February 2011;
Further
the plaintiff's cause of action against the third and fourth
defendants, 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 mortgages 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 readvanced.”
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 14 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 of
that 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
defendant 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
defendant 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 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, 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 authorising 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 debtor 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 authorised 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 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 the 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 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 as 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 at p41).
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 also 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,
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, third to seventh defendants pray for absolution and also pray
for the cancellation of the 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
plaintiffs 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 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, third to seventh
defendants facts laying the basis for the application for absolution,
inclusive of the submissions made by the first, third to seventh
defendants.
However
the second 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 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 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 which 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$373,000-00 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 first defendant to
settle the previous debt which was now due. Plaintiff cites clause 12
of the agreement (2 November 2015) which cancelled all previous
agreements.
It
argued that 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 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, plaintiff submitted
that there is standard definition of the term 'Working Capital
Requirements'.
To
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.
Plaintiff
admits that it credited first defendant's account with a sum of
US$350,000.00 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$350,000.00 on 30 December 2015 under the narration
of “payment of principal” to plaintiff it was a confirmation of
the loan and first defendant's debt under the agreement dated 2
November 2015.
Plaintiff
insists that it has established a case on what it can and should
succeed. It moves the court to put defendants to their defence and
explain their offer of $108,000.00, $250,000.00 and $292,000.00.
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 first defendant's name signed off on
the acknowledgment, it is witnessed and witnesses are known, the
amount of debt is reflected. Third defendant has to explain why he
signed off the acknowledgment by writing “Formscaff (Private)
Limited” and witnesses have to explain.
On
the issue of third to seventh defendants suretyship agreements,
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
plaintiff, the issue of prescription does not arise at all and the
date of execution does not matter.
Plaintiff
adds that section 12 of 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 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.
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
second, third and fourth defendants liability to plaintiff however
arising, whether directly or indirectly. That would cover second,
third and fourth defendants suretyships and such cover is to the
value of each bond.
As
for the counterclaim in respect of second, third and fourth
defendants, 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.
THE
LAW
An
application for absolution from the instance is akin to and stands on
much the same footing as an application for discharge for an accused
person at the close of the case for the prosecution. (Gasycoyne v
Paul & Hunter 1917 TPD 17 at 173; Supreme Service Station (1969)
(Pvt) Ltd v Fox and Goldridge (Pvt) Ltd 1971 (1) ZLR (A) at 4C.
Walker v Industrial Equity Ltd 1995 (1) ZLR 87 (S) at 94F).
In
the case of Supreme Service Station (1969) (Pvt) Ltd (supra) the
court summed up the test in the following terms;
“The
test therefore boils down to this. Is there sufficient evidence on
which a court might make a reasonable mistake and give judgment for
the plaintiff? What is a reasonable mistake in any case must always
be a question of fact and cannot be defined with any exactitude than
by saying that it is the sort of mistake a reasonable court might
make, a definition which helps not at all.”
See
also Dube v Dube 2008 (1) ZLR 326 (H) at 328D.
In
United Air Charters v Jarman 1994 (2) ZLR 341 (S) at 343B-C, GUBBAY
CJ stated:
“The
test in deciding an application for absolution from the instance is
well settled in this jurisdiction. A plaintiff will successfully
withstand such an application at the close of his case, if there is
evidence upon which a court directing its mind reasonably to such
evidence, could or might (not should or ought to) find for him.”
See
also Walker v Industrial Equity Ltd (supra) at 94C-D; Manyange v
Mpofu and Ors 2011 (2) ZLR 87 (H) at 93.
Given
the summary and extraordinary nature of absolution from the instance,
the court will where possible lean in favour of continuing the case
and hearing the defendant's evidence rather than dismissing
plaintiff's claim: see Standard Chartered Finance Zimbabwe Ltd v
Georgras & Anor 1998 (2) ZLR 547 (H) at 552H–553C; Bailey N.O.
v Trinity Engineering (Pvt) Ltd & Ors 2002 (2) ZLR 484 (H) at
488F-G; Nestros v Innscor Africa Ltd 2007 (2) ZLR 267 (H) at 268G;
Manyange v Mpofu & Ors (supra) at 93E.
In
MC Plumbing (Pvt) Ltd v Hyalong Construction (Pvt) Ltd 2015 (1) ZLR
134 (H) CHIGUMBA J succinctly outlined the test for absolution thus;
“My
interpretation of the test to be applied to the question of whether
to grant absolution from the instance to a defendant at the close of
plaintiff's case is as follows:
1.
the first question to be considered is whether there is any evidence
at the close of the plaintiff's case upon which a court, directing
its mind reasonably to such evidence could or might find for the
plaintiff?
2.
the second question to be asked is whether there are any special
considerations or reasons why the court should reject the evidence
adduced on behalf of the plaintiff (for example glaring
inconsistencies, or unacceptable variance with the pleadings filed of
record).
3.
The third question that may be asked is whether the plaintiff has
failed to adduce any evidence or adduce insufficient evidence to
establish an essential element of its claim.
4.
Lastly, whether an overall assessment of all the evidence adduced on
behalf of the plaintiff, the pleadings filed of record, the
annexures, the exhibits, all the discovered documents coupled with
the viva voce evidence, fall short of establishing the plaintiff's
case on the face of it (prima facie).”
ISSUES
FOR DETERMINATION
The
issues for determination in this application for absolution from the
instance are:
(a)
whether or not the plaintiff led sufficient evidence on the face to
establish its case against the defendants in respect of the pleaded
cause of action.
(b)
whether or not the plaintiff's evidence prima facie established
valid sureties and mortgage bonds for that pleaded cause of action.
(c)
whether the defendants counterclaims succeed once the application for
absolution from the instance is granted.
WHETHER
OR NOT PLAINTIFF LED SUFFICIENT EVIDENCE ON THE FACE OF IT TO
ESTABLISH ITS CASE AGAINST THE DEFENDANTS IN RESPECT OF THE PLEADED
CAUSE OF ACTION
The
cause action pleaded by the plaintiff against the first defendant
that in or about November 2015, first defendant entered into a loan
and advanced to first defendant the amount of US$373,000.00 through
first defendant's operating account with plaintiff and that first
defendant defaulted in terms of the agreement resulting in first
defendant owing the total sum of $389,360.72 made up of the capital
sum of $361,034.23 and interest of US$28,246.49.
As
already paraphrased herein above in the foregoing, the cause of
action against third to seventh defendants was pleaded by the
plaintiff as arising out of the five of them having bound themselves
jointly and severally as sureties and co-principal debtors with first
defendant for the due payment of any and all monies due to plaintiff
by first defendant under the loan agreement.
The
2nd November 2015 loan agreement provided that the loan was repayable
over a three year period expiring on 31 January 2018, first defendant
liquidating the debt in monthly installments.
Central
to the application by the defendants is the statement of account
reflecting the transaction history of the loan account. On that
statement shows that on 15 November 2015 plaintiff credited the first
defendant's operating account with the amount of $350,000.00
described therein as “loan drawdown” and on 30 December 2015 the
operating account was credited with the same amount of $350,000.00
described as “payment of principal” under the identical reference
number LD1532460482.
The
problem arises as to the purpose of the $350,000.
The
plaintiff's star witness Mr Gunundu told the court that the
facility was availed to first defendant to settle the previous debt
which was now due and to the plaintiff this is legally permissible,
it cited the case of Commercial Bank of Zimbabwe v MM Builders and
Suppliers (Private) Limited & Ors 1996 (2) ZLR 421 at 466D-E
where GILLESPIE J stated;
“This
is not necessarily to say that the parties are unable, ex post facto,
that is once the 'debt' is called up to agree a novation of the
debt. That is for instance, to contract a new loan in terms of which
money is advanced by the creditor in an amount of the outstanding
capital and accrued interest up to the double in order to permit of
the repayment of the outstanding indebtedness, this new debt would
then be repayable on agreed terms. This would be a true
capitalization of the interest on the previous debt. It is the
practice of merchant banks. It is in conformity with the old Roman
agreement as to anticismus. If concluded knowingly by freely
contracting parties when the existing debt is called up I can see no
objection to that; whereas an agreement in advance to waive the rule
leaves the debtor exposed to precisely those perceived evils which
the rule is formulated to combat, a novation after the event permits
the debtor the informed choice of increasing his possible
indebtedness or of taking advantage of the cessation of accrual of
interest.”
On
page 422C–D of the headnote the following appears:
“On
the question of bank overdrafts, it was argued per the bank that the
in duplum rule did not apply to overdrafts. The basis of the argument
was that each cheque drawn against the overdraft facility, was in
effect a separate loan, as is every debt arising out of charges,
ledger fees, commission, and the like. Each such 'loan' was
totalled daily and interest accrued on the outstanding amount. At the
end of the month, the interest itself was added to the total
indebtedness. The interest was itself thus a loan and thus
effectively capital. Alternatively because interest is capitalized
monthly it loses its identity as interest and becomes capital.
This
argument was rejected on the grounds that debits from interest cannot
be regarded as loans to customers and are jurisprudentially quite
distinct from debits for advances or charges.”
Mr
O. Mutero in citing the above case, equated its scenario with facts
of this matter more particularly relating to the 2nd November 2015
agreement.
I
do not agree to that comparison.
The
2nd November 2015 loan agreement was not dealing with a novation. The
2nd November 2015 agreement pertains to the sum of $350,000 for
working capital. There is no capitalization of interest mentioned in
the 2015 November agreement which would have justified comparison of
this matter to the CBZ Ltd (supra) case.
The
comparison is misplaced.
If
the 2nd November 2015 agreement was dealing with capitalization of
interest the agreement should have contained clauses to that effect
and the amount of such interest would have computed and the extent of
capitalization specifically spelt out.
The
cause of action by the plaintiff relates to $350,000 loaned to first
defendant on the 2nd November 2015 and interest of US$28,246.49
calculated from the date of the loan.
Why
would the plaintiff claim further interest if the interest was
capitalized on 2 November 2015?
On
the debiting of $350,000 on 30 December 2015 under the narration of
“payment of principal” Mr Gunundu for the plaintiff testified
that, that entry was not a payment by first defendant but a
confirmation of the loan and first defendant's debt under the
agreement dated 2 November 2015.
Plaintiff's
replication to defendant's plea, on page 26 of the record, does not
show that the entry of $350,000.00 in plaintiff's statements is a
confirmation of the loan, the word confirmation appeared for the
first time during hearing, when Mr Gunundu was giving evidence, the
first defendant in its plea had pleaded that it had repaid
$350,000.00 on the 30th December 2015 and plaintiff in its wisdom did
not see the importance of addressing that averment in its
replication.
Why
would plaintiff wait for a month plus other days to 'confirm' the
first defendant's loan? Why wait until 30 December 2015?
The
witness, Mr Gunundu, as already outlined in the summary of
plaintiff's evidence above, had difficulties to explain this aspect
in examination in chief and during cross examination.
If
it was a confirmation why did not the plaintiff on its entry write
the word 'confirmation' than to write 'repayment' which when
ordinarily looked at by a lay person would mean that the first
defendant repaid the $350,000.
I
am convinced by the first defendant's submission that it repaid the
$350,000 and the plaintiff's own books of account or statement
conspicuously confirms that payment which tallies with the first
defendant's plea.
That
payment was made barely 2 months after the date of the agreement and
there was no need for calculation of the cost of the loan in form of
interest charges.
I
do not agree with the plaintiff's contention that it was just a
credit entry.
In
any case the evidence of Mr Gunundu on that aspect left a lot to be
asked especially when the court looks at the narration accompanying
that entry as well as the ledger entry number LD/532460482 bearing
the amount of $350,000.00.
The
evidence adduced on behalf of the plaintiff, the pleadings filed of
record, the annexures, the exhibits, the viva voce evidence, the
highlighted inconsistencies and contradictions in the testimony of Mr
Gunundu, fall short of establishing the plaintiff's case in the
face of it.
WHETHER
OR NOT PLAINTIFF'S EVIDENCE ON THE FACE OF IT ESTABLISHED VALID
SURETIES AND MORTGAGE BONDS FOR THAT PLEADED CAUSE OF ACTION
Plaintiff
submitted that third to seventh defendants executed surety
agreements, binding themselves jointly and severally as sureties and
co-principal debtors with first defendant for payment of first
defendant's debts to plaintiff.
The
plaintiff admits unreservedly that the suretyships were all executed
well before 2 November 2015 agreement, that was in 2011 but however
avers that the sureties covered current and future debts, they
covered unlimited amounts and have an unlimited lifespan. As such
they were all valid and enforceable.
To
plaintiff, it does not see the question of prescription arising at
all.
In
this matter, the plaintiff further argues that, the principal
obligations, the credit facility dated 2 November 2015, the debt will
fall due on 25 November 2016. It is also argued by the plaintiff that
section 12 of the Money Lending and Rates of Interest Act [Chapter
14:14] does not apply.
The
surety-ships signed by third to seventh defendants were executed
before 2 November 2015 loan agreement was entered into, they do not
form an instrument of debt and do not have to comply with section 12
of the relevant cited legislation, plaintiff submitted.
On
the other hand, the first, third to seventh defendants submitted that
the sureties were all executed on 25 February 2011 in respect of some
facility arrangement availed to first defendant in 2011 but in
respect of which plaintiff seeks that these sureties be held to bind
the third to seventh defendants in respect of the loan agreement of
2nd November 2015.
They
raise prescription computed from 25 February 2011 and expiring on 25
February 2014 by virtue of section 15(d).
The
third to seventh defendants also raise the invalidity of the sureties
because they contravene section 12 of the Money Lending and Rates of
Interest Act (supra) which provides that:
“Section
12(1) Every instrument of debt other than a mortgage bond or general
covering bond executed within Zimbabwe in respect of a loan of money
shall separately and distinctly set forth: (a) that it is executed
for money lent; and
(b)
the amount actually paid to the borrower; and
(c)
the rate of interest which is to be charged in respect of the loan.”
Section
12(2) makes it a criminal offence for non-compliance.
It
is clear that the 2011 sureties do not relate to the 2015 loan
agreement and the alleged 2011 sureties which plaintiff seek to rely
on for the 2015 agreement do not apply.
The
amounts covered in the sets of documents, the sureties and the loan
agreement do not match. The sureties do not have a corresponding
applicable rate of interest. The essential term of the suretyships,
have to be identified, included in writing and these include the
nature of the debt to be secured its extent and these have to be
embodied in the document, which is the suretyship.
In
this matter such a document or covenant is the 2011 suretyship
agreement signed by third to seventh defendants which apparently
existed well before the 2015 loan agreement.
I
conclude that the 2011 suretyships signed by the third to seventh
defendants do not relate to the 2015 loan agreement.
I
am also persuaded by the third to seventh defendants argument that
section 15(d) of the Prescription Act applies to the suretyships.
CF
Forsywith & J T Pretorius, in Caney's The Law of Suretyship,
6ed p200 had this to say:
“Prescription
of the principal debt will extinguish that debt and thereby release
the surety, this follows from the principle that the suretyship is
accessory to the principal debt and that after its extinction there
is nothing to support the suretyship.”
There
is no averment in the plaintiff's pleadings that the first
defendant failed to pay the principal debt loaned to it in 2011
leading to the third to seventh defendants signing those contracts
and that the alleged breach was cured by the first defendant in
entering into a fresh loan facility in 2015 so as to have a
continuing cover emanating from the 2011 suretyships.
A
suretyship must be for a definite period laid upon conditions agreed
upon by all the parties and not to be inferred from previous
documents at the option of a creditor.
The
plaintiff also confronted challenges on the aspect of mortgage bonds.
Mr
Nyangulu the second witness called by the plaintiff was placed in
embarrassing position when he was asked to comment on the legal
effect of a false causa or false declaration in a mortgage bond. (See
Mhishi M.L A Guide to the Law and Practice of Conveyancing in
Zimbabwe, (2004) at p41).
Mr
Nyangulu gave testimony in respect of mortgage bonds he had executed
over the property of the third and fourth defendants. Those were
registered by Mr Sobusa Gula Ndebele, and that witness was not
called.
However
the mortgage bonds contain false causa and false declarations. They
refer to money lent and advanced to third and fourth defendant yet no
such money was lent and advanced to the third and fourth defendants
by the plaintiff, hence third and fourth defendants Mabelreign
immovable property's mortgage bonds are invalid.
I
am persuaded by the third and fourth defendants argument that they
also contravene section 45 of the Deeds Registries Act in that
neither of them is uncapped.
The
unlimited suretyship agreement from which they are founded is
contrary to public policy for its attempt to provide an unlimited
surety.
The
second defendant agrees with the submissions made by the first, third
to seventh defendants on the validity and legality of the suretyships
and the mortgage bonds.
I
have considered all the submissions made by the defendants and I am
persuaded by them.
I
am convinced that even though the plaintiff argues that there was
novation which have already been dismissed, novation without recourse
to the surety discharges the surety and all security.
In
any case 2 November 2015 loan agreement, clause 12 thereto provides
cancellation of all previous facilities and does not put a proviso or
otherwise relating to the previous suretyships and/or mortgage bonds.
Plaintiff
admitted that a new arrangement came into place and plaintiff could
not sue on the old arrangement.
In
any case plaintiff's claim had been compromised as between
plaintiff and the principal debtor, the obligations between the
plaintiff and the principal debtor were materially and prejudicially
altered. There was a prejudicial extension of time within which to
meet the alleged conditions of the contract as between the plaintiff
and the principal debtor and finally there was a prejudicial
agreement not to enforce as between the plaintiff and the principal
debtor.
In
the matter of Webb v Shell Zimbabwe (Pvt) Ltd 1982 (1) ZLR 102 (SC)
at 105H, the court held that however wide and general a guarantee may
be, it only extends to the obligations which flow from the contract
itself.
As
such the suretyship agreement could not apply to that new agreement
which was in essence, a novation of the agreement between the parties
having entered into this novated agreement, the old obligation and
all accessories thereto were destroyed and it was not open to the
plaintiff to try to go back to such obligation to hunt for a surety
thereto.
The
other criticism of plaintiff covers the power of attorney to register
the mortgage bonds and Mr Nyangulu admitted to the shortcomings and
there is no need to revisit such.
I
have also examined the arguments advanced by the defendants
pertaining to the counterclaims.
With
respect to third and fourth defendants they are praying for
cancellation of the two mortgage bonds registered against their
Mabelreign property and for the second defendant submits that Rule
437 of the High Court of Zimbabwe Rules lays down the principles to
be applied in determining which party in a civil trial shall adduce
evidence first.
The
second defendant also avers that if the plaintiff's claim is
dismissed there is no need for evidence to establish the same.
Second
defendant goes on to submit that there has been a direct admission of
the cause of action, the effect of the admission is that the
plaintiff (in reconvention) does not have to prove that which is
admitted.
In
the matter of Mining Industry Pension Fund v DAB Marketing (Pvt) Ltd
SC25/12, MAKARAU JA said that:
“The
importance of the admission is that it is thus seen as limiting or
curtailing the procedures before the court in that where it is not
withdrawn, it is binding on the court and in its face, the court
cannot allow any party to lead or call for evidence to prove the
facts that have been admitted.”
The
second defendant was entitled to judgment upon the plaintiff's
confession of its claim in evidence.
The
plaintiff relies on the mortgages.
It
had the onus of establishing that the mortgages were complete and
regular on the face of them. An incident of this onus was the duty to
begin. If it failed to discharge this onus, it meant that the only
material before the court is the second defendant's admitted claim.
The
second defendant would thus be entitled to judgment.
In
Nkambule v Minister of Law and Order 1993 (1) SA 848 at 852 it was
stated that:
“In
my view the defendant did not discharge the onus resting on him. I
would uphold the appeal with costs and amend the magistrate's order
to read as follows: 'judgment is granted in favour of the
plaintiff…'”
In
Rabinowitz & Anor NNO v Ned Equity Insurance & Anor 1980, DFA
403 at 429 the court said that:
“In
my view therefore the first defendant did not discharge the onus of
proving that the death was covered by the aviation endorsement,
consequently the plaintiff's entitled to judgment against the first
defendant for the amount claimed.”
It
is on this basis that the second defendant, as the plaintiff in
reconvention, contends that, its claim in reconvention is admitted
and there is no need to lead evidence on matters that are admitted
and as such are common cause or cannot be seriously controverted.
On
this point, the plaintiff submitted that second, third and fourth
defendants have filed counterclaims which cannot be granted in the
absence of the establishment of their case.
They
have to give evidence.
Plaintiff
opted not to cite any case law authority to counter what the
defendant had submitted on the aspect of the necessity to call
evidence of the plaintiff in reconvention where the defendant in
reconvention has only admitted the shortcomings of the suretyships
and the mortgage bonds.
Furthermoreso
where the principal cause of action by the plaintiff in convention
has been dismissed.
All
the defendants have laid both factual and legal basis for their
application for absolution and prayer for judgments on the counter
claim.
I
am satisfied that plaintiff sued on a cause of action that was
discharged in full on 30 December 2015. The current claim is hence
both invalid as well as excipiable. The claim was void ab initio.
The
plaintiff contends that it has proved a prima facie case.
I
do not agree.
A
judgment cannot be granted on the basis of a claim and cause of
action that ceased to exist.
When
the loan arising from November 2015 agreement was fully paid on 30
December, the liability of the principal debtor, arising from that
loan, was effectively discharged.
Where
the principal debtor is discharged or released then the obligation of
the surety ceased to exist because a contract of surety is accessory
to the main contract. (Kilroe–Daley v Barclays National Bank [1984]
ZASCA 90 1984 (4) JA 609 at 622).
Not
even the argument that there was novation or a compromise of the loan
agreement for which the suretyships were given can resurrect the
plaintiff's dead case because novation or compromise discharges all
sureties as well: (SW Adef (Pty) Ltd v Dyke N.O. 1978 (1) SA 9128 at
940G-H).
In
the matter Gordon Lloyd Page & Associates v Rireira & Anor
2001 (1) SA 88 (SCA) at 92E–93A it was stated:
“The
test for absolution to be applied by a trial at the end of
plaintiff's case was formulated in Claude Neon Lights (SA) Ltd v
Daniel 1976 (4) SA 403 (A) at 409G–H in these terms:
'when
its absolution from the instance at the close of plaintiff's case,
the test to be applied is not whether the evidence led by the
plaintiff established what would finally be required to be
established but whether there is evidence upon which a court applying
its mind reasonably to such evidence could or might (not should or
ought) find for the plaintiff…'
This
implies that the plaintiff has to make out a prima facie case in the
sense that the evidence relating to all elements of the claim... to
survive absolution because without such evidence no court could find
for the plaintiff.”
Where
the plaintiff has failed to prove a prima facie case against the
defendants on the basis of which the court could or might find for
the plaintiff there is no need to put the defendants on their
defence.
There
is nothing before the court that warrants defendants being called
upon to rebut.
DISPOSITION
1.
The application for absolution from the instance made by the
defendants succeeds with costs.
2.
The suretyships in favour of plaintiff entered into by 1st, 2nd, 3rd,
4th, 5th, 6th and 7th defendants and plaintiff be and are hereby
cancelled.
3.
The mortgage bonds passed by 2nd, 3rd and 4th defendants in favour of
plaintiff namely Numbers 2416/2011, 4889/2011, 1557/2013 and
1656/2013 be and are hereby cancelled.
4.
The plaintiff to pay costs of counterclaim to the defendants on
attorney-client scale.
Sawyer
& Mkushi, plaintiff's legal practitioners
Sheshe
& Mutonono Attorneys, 1st, 3rd–7th defendants' legal
practitioners
Thompson
Stevenson & Associates, 2nd defendant's legal practitioners
