AFRICAN BANKING CORPORATION OF ZIMBABWE LTD v PFUMOJENA 2014 (2) ZLR 514 (H)

Flynote

Contract — compromise — meaning of — what amounts to — effect thereof upon the original agreement — compromise must be certain — offer not substantially varying conditions of original contract — no compromise formed

Contract — performance — mora in persona — meaning of performance of contract not agreed upon — when necessary to place a defendant in mora

Contract — suretyship — grant by creditor to debtor of extension of time within which to pay — effect thereof upon obligations of surety — no automatic discharge of surety's obligations unless surety suffers prejudice arising E from such extension of time

Contract — suretyship — renunciation of benefit of excussion by a surety — effect thereof upon right of surety against creditor

Suretyship — surety — discharge of — extension of time granted to principal debtor after due date — surety not thereby released unless he candemonstrate prejudice

Words and phrases — mora in persona — meaning of — date for the performance of the contract not agreed upon by the parties — circumstances where necessary to place a party to the contract in mora

Headnote

Along with two other persons, the defendant had bound himself as a surety and co-principal debtor in respect of a loan granted by the plaintiff bank to a company. The company had defaulted and the bank obtained summary judgment against the company and the other sureties. The bank had not proceeded against the defendant at that stage.

On the same day as it obtained the summary judgment, the bank, in a letter to the company, extended the loan repayment period, allowing for repayment in specified instalments. The letter stated that litigation against the company and the guarantors would be held in abeyance, but in the event of default on the repayment plan, litigation against the company and the guarantor would resume without any further notice.

The company defaulted again and the bank then proceeded against the defendant. His defence was that he had been absolved from liability by operation of law, the surety agreement allegedly having fallen away by reason of two compromise agreements: one where the bank had granted an extension of time to the company, and the other allegedly between the bank and himself personally: when the bank had originally started proceedings, the defendant had been excluded and had been granted the benefit of excussion.

Held, that mora in persona arises where the time for performance of a contract has not been agreed upon. In such cases to place a defendant in mora, it is necessary for demand, or cases to place a defendant in mora, it is necessary for demand, or interpellatio, to be made.

Held, further, that compromise is an agreement between the parties to an obligation, the terms of which are in dispute, or between parties to a lawsuit, each party receding from his previous position and conceding something, either diminishing its claim or increasing its liability. An agreement of compromise is a contract like any other. There must be an offer and acceptance. The terms must be certain. If the contract is formed, it extinguishes ipso jure any cause of action that previously may have existed between the parties, unless there was reserved the right to go back thereto. The conduct from which the defendant tried to infer compromise did not at all fit in with the definition of that term. What he sought to achieve was not to extinguish ipso jure the previous cause of action, but a mere softening up of the terms of one or other of the conditions of the suretyship, particularly the restoration to him of the benefit of the legal exception of excussion. But even in its extension letter, the plaintiff reserved its right to revert to the original cause of action.

Held, further, that renunciation of the benefit of excussion by a surety means he has waived his right against the creditor to insist on the creditor proceeding first against the principal debtor with a view to obtaining payment from him, including, if necessary, executing against the assets of the principal debtor before turning to him.

Held, further, that a person who becomes a surety and co-principal debtor promises the creditor to assume the responsibility for the debt obligation of the borrower if he defaults. It is the surety's business to see that the borrower pays. Suretyships are the lifeblood of the world of finance. Their value lies in granting additional security to the lender. Even though a suretyship is an agreement ancillary to the principal creditor-debtor relationship and cannot exist alone, it is so important to the principal relationship that it cannot be set aside without upsetting the equilibrium under the principal relationship. In the world of commerce, it is probably largely on account of the availability and willingness of the surety and also his creditworthiness that the creditor will part with his money in the first place. Therefore, a surety should be bound to the letter and spirit of his undertaking. There can be no question of an automatic discharge of a surety every time a creditor has granted a debtor an extension of time within which to pay. This is so particularly where such an extension is granted after the whole debt has become due and payable. What a surety has to demonstrate, in order to be discharged from his obligation, is that he has suffered prejudice arising out of the extension of time granted by the creditor to the debtor.