(1) Elias Hwenga (2) Mercy Hwenga (3) Kenneth (4) Prince Nyemba (5) A. P. Phillip and Company (Private) Limited v FBC Bank Limited

The respondent bank (FBC Bank Limited) entered into a composite loan facility and guarantee agreement with United Builders Merchants (Pvt) Ltd (UBM) on 26 August 2013, advancing $937,000.00 plus a $63,000.00 bank guarantee facility. To secure the facilities, mortgage bonds were registered over properties belonging to the appellants, who were all directors in UBM. On 27 November 2013, UBM obtained an order under section 191 of the Companies Act to enter into a scheme of arrangement with its creditors. A scheme of arrangement was approved with the respondent as the secured creditor, involving a joint venture agreement between UBM and P and L Hardware (Pty) Ltd. UBM drew down $1,000,000.00 on the facility but failed to repay it. The respondent applied to set aside the scheme of arrangement and instituted proceedings against the appellants as guarantors for payment of $1,141,260.36 jointly and severally. The appellants contended that the compromise agreement amounted to a novation that discharged them from their obligations as sureties.

• Whether a compromise agreement constitutes a novation that extinguishes sureties' obligations under deeds of suretyship
• Whether sureties can be bound by contractual provisions that exclude their discharge in the event of novation
• Whether an extension of time granted after a debt becomes due and payable constitutes a novation that discharges a surety
• The proper interpretation of guarantee agreements containing express provisions relating to novation

The appeal was dismissed with costs. The court a quo's order was upheld, which included: (1) dismissal of the defendants' claim in reconvention; (2) upholding the plaintiff's claim; (3) joint and several liability of the defendants to pay $1,141,260.36 plus interest at 35% per annum from 1 April 2014; (4) declaring three properties (Stand 309 The Grange Township, Stand 24 Winchedon Township, and Stand 62 Luna Township) especially executable; and (5) costs of suit.

A surety or guarantor is not necessarily released from liability where the agreement between the creditor and principal debtor is novated, if the suretyship agreement contains a special clause which excludes certain arrangements such as compromise, set-off and novation. Where parties have expressly contracted to exclude the right to discharge through novation, such provisions will be given effect according to their clear terms. An extension of time granted after a debt has become due and payable (when the debtor is already in mora) cannot be regarded as a novation and therefore does not discharge the surety. The court is bound to interpret contracts according to the ordinary meaning of the words used and to give effect to the clear intention of the parties as expressed in their agreement, in accordance with the principle of sanctity of contracts.

The Court noted and acknowledged that the decision in Zimbabwe Football Association v Mafurusa 1985 (1) ZLR 244 has been widely criticized for its proposition that not every case of novation will discharge a surety. However, the Court explained that what transpired in that case was an extension of time to settle the amount rather than a true novation. The Court emphasized that the principle of sanctity of contracts confines the court only to interpreting a contract and not creating a new contract for the parties, and that courts should respect the contracts made by the parties and give effect to them.

This case is significant in Zimbabwean commercial and banking law as it clarifies important principles regarding suretyship and guarantee agreements. It establishes that parties may validly contract to exclude the normal rights of discharge that would otherwise flow from novation or compromise of the principal debt. The judgment reinforces the sanctity of contracts principle and the caveat subscriptor rule in the context of sophisticated commercial transactions. It also clarifies the distinction between true novation and mere extensions of time, holding that extensions granted after default do not constitute novation for purposes of discharging sureties. The case provides important guidance to financial institutions and guarantors regarding the drafting and interpretation of guarantee agreements, particularly regarding provisions that purport to maintain liability notwithstanding variations to the principal agreement.