Bricknell Properties (plaintiff) entered into a lease agreement with Vali's Auto Electrical Services (Pvt) Ltd for Factory no 3, 72 Craster Road, Southerton, Harare, for one year from 1 February 2013. The first defendant represented the company in negotiating and signing the lease agreement. The company was obliged to pay monthly rentals of $1,795 plus rates, water and electricity charges. The company breached the lease agreement by failing to pay rentals and ancillary charges totaling $38,495.41. The company was subsequently placed under liquidation and the debt remained outstanding. Clause 18 of the lease agreement provided that all present and future directors and shareholders of the lessee should bind themselves as sureties in solidium and co-principal debtors for the performance of the lease terms. The first defendant signed the lease agreement on behalf of the company. Plaintiff initially sued all three defendants on grounds of fraud, reckless and negligent conduct and suretyship, but later abandoned claims against the second and third defendants and claims based on fraud, recklessness and negligence, proceeding only against the first defendant on the basis of suretyship.
The plaintiff's claim was dismissed in its entirety. Plaintiff was ordered to pay the first defendant's costs of suit in their entirety, and second and third defendants' costs of suit up to 27 October 2016.
A contract of suretyship arises from agreement between the creditor and surety, requiring offer and acceptance between them. A clause in a principal contract (lease agreement) stating that directors and shareholders 'shall bind themselves' as sureties constitutes a decision by the principal debtor requiring future action, not an automatic suretyship agreement. The surety's obligations arise from an undertaking made by the surety himself/herself, not from undertakings made by a third party (such as the principal debtor). Where a person signs a contract in a representative capacity on behalf of a company, the caveat subscriptor principle does not apply to bind that person personally to obligations contemplated in the contract unless there is a separate juristic act evidencing personal acceptance of such obligations. It is the creditor's responsibility to ensure that surety documents are actually signed by intended sureties; a clause expressing intention to obtain suretyship is insufficient.
The court observed that while the plaintiff's claim was patently untenable, it appeared to suffer from genuine error in interpretation of what amounts to an oral suretyship agreement and the import of the caveat subscriptor rule, leading to bona fide misjudgment of legal authorities. The court noted that whether a suretyship contract is in writing (as required under South African law) or oral (as is possible in Zimbabwean jurisdiction) is immaterial to the requirement that there must be agreement between creditor and surety. The court commented that there rarely is a tripartite contract between creditor, principal debtor and surety; rather there are two separate transactions - the first being the transaction by which the principal debtor is bound to the creditor, and the second being the contract between the creditor and surety. The court also noted that the caveat subscriptor rule is not absolute, with exceptions permitting one to avoid liability arising from one's signature.
This case clarifies the requirements for establishing a valid contract of suretyship in Zimbabwean law. It establishes that a clause in a principal contract stating that directors/shareholders 'shall bind themselves' as sureties does not automatically create a suretyship agreement. The case demonstrates the importance of ensuring that separate suretyship agreements are properly executed, and that the mere intention to have surety provided does not constitute an actual suretyship contract. The judgment also reinforces the principle that signatures in a representative capacity do not automatically bind individuals personally, even when the underlying document contains provisions contemplating personal liability. The case is significant for commercial practice, particularly in lease agreements, in distinguishing between statements of intention to obtain security and actual security agreements.