FBC Bank Limited v Aman-O-Brie Investments (Pvt) Ltd and Others

FBC Bank Limited (plaintiff) granted loan facilities to Aman-O-Brie Investments (Pvt) Ltd (first defendant). Initially, the bank advanced $40,000.00 which was to expire on 30 May 2013. Subsequently, on 6 June 2013, during the subsistence of the first facility, a further facility of $75,000.00 was granted, bringing the total advanced to $115,000.00. The loan was secured by personal guarantees from the second, third, fourth (Lungisani Ncube) and fifth (Emmah Farirwi) defendants, as well as a mortgage bond over fourth defendant's immovable property (Subdivision "A" of stand 986 Bulawayo Township held under deed of transfer no. 2093/2008, registered as Mortgage Bond Number 486/2013). When first defendant defaulted, the bank claimed $79,371.94 plus interest at 35% per annum from 3 September 2013. First, second and third defendants consented to judgment at commencement of trial. Fourth defendant denied signing the personal guarantee or authorizing the mortgage bond, alleging forgery. Fifth defendant admitted providing security for the initial $40,000.00 loan but denied liability for the subsequent $75,000.00 facility, claiming she was not informed about it.

• Whether the fourth defendant signed and is bound by the personal guarantee and mortgage bond despite his denial and allegation of forgery
• Whether the plaintiff established a prima facie case against the fourth defendant
• Whether the fifth defendant's unlimited personal guarantee bound her to the subsequent loan facility of $75,000.00 despite not being notified of it
• Whether the fifth defendant could unilaterally terminate her liability under the guarantee after discharge of the initial $40,000.00 facility
• Whether the late-raised defences of illegality under the Money Lending and Rates of Interest Act could be considered without amendment of pleadings

The court ordered that: (1) Fourth and fifth defendants pay plaintiff $79,371.94 jointly and severally, the one paying the other to be absolved; (2) Fourth and fifth defendants jointly and severally pay interest on $79,371.94 at 35% per annum from 3 September 2013 to date of payment in full, the one paying the other to be absolved; (3) Fourth and fifth defendants jointly and severally pay collection commission in terms of the Law Society of Zimbabwe By-Laws, the one paying the other to be absolved; (4) Fourth and fifth defendants jointly and severally pay costs of suit on the higher scale of attorney and client, the one paying the other to be absolved.

The binding legal principles established are: (1) Where a plaintiff establishes a prima facie case through documentary evidence of a personal guarantee and security, the burden shifts to the defendant to rebut it with credible evidence such as expert testimony on signatures or witness evidence, not mere bare denials. (2) An unlimited personal guarantee worded to cover existing and future banking facilities at the bank's sole discretion binds the surety to subsequent facilities granted during the subsistence of the guarantee, regardless of whether the surety was notified of such new facilities. (3) A surety cannot unilaterally terminate liability under a guarantee except in terms of the agreement signed with the creditor. (4) Discharge of an initial loan facility does not release a surety from liability for subsequent indebtedness where the guarantee expressly covers such subsequent facilities. (5) Courts are bound to give effect to contracts as written and cannot rewrite agreements freely and voluntarily entered into by parties, absent illegality or immorality. (6) New defences cannot be raised for the first time in closing submissions without proper amendment of pleadings in accordance with the rules of court.

The court made several non-binding observations: (1) It would not be unusual for a director of a company to provide additional security for loans advanced to the company for its capital requirements. (2) The court noted that fourth defendant's testimony at trial appeared to be "no less than a pack of recent fabrications" and the late allegations of collusion between the bank's employees and second defendant were viewed skeptically as they were never raised before trial. (3) The court characterized the illegality defence raised by fifth defendant as "a red herring" brought up improperly. (4) The court observed that silence after discovering an alleged forgery implies acquiescence. (5) The court noted that fifth defendant "could easily have" limited her suretyship to $40,000.00 but unfortunately for her did not do so.

This case is significant in Zimbabwean banking and suretyship law as it reinforces several important principles: (1) the enforceability of unlimited personal guarantees that bind sureties to existing and future facilities; (2) the principle that courts will not rewrite contracts freely entered into by parties, even if onerous; (3) the evidentiary burden on parties alleging forgery to provide expert or witness testimony beyond bare denials; (4) the doctrine that silence in the face of alleged irregularities (such as forgery) may constitute acquiescence; (5) the procedural requirement that new defences cannot be raised for the first time in closing submissions without amending pleadings; and (6) that a surety cannot unilaterally terminate liability under a guarantee and is not automatically released by discharge of an initial facility where the guarantee covers subsequent facilities. The case provides important guidance on the interpretation of personal guarantees in banking transactions and the protection of creditors' rights.