Plaintiff bank sued five defendants for provisional sentence claiming $72,803.61 plus interest. The claim arose from a composite facility granted to first defendant in March 2014 totaling US$100,000. As security, the facility letter provided for an existing first mortgage bond over fifth defendant's property (Lot 583A Greendale) valued at US$166,000, which had been registered in December 2010 to secure a prior bank guarantee. That prior obligation was discharged in 2012, but the mortgage bond was never cancelled. The 2010 mortgage bond expressly provided it was intended to cover existing and future indebtedness as a continuing security. Second, third, and fourth defendants signed individual guarantees. First defendant defaulted on the 2014 loan. Plaintiff relied on two liquid documents: (1) a certificate of indebtedness signed by authorized bank signatories, and (2) the first deed of hypothecation (mortgage bond). Defendants raised defences of prescription (claiming the debt prescribed after 3 years from April 2015) and argued that fifth defendant was not liable as it had not signed a new guarantee for the 2014 debt.
Provisional sentence was granted against all five defendants jointly and severally for: (i) payment of $72,803.61; (ii) penalty interest at 35% per annum from 30 April 2015 to date of payment in full; (iii) costs on a legal practitioner and client scale. The mortgaged property (Lot 583A Greendale measuring 4,522 square metres held under Deed of Transfer No. 9573/2003) was declared specially executable.
The binding legal principles established are: (1) Where parties expressly agree by contract that a certificate of indebtedness signed by authorized bank officials shall constitute a liquid document for purposes of provisional sentence, such certificate is valid and enforceable as a liquid document. (2) A mortgage bond containing an express continuing cover clause securing existing and future indebtedness remains valid security for subsequent debts advanced after discharge of the original debt, provided: (a) the bond has not been cancelled; (b) the subsequent debt falls within the monetary limit specified in the bond; and (c) the parties to the subsequent loan agreement expressly rely on the existing bond as security. (3) The prescriptive period for debts secured by mortgage bonds is 30 years in terms of section 15(a)(i) of the Prescription Act, not the ordinary 3-year period applicable to unsecured debts. (4) A mortgagor who has registered a mortgage bond with a continuing cover clause cannot escape liability for subsequent debts covered by that bond on the ground that it did not sign a separate guarantee or suretyship for the subsequent debt.
The court made several observations: (1) It characterized fifth defendant's argument that it never signed security for the 2014 debt as "an act of desperation," noting that the mortgage bond itself was the basis of liability and its validity was not conditional upon signing an additional unlimited guarantee. (2) The court noted it would be illogical to interpret the loan agreement as requiring a fresh mortgage bond because any subsequent bond could not be a "first" deed of hypothecation since the extant 2010 bond remained registered and was intended as continuing cover. (3) The court described as "ludicrous" the defendants' suggestion that debt acknowledgements were made by a company (Germa Technical Services) that was only incorporated in October 2017, after the alleged acknowledgements were made. (4) The court observed that a miscast in the provisional sentence summons regarding whether the fifth defendant "caused" the mortgage bond to be executed was immaterial, as defendants had always understood and maintained that the bond in question was the 2010 bond securing the prior bank guarantee.
This case is significant in Zimbabwean banking and mortgage law as it clarifies several important principles: (1) parties may contractually agree that certificates of indebtedness will constitute liquid documents for provisional sentence purposes, and such agreements will be enforced; (2) mortgage bonds containing continuing cover clauses can validly secure subsequent debts even after the original debt is discharged, provided the bond is not cancelled and parties agree to rely on it as security; (3) the prescriptive period for debts secured by mortgage bonds is 30 years, not the ordinary 3-year period for debts; and (4) a mortgagor cannot escape liability by arguing it did not sign a separate guarantee for a subsequent debt when the original mortgage expressly provides for continuing security over future indebtedness. The case demonstrates the enforceability of continuing security arrangements in banking transactions and the importance of cancelling security documents when they are no longer intended to have effect.