ZFC Limited v Farmcrop Enterprises (Private) Limited and Tapiwa Joel Furusa

The plaintiff (ZFC Limited) issued summons against the defendants seeking to recover US$46,717.16 (later reduced to US$40,954.15) for failure to remit proceeds from the sale of fertilizers and crop chemicals. The principal agreement was between the plaintiff and the first defendant (Farmcrop Enterprises). The second defendant (Tapiwa Joel Furusa) had signed a deed of surety on 3 July 2009 guaranteeing the first defendant's obligations. The second defendant argued that with the plaintiff's approval, he had transferred his suretyship to one Lazarus Nyakudya, who executed a new deed of surety on 26 September 2011. The transfer was facilitated by the plaintiff's employee Gondai Chitauro with approval from his superior Mr Saviery. The plaintiff's legal practitioners were notified of the change. Lazarus Nyakudya subsequently made a payment of US$4,000 towards the debt and made proposals to settle the balance.

• Whether the plaintiff had accepted that the second defendant should no longer be surety on behalf of the first defendant and substituted in his place Lazarus Nyakudya
• Whether the subsequent surety agreement with Lazarus Nyakudya amounted to novation of the original surety agreement, thereby exonerating the second defendant from liability
• Whether clause 5 of the original surety agreement prevented the discharge of the second defendant's liability despite the new surety arrangement
• The admissibility of exhibit 5 under section 8(6) of the Civil Evidence Act

The plaintiff's claim against the second defendant was dismissed with costs.

When a creditor accepts a new deed of surety from a substitute surety with full knowledge and approval of the original surety's desire to be released, and subsequently deals with the new surety as the party liable (including accepting payments and correspondence from the new surety), this constitutes novation of the original surety agreement and exonerates the original surety from liability. The principle applies even where the original surety agreement contains a clause stating that the surety shall remain in full force as continuing security. Novation occurs where parties agree on a new contract that replaces the old one completely, thereby terminating the original contract. A compromise or settlement agreement operates as res judicata in respect of the original agreement and becomes a valid and binding contract between the parties.

The court observed that it was understandable why the plaintiff's counsel was uncomfortable with the production of exhibit 5, as it was clearly going to do significant damage to the plaintiff's case. The court commented that the correct debtor must be Lazarus Nyakudya, and that the plaintiff had clearly compromised its entitlement to proceed against the second defendant when it entered into a new deed of surety with Lazarus Nyakudya. The court noted that through novation, the plaintiff had 'pushed the second defendant outside its reach.' The court also made observations about the applicability of South African authorities on novation and compromise to Zimbabwean law, citing with approval the decisions in Taruva v Deven Engineering and various South African cases on the nature and effect of compromise agreements.

This case is significant in Zimbabwean contract law for its application of the principle of novation in the context of suretyship agreements. It demonstrates that a creditor can exonerate an original surety by accepting a new surety arrangement, even where the original surety agreement contains stringent clauses purporting to make the surety continuing and irrevocable. The case affirms that the conduct of parties and the substance of their arrangements will prevail over strict contractual terms. It also provides guidance on when privilege over documents may be deemed waived. The judgment reinforces the principle that compromise agreements operate as res judicata and that parties will be bound by novated arrangements that replace original obligations.