Hilary Muza 
IN last week’s article I discussed the principle of parate executie and how it functions to the benefit of creditors who have property pledged to them by debtors, which they can sell privately if the debtor defaults on payment.
Normally, debt recovery of this nature requires the creditor to go through formal legal processes before they can recover the debt owed to them.
Parate executie is an exception to this position that allows creditors more immediate relief. I discussed how this principle ordinarily applies to movable property.
In this week’s article, I address whether the principle applies to immovable property, whether this position is accepted law in Zimbabwe, what the position is in neighbouring jurisdictions and what lenders and borrowers should consider when entering loan agreements.
It is not an accepted position of the law in Zimbabwe that the creditor can sell immovable property pledged to them through private treaty upon the debtor’s default.
That parate executie with respect to movable property is part of our law established in Farmers World Holdings (Pvt) Ltd v Manica Zimbabwe Limited and subsequent cases.
There is however no judgment, to my knowledge, that speaks to whether parate executie applies to immovable property in Zimbabwe.
In expanding upon this principle, regard must be had to the approach in other jurisdictions. The South African case of Business Partners v Mahamba gives particularly interesting insight into this question.
It is a matter in which the Supreme Court of South Africa confirmed the position that where the parties agree to it, immovable property can be sold by private treaty.
Business Partners Limited v Mahamba
The case concerned a credit relationship between Business Partners Limited, a financier and a close corporation, Alizw’amaHlubi Multi Skilling Centre CC. Mahamba bound herself as a surety for the debt in case Alizw’amaHlubi defaulted. When the debtor defaulted, Mahamba was sued for an order declaring her property specifically executable to recover the debt.
Settlement talks ensued, resulting in an interesting settlement agreement. The agreement authorised Business Partners to sell Mahamba’s immovable property by private treaty, or in any manner that it saw fit.
It was also a term of the agreement that the sale by private treaty would only result if Mahamba defaulted on making payment. It is important to note for the purposes of understanding how the principle in this case applied to immovable property, that the principle was not applied to the mortgage bond, but rather applied to the agreement to pay the debt entered into by the surety of the debtor. This distinction is important as I will explain below.
When Mahamba failed to pay the debt in terms of the settlement agreement, Business Partners then authorised an auctioneer to sell the property. After the sale, Mahamba approached the court for an order declaring the sale by private treaty to be unlawful. The court held the sale to be lawful.
Interpreting the Business Partners case
It is critical to observe that the Mahamba case suggests that a debtor can agree to have their immovable property sold if they default on a debt. The legal principle of caveat subscriptor states that a party is bound by their signature in a lawful document. If this principle is to be adopted locally, it could mean that immovable property can be auctioned off without having to resort to a court of law.
Whether disposition is accepted locally remains to be seen. Also, it must be clarified that the debt leading to the private sale in execution did not arise out of the initial mortgage, but from the subsequent settlement agreement.
The question of whether a bank, for instance, can sell immovable property where its debtor defaults on a mortgage bond has, to my knowledge, not yet been decided, particularly within this jurisdiction.
That being said, the sale of removable property by private treaty appears to be something that lenders might want to include as a contractual clause in loan agreements. It is also worth commenting that the Mahamba case was appealed to the Supreme Court, which confirmed the position of the High Court as “clearly correct”.
Distinguishing between parate executie and pactum commisorium (or forfeiture clause)
While the position is established that parate executie is lawful in Zimbabwe, pactum commisorium is not. This was confirmed in the case of ZimCor Trustees Ltd & Others v Rushesha & Others in which the Supreme Court stated that an agreement that is pactum commisorium is illegal and therefore unenforceable.
The principle of pactum commisorium simply states that a creditor becomes entitled to ownership of a pledged item upon the data as default. It was defined in Chimutanda Motor Spares (Pvt) Ltd v Mutare and Another as:
“A pact by which the parties agree that if the debtor does not within a certain time release the thing given in pledge by paying the entire debt after the lapse of the time fixed, the full property in the thing will irrevocably pass to the creditor in payment of the debt.”
Both parties entering into a pledge agreement therefore, must be aware of the type of agreement they’re entering and the consequences thereof.
On one hand creditors must ensure that they are not entering into a pactum commisorium agreement because it would be void for illegality. On the other hand, debtors must be wary of parate executie clauses that authorised the creditor to sell the pledged property upon default.
Muza is a duly admitted lawyer with expertise in business law, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.
