REPUBLIC OF SOUTH AFRICA

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

REPORTABLE
Case number:  381/04

In the matter between:

S A BREWERIES LIMITED
Appellant

and

PIETER VAN ZYL
Respondent

CORAM:

MPATI DP, BRAND, JAFTA, MLAMBO JJA and
CACHALIA AJA
HEARD:

1 SEPTEMBER 2005
DELIVERED:
29 SEPTEMBER 2005

Summary:
Cession – Deed of Suretyship in respect of money owing – rights under -
debt ceded – principle relating to rule ‘huur gaat voor koop’ has no
application in law relating to cession – unless Deed of Suretyship provides
otherwise, surety only liable in respect of moneys owing at time of cession of
principal debt.

____________________________________________________________

JUDGMENT
____________________________________________________________

MPATI DP:

[1] The issue in this appeal is the extent of the liability of a surety where the
creditor, as part of a sale agreement in respect of a business, ceded claims
against its debtors and the cessionary, as the new owner, continues to give
credit to the debtor.  The facts are fairly straight forward.  During July 1997 the
respondent (second defendant in the court  a quo) and four other persons
(third to sixth defendants a quo) purchased all the shares in a company,
Gensam (Pty) Ltd (first defendant a quo), the owner of a liquor business,
Ray’s Liquor Store, and consequently became its directors.  On 7 July 1997
two of the directors (third and fourth defendants a quo) (the managers),
having taken charge of the business, signed an application form ‘to trade with
cash and/or credit facilities’ with the beer division of South African Breweries
Ltd, a company registered in 1969 (SAB 69).  On the same date the appellant
and the other directors signed individual Deeds of Suretyship, each binding
himself as surety and co-principal debtor for money ‘which may at any time be
or become owing’ by Gensam to SAB 69.

[2] On 4 March 1999 SAB 69 sold its beer division business, as a going
concern, to Lexshell 159 Investment Holdings (Pty) Ltd (Lexshell), a private
company registered in 1998.  In terms of the agreement of purchase and sale

SAB 69 ceded to Lexshell ‘all the seller’s right, title and interest in and to
debtors’ and ‘any outstanding orders for goods in transit’ with effect from ‘the
effective date’, viz 4 March 1999.  On 19 March 1999 Lexshell changed its
name to South African Breweries (Pty) Ltd, which was later converted into a
public company, South African Breweries Ltd, the appellant (SAB 98).  The
original South African Breweries Ltd had become dormant.

[3] Lexshell and its successor (SAB 98) continued to sell liquor to Gensam
on account, apparently on the strength of the agreement (the credit
agreement) between the latter and SAB 69.  The credit agreement, according
to Hermanus Jacobus Kriel (Kriel), credit manager of SAB 69 at the time,
came into existence when the application for credit, signed on 7 July 1997 by
the managers, was received and accepted.  Because of mismanagement
Gensam encountered difficulty in reducing its indebtedness to SAB 98 and in
June 2000 it owed more than R610 000.  Certain negotiations then took place,
on how the debt was to be paid off, between Pieter Venter (third defendant a
quo), one of the managers, and Kriel, who was now the credit manager of
SAB 98, having transferred with other staff members from SAB 69 to Lexshell
in terms of the agreement of sale.  It was, however, clear by November 2000
that the debt was not being satisfactorily served, but as at 28 February 2001 it

had been reduced to R515 177,14.  On 31 March 2001 Kriel issued a
certificate of indebtedness in that amount, as contemplated in terms of clause
4 of the credit agreement, as well as clause 8 of the Deed of Suretyship.

[4] Summons was then issued against Gensam as the debtor, and against
its five directors, in their capacity as sureties, for payment of the amount of
R515 177,14.  Judgment by default was obtained against the first, third, fourth
and sixth defendants.  The fifth defendant’s estate had already been
sequestrated and no judgment was entered against him.  Only the respondent
(as second defendant) defended the action.  The court a quo (Van den
Heever AJ) dismissed the action and refused leave to appeal, which was
subsequently granted by this court.

[5] In dismissing the action Van den Heever AJ upheld the respondent’s
main defence, which was, in essence, that the respondent had never secured
the debts of Gensam arising from liquor purchases made from SAB 98 on
account.  It had been argued, on behalf of SAB 98, that through the cession of
the principal debt and by operation of law (ex lege), SAB 98 was substituted
as creditor in the place of SAB 69.  It was thus entitled to claim payment of the
principal debt from the respondent as surety.  This argument was pursued in
this court, reliance for the proposition being placed on Pizani and Another v

First Consolidated Holdings (Pty) Ltd 1979 (1) 69 (A) and Mignoel Properties
(Pty) Ltd v Kneebone 1989 (4) 1042 (A).  The court  a quo held, however, that
no substitution by operation of law had taken place, in respect of both the
credit agreement and the Deed of Suretyship, when SAB 69 ceded its ‘right,
title and interest in and to the debtors’ to Lexshell, and that what was ceded
was only SAB 69’s right of action in respect of any amounts owed to it as at
the date of the cession.

[6] The Pizani judgment held (at 78H) that in the absence of any contrary
indications in the cession or in the deed of suretyship, the cessionary acquires
the cedent’s rights against both the principal debtor and the surety, and may
sue the surety without the necessity of a separate cession in respect of the
rights against the surety.  The correctness of that position was not challenged
by counsel for the respondent in the present matter, nor did he submit that the
Deed of Suretyship prohibits the cession by the cedent of its rights against the
respondent as surety.  I can find no support in Pizani for the proposition that a
cession of the principal debt has the effect of substituting the cessionary for
the cedent, which would then have the effect of burdening the surety with
liability for a future debt owed to the cessionary by the principal debtor.

[7] In Mignoel Properties, supra, the lessor (owner) leased certain premises

to the lessee for a period of three years in terms of a written agreement of
lease.  After a year the lessor sold the immovable property of which the
leased premises formed part.  The lessee failed to pay rental for a period of
eight months subsequent to the sale of the property.  The new owner (the
appellant) sued the respondent (and another), for payment of the outstanding
rental.  The respondent had, in writing, bound himself to the lessor (previous
owner) as surety and co-principal debtor for the due payment by the lessee ‘of
all such sums which may now or at any time be or become owing by or
claimable from the debtor . . . to the creditor from any cause whatsoever, in
respect of’ the lease.  The respondent pleaded specially that, as there had
been no cession to the appellant of the lessor’s rights in and to the lease
between it and the lessee, the appellant was not entitled to claim payment of
the outstanding rental from him.  It was held in that case (at 1050J-1051A)
that once a lessee ‘elects’ to remain in the leased premises after a sale, ‘the
seller ex lege falls out of the picture and his place as lessor is taken by the
purchaser’.  No new contract comes into existence.  The purchaser is
substituted for the seller as lessor without the necessity for a cession of rights
or an assignment of obligations.  By such substitution the purchaser acquires
all the rights which the seller had in terms of the lease.  This is the effect of
the maxim ‘huur gaat voor koop’, the court held, ie the purchaser is

substituted as lessor in place of the seller.  See also Genna-Wae Properties
(Pty) Ltd v Medio-Tronics (Natal) (Pty) Ltd 1995 (2) 926 (A).

[8] Counsel for SAB 98 submitted that this principle is similarly applicable in
the instant case and that on that basis the court a quo should have found in
favour of SAB 98.  I disagree.  Different considerations apply.  With the sale of
leased property the purchaser steps into the shoes of the seller.  He or she
becomes the new owner and acquires the seller’s rights with regard to the
lease agreement by operation of law.  The seller falls out of the picture
completely.  No cession of rights is necessary (Mignoel’s case, supra).  In the
present matter SAB 98 could not claim, from the debtors of SAB 69, payment
of moneys owed to SAB 69 without the latter having ceded its rights to the
debts to the former.  The reason is obvious.  Prior to the sale the relationship
of debtor and creditor was only between SAB 69 and its debtors.  SAB 98
would have had no locus standi to sue SAB 69’s debtors for payment of debts
owed to the latter.  For it to be able to claim payment of such debts it would
require a right to do so.  And it could only acquire such right by way of the
cession, whereby SAB 69 (the cedent) transferred its right of action against its
debtors to Lexshell (later to become SAB 98) (the cessionary).  LTA
Engineering Co Ltd v Seacat Investments (Pty) Ltd 1974 (1) 747 (A) 762 A.

The sale of the business, without the cession, would not have conferred any
rights upon SAB 98 to recover debts owed to SAB 69, and consequently
would have had no right of action against the respondent as surety.  It follows
that the principle relating to the rule ‘huur gaat voor koop’ has no application in
the law relating to cession of rights or assignment of obligations.

[9] What then, was the extent of the respondent’s liability under the
suretyship agreement?  The only right of action that SAB 69 had against its
debtors and which it could cede to SAB 98 at the time of the cession was the
right to claim what was owed to it as at the date of the cession.  It had no right
of action for the future debts of its debtors and it could not cede rights that had
not accrued to it.  The liability of a surety being ancillary to that of the principal
debtor, the respondent was accordingly only liable to be sued for payment of
moneys owed to SAB 69 by Gensam on the date of the cession, viz 4 March
1999, and for moneys in respect of ‘outstanding orders for goods in transit’.
There was no allegation in the pleadings that the moneys sued for by SAB 98
is money that was owed to SAB 69 or moneys for ‘outstanding orders for
goods in transit’ at the time of the cession.  But the court a quo considered the
relevant accounts and found that on 28 April 2000 the account of Gensam
was in credit and that all subsequent purchases were made from SAB 98.  All

amounts that were owing to SAB 69 as at the date of the cession had thus
been settled, the court held.

[10] It was in my view unnecessary for the court a quo to embark on this
exercise.  There was no endeavour whatsoever, on behalf of SAB 98, to prove
the amount owing by Gensam to SAB 69 as at the date of the cession of SAB
69’s ‘right, title and interest in and to’ its debtors.  Counsel for SAB 98
conceded that in the event of it being found that the respondent, as surety,
was only liable for amounts owed by Gensam to SAB 69 as at the date of the
cession then the action had to be dismissed.  That was indeed the order of the
court a quo.

[11] The appeal is dismissed with costs.

L MPATI DP

CONCUR:

BRAND JA)
JAFTA JA)
MLAMBO JA
CACHALIA AJA)