S A Breweries Limited v Pieter Van Zyl

In July 1997, the respondent and four others purchased shares in Gensam (Pty) Ltd, owner of Ray's Liquor Store, and became its directors. On 7 July 1997, two directors signed an application for credit facilities with SAB 69's beer division, and the respondent and other directors signed individual Deeds of Suretyship binding themselves as sureties and co-principal debtors for money owing by Gensam to SAB 69. On 4 March 1999, SAB 69 sold its beer division business to Lexshell 159 Investment Holdings (Pty) Ltd, ceding 'all the seller's right, title and interest in and to debtors' and 'any outstanding orders for goods in transit'. Lexshell later changed its name to South African Breweries (Pty) Ltd and then SAB Ltd (SAB 98). SAB 98 continued to sell liquor to Gensam on credit. By June 2000, Gensam owed over R610,000, which was reduced to R515,177.14 by 28 February 2001. SAB 98 sued Gensam and its five directors as sureties for this amount. Only the respondent defended the action.

• What is the extent of a surety's liability when the creditor cedes claims against its debtors to a cessionary who continues to give credit to the debtor?
• Whether the cession of the principal debt has the effect of substituting the cessionary for the cedent by operation of law
• Whether the principle 'huur gaat voor koop' applies to cessions of debt
• Whether the surety is liable for debts incurred by the principal debtor after the cession or only for debts owing at the time of cession

The appeal was dismissed with costs.

Unless the Deed of Suretyship provides otherwise, a surety is only liable in respect of moneys owing at the time of cession of the principal debt. The principle relating to the rule 'huur gaat voor koop' has no application in the law relating to cession of rights. A cedent can only cede rights of action that have accrued to it at the time of cession; it cannot cede rights to future debts that have not yet accrued. Since a surety's liability is ancillary to that of the principal debtor, the surety's liability is limited to debts owed at the time of cession and does not extend to future debts incurred by the principal debtor with the cessionary.

The court noted that it was unnecessary for the court a quo to examine the accounts to determine when Gensam's debt to SAB 69 had been settled, as there was no attempt by SAB 98 to prove the amount owing at the date of cession in any event. The court also confirmed (without challenge from the respondent) the principle from Pizani and Another v First Consolidated Holdings (Pty) Ltd 1979 (1) 69 (A) that in the absence of contrary indications in the cession or 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.

This case is significant in South African law as it clarifies the extent of a surety's liability when the principal debt is ceded. It establishes that unless the Deed of Suretyship provides otherwise, a surety is only liable for debts owing at the time of cession of the principal debt, not for future debts incurred by the principal debtor with the cessionary. The case also confirms that the principle 'huur gaat voor koop' does not apply to cessions of debt, distinguishing the law of lease from the law of cession. This protects sureties from unexpected and potentially unlimited liability arising from business transactions to which they were not party.