Pizani and Another v First Consolidated Holdings (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Rumpff CJ, Rabie JA, Muller JA, Miller JA and Diemont JA
• Judgment Date: 26 September 1978
• Citation: 1979 (1) SA 69 (A)
• Hearing Date: 14 September 1978
• Court: Appellate Division

Miller JA:

This is an appeal against an order made by ELOFF J in the Witwatersrand Local Division, upholding exceptions to a plea and directing that certain paragraphs therein be struck out.

The respondent company, to which I shall refer as the plaintiff, sued the two appellants and another, who is not a party to the appeal, for payment B of certain sums of money for which they were said to be jointly and severally liable by virtue of separate deeds of suretyship entered into by each of them. The appellants were, respectively, the second and third defendants in the Court a quo. The principal obligations in respect of which each of the appellants stood surety were:

"For the due payment of any moneys or the performance of any other C obligations now or which may hereafter be owing by Grinding Wheels (Pty) Ltd ('the debtor'), arising out of or connected with any agreement of lease entered into between the debtor and creditor".

The "creditor" thus referred to was the lessor of certain equipment in terms of three written agreements of lease concluded with the abovementioned "debtor". Such lessor was named as the creditor in each of D the deeds of suretyship, which in terms bound the sureties not only to such creditor but also to its (the creditor's) "successors or assigns". In its declaration, plaintiff alleged that it sued as cessionary, the lessor under the agreements of lease having ceded to it in writing

"all the right, title and interest in and to the above agreement(s) of E lease and all rights of ownership in and to the equipment referred to above".

Plaintiff alleged further that (upon an unspecified date) the deeds of suretyship were also "duly ceded" to it by the creditor. It appears from the declaration that the principal debtor, Grinding Wheels (Pty) Ltd, was placed in liquidation and that, as a result thereof, the agreements of lease were terminated and the plaintiff placed in possession of the F subject-matter of the leases. What was claimed by the plaintiff in respect of each of the leases was payment of arrear rental owing, interest thereon and damages, after taking into account the value of the equipment of which plaintiff had taken possession.

The appellants filed a joint plea in which they admitted, inter alia, G that they had respectively signed the deeds of suretyship but denied liability to the plaintiff upon several grounds. It was to certain of such grounds that the plaintiff excepted, averring in its notice of exception that the relevant paragraphs in the plea did not contain the averments necessary to sustain a defence or that such paragraphs did not contain a H defence to the plaintiff's claims. The grounds upon which it so contended were set out in the exception.

The first of the defences attacked by the exception is contained in para 10 of the plea. After pleading that they had no knowledge of any of the cessions upon which plaintiff relied, the appellants went on to plead

"10 (ii)... that in any event they were released from all liability under the said deeds of suretyship signed by them in consequence of the alleged cessions."

The gist of the argument advanced on appeal in support of the alleged

Miller JA

efficacy of that defence was that, notwithstanding that the sureties bound themselves to the named creditor and "its successors or assigns", their liability under the deeds of suretyship would fall away upon cession by the creditor of its rights under the leases, unless cession of the deeds A of suretyship were effected simultaneously with cession of the rights under the leases; and, so it was contended, it did not appear from the plaintiff's declaration that the cessions of the leases and of the suretyship agreements occurred simultaneously. A similar argument was apparently advanced in the Court below; the learned Judge assumed in B favour of the appellants that cession of the deeds of suretyship was not effected simul ac semel with cession of rights under the leases but nevertheless decided, mainly on the authority of Inter-Union Finance Ltd v Dunsterville 1956 (4) SA 280 (D), that cession of a creditor's rights against sureties could effectively be made subsequently to cession of the principal debt. On appeal it was contended by Mr Duke, for the appellant, C that Dunsterville's case was wrongly decided insofar as it was held therein that a cession of rights under the surety deed subsequently to cession of rights under the leases was an effective cession rendering the surety liable to the cessionary.

Were it not for the argument advanced os and the ratio of the decision of D the Court a quo, I would have been disposed to deal with this defence simply on the basis of the wording of the deeds of suretyship, in which the appellants bound themselves as sureties not only to the named creditor but also to its "successors or assigns". Unless there were contrary indications elsewhere in the deeds (which there are not), the words E "successors or assigns" would include any cessionary of the creditor's rights under the leases. The effect of counsel's contention, however, is that the rights of a creditor against one who has gone surety for the debtor can in no circumstances go over to any other person, to whom the principal debt has been ceded, except by way of a formal cession to such other person of the creditor's rights under the suretyship agreement and F then only if such cession was effected simultaneously with cession of the principal debt. If the cessions were not simultaneously effected, so it was contended, the surety would be released upon cession of the principal debt because of a change in the specific debt in respect of which the surety guaranteed payment. It is not clear on the pleadings whether G cession of rights under the surety deeds occurred simultaneously with or after cession of the leases. The primary question that arises, then, is whether according to our law formal cession of the rights flowing from a deed of suretyship is necessary at all in order to render liable to the cessionary of the principal debt a surety in respect of such debt whose surety undertaking was in force at the time of cession of the debt.

H In Friedman v Bond Clothing Manufacturers (Pty) Ltd 1965 (1) SA 673 (T) at 677 TROLLIP J said:

"Generally, when a debt is ceded the right of suing the debtor and any surety for the debtor passes to the cessionary. (See Voet 18.4.12. (Gane vol 3 at 324); Sande Cession of Actions (Anders' trans at 170, 174, 186, 187); McNeil v Robertson's Trustee 3 NLR 190 at 193; Inter-Union Finance Ltd v Dunsterville 1956 (4) SA 280 (D).) It is not clear from those authorities whether the cedent's rights against the surety pass automatically and simultaneously to the cessionary with the cession or whether the latter merely thereby becomes entitled to obtain a cession of those rights from the cedent but again I shall assume in favour of the appellant that the former is the position."

Miller JA

There is no dearth of support for the general proposition enunciated in the first sentence of the above extract, though there are some commentators who take the opposite view. In a note by J E Scholtens published in 74 SALJ 130 detailed references (which I need not repeat) are A made to the opinions expressed by both schools of thought. The view obviously held by the author of such note is that the rights against a surety pass to the cessionary of the principal debt by virtue of...