Cession in South African Law: Classification of cession - 3.

The definition of cession

Cedent ↔ (transfers his right to) ↔ Cessionary

↑(obligation to Cedent)

Debtor

The Principles of Cession were clearly defined in JOHNSON v INCORPORATED GENERAL INSURANCE LTD 1983 (1) SA 318 (A), which stated that: Cession in our modern law can be seen as:

1. An act of transfer (oordragshandeling)
2. To enable the transfer of the right to claim (translatio juris) to take place
3. Accomplished by means of an agreement of transfer (ordragsoorenkoms)
4. Between the cedent and the cessionary
5. Arising out of a justa causa
6. From which the intention of the cedent to transfer the right to claim (animus transferendi) appears or can be inferred
7. From which the intention of the cessionary to become the holder of the right (animus acquirendi) appears or can be inferred.
8. The justa causa can be an obligatory agreement (verbintenisskeppende oorenkoms) arising from for example:
   • A contract of sale;
   • A contract of exchange;
   • A contract of donation;
   • An agreement settlement; or even
   • A payment.
9. The cessionary can cede his right to someone else.
10. If the cessionary cedes his right to the previous cessionary, we have a re-cession.
11. If the parties wish to resile from the cession agreement;
    • and their intention is to undo the agreement of transfer,
    • the dissolution agreement has the effect of a re-cession which results in the
    • translation of the right to claim.

Various agreements distinguished

From the above, it will be seen that there are several agreements incorporated into any cession agreement.

1. The obligatory agreement
2. The trasfer agreement
3. The agreement extinguishing obligations
4. The dissolution agreement.

These agreements will be examined in more detail below.

The obligatory agreement

The obligatory agreement is the agreement between the debtor and the cedent. This is the obligation which will be transferred to the cessionary when a cession is effected. It is in fact the causa of the cession agreement. The obligatory agreement may arise from a number of causes, for example:

• a sale
• a loan agreemet
• an undertaking to perform in future.
• a lease etc.

Thus in schematic form, the obligatory agreement between the debtor and the cedent becomes the causa for the cession agreement between the cedent and the cessionary.

Cedent (the obligatory agreement = the causa between ) Cessionary

↑(obligatory agreement)

Debtor

A series of propositions will be developed in the following discussions.

1. Relating to the obligatory agreement, let us assume that Donald the debtor owes Cedric the cedent R100.00. The reason for his debt is the sale of goods by Cedric to Donald with payment to be made at the end of the month.

The transfer agreement

The transfer agreement is the agreement between the cedent and the cessionary to transfer the obligation of the debtor from the cedent to the cessionary.

It is not necessary for the transfer agreement to be in writing, but it is advisable See BOTHA v FICK 1995 (2) SA 720 (A) where it was held that "mere consensus is sufficient to effect a cession"

The essential elements of the transfer agreement are:

1. An intention by the cedent to pass transfer of the debtor's obligation to the cessionary.
2. An intention by the cessionary to accept transfer of the debtor's obligation from the cedent.
3. A causa for the transfer. i.e. the obligation of the debtor.

On completion of the transfer agreement, the claim passes perminently to the cessionary. From that point onwards, the cession cannot be revoked unilaterally by either the cedent or the cessionary.

In schematic form the transfer agreement is between:

Cedent (the transfer agreement)↔ Cessionary

↑(obligatory agreement)

Debtor

To continue with the proposition.

1. Donald the debtor owes Cedric the Cedent R100.00
2. Cedric wishes to sell his claim to Susan the cessionary for R90.00.
3. Susan wishes to purchase the claim from Cedric for R90.00.

The Cedent and cessionary have two choices in drafting the cession.

They can incorporate the sale of the debtors obligation and cession of the right to claim into one agreement.

1. • Sale and cession: Cedric hereby sells and transfers (cedes) to Susan his claim against Donald in the sum of R100.00 for the sum of R90.00.

Alternatively they can seperate the two agreements out.

1. • Sale

• Cedric sells his claim of R100.00 against Donald to Susan for the sum of R90.00

1. • Cession

On payment of the sum of R90.00 by Susan to Cedric, Cedric will cede (transfer) his right title and interest in his claim against Donald to Susan.

Once the cession is effected, the cedent falls out of the picture, and the vinculum juris is between the debtor and the cessionary.

Agreement extinguishing obligations

If one analyses it carefully one will see that there are in fact two agreements extinguishing obligations.

1. The first is the agreement extinguishing the obligation between the cedent and the cessionary. This is the actual cession or transfer of the cedent's claim against the debtor. in our example, it is the transfer of the claim for R100.00 owed by Donald from Cedric to Susan.
2. The second is the agreement extinguishing the obligation (if any) between the cessionary and the cedent. In our example it is the payment by Susan the cessionary of R90.00 to Cedric the cedent. [there may however not be an obligation here, if the reason for cession was a donation].
3. The discharge of his obligation by the debtor to the cessionary is not strictly a part of the cession agreement, as the cession agreement is only between the cedent and the cessionary. But it is an inevitable consequence of the transfer of the claim and the causa of the cession agreement in the first place. It is therefore mentioned here.

Resolutive agreement or Dissolution agreement

The Resolutive agreement refers to an agreement between the cedent and cessionary where they agree to re-cede the object of the cession for some or other reason. It may be for example that the cedent has borrowed money from the cessionary and ceded a claim due to him as security for the loan.

You will recall that on transfer, the claim (or object of cession) becomes an asset in the estate of the cessionary. Once the cedent's debt has been repaid to the cessionary, the cessionary would be unjustly enriched if she retained the cedent's [former] claim as she would have received both the money from the cedent and the claim. It is in circumstances such as this that a resolutive agreement comes into play. See for example LIEF V DETMANN 1964 (2) SA 525 (A) where it was stated that

• "The only way in which a right of action can be furnished as security for a debt is by way of cession. i.e. by a transaction which in our law results in the cedent being divested of his rights and those rights vesting in the cessionary. Where the cession is made in security for a debt, it does not in my opinion signify that the cedent retains any right in the subject matter of the cession; his continued interest flows from the agreement either express or implied with the cessionary that the right of action will be ceded back to him on the discharge of his debt."

See Also

• Cession in South African Law - 1.
• Cession in South African Law: An introduction to cession - 2.
• Cession in South African Law: The claim or object of cession - 4.
• Cession in South African Law: Case law