South African Law/Cession/Classification

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. A transvestitive (or translative) juristic act (oordragshandeling)
2. Which transfers a personal incorporeal right emanating from an obligation (translatio iuris)
3. By means of a real agreement (saaklike ooreenkoms)
4. Made between the cedent and the cessionary
5. Arising out of a iusta causa cessionis
6. From which the cedent’s intention to transfer the right to claim (animus transferendi) appears or can be inferred
7. From which the cessionary’s intention to become the holder of the right (animus acquirendi) appears or can be inferred.
8. The causa cessionis can be a payment (solutio), securing of a debt, or an obligatory agreement (verbintenisskeppende ooreenkoms) embodying for example:
   • An alienation, e.g. sale, exchange, or donation;
   • A settlement (transactio);
   • A loan.
9. The cessionary can cede his right to someone else; this is known as on-cession.
10. If the on-cessionary (= retrocedent) cedes back his right to the original cessionary (= retrocessionary), we have a retrocession.
11. If the parties wish to resile from the cession agreement;
    • and their intention is to cancel or take back the real agreement (animus cancellandi),
    • the dissolution agreement has the effect of a retrocession under which
    • the ceded right reverts back to the original cedent.

Various juristic acts distinguished

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

1. A vestitive act (e.g. an obligatory agreement)
2. A transvestitive act embodied in the real agreement
3. Two divestitive acts; and potentially
4. A dissolution agreement.

These acts will be examined in more detail below.

Vestitive act

The vestitive (or constitutive) juristic act can be a will, subrogation, court order, securing of a debt or a mere payment (solutio), but is usually an obligatory agreement between the debtor and the cedent. This act creates an obligation which vests a personal right to performance (or ‘claim’ or ius crediti) in the cedent and a duty to perform in the debtor. It is in fact the causa of the cession agreement. If an obligatory agreement, it may arise from a number of causes, for example:

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

Thus in schematic form, the vestitive act between the debtor and the cedent becomes the causa cessionis for the real agreement between the cedent and the cessionary.

Cedent ↔ (cession agreement) ↔ Cessionary

↑(vestitive act = the causa cessionis)

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.

Transvestitive act

The transvestitive (or translative) juristic act is the cession agreement (pactum cessionis), that is, the real agreement between the cedent and the cessionary to divest the cedent’s right to performance and vest it in the cessionary.

It is not necessary for the cession 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 cession agreement are:

1. An animus transferendi - the cedent’s intention to transfer his/her claim to the cessionary;
2. An animus acquirendi - the cessionary’s intention to accept transfer of the claim from the cedent; and
3. A causa cessionis - the vestitive act constituting the underlying obligation between the debtor and cedent.

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

In schematic form the cession agreement is between:

Cedent ↔ (cession agreement) ↔ Cessionary

↑(vestitive act)

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 agreement.

They can incorporate the sale of the claim and cession of the 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 separate 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 iuris is between the debtor and the cessionary.

Divestitive acts

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

1. The first is the act extinguishing the cedent’s obligation to the cessionary. This occurs through the actual cession or transfer of the cedent's claim against the debtor. In our example, Cedric is divested of his claim for R100.00 owed by Donald when ceded to Susan.
2. The second is the act extinguishing the cessionary’s obligation (if any) to the cedent. In our example it is the payment by Susan of R90.00 to Cedric the cedent. However, there may not be an obligation here if the claim is ceded gratuitously, i.e. a donative cession.
3. The discharge of the debtor’s obligation to the cessionary is not strictly a part of the cession, as the real agreement is only between the cedent and the cessionary. But it is an inevitable consequence of the transfer of the claim and the causa cessionis in the first place. It is therefore mentioned here.

Resolutive or dissolution agreement

The resolutive agreement refers to an agreement between the cedent and cessionary where they agree to retrocede the ceded right 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 ceded claim 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.’