South African Law/Cession/Object

The claim

As stated in Trust Bank of South Africa Ltd. v Standard Bank of South Africa Ltd. 1963 (3) SA 166 at 189: ‘The rule of our law is that all rights in personam, subject to certain exceptions based principally on the personal nature of the rights, not here relevant, can freely be ceded [...].’

The ‘claim’ refers to the cedent’s right to performance (ius crediti) from the debtor. It is the debtor’s obligation to the cedent and the subject of the cession between the cedent and the cessionary.

Thus schematically,

The Cedent ↔ (transfers his claim as subject of the cession) ↔ Cessionary

↑(obligation to perform = the claim )

Debtor

Description of the claim

From the above, it is apparent that the claim must be capable of transfer. In brief:

1. Claims must be legal.
2. Claims cannot be too personal.
3. Claims must be identifiable.
4. For cessionability of the claim, the claim cannot be limited by a pactum de non cedendo.

Legality of claims

It is trite that an illegal contract is unenforceable, and an unenforceable contract cannot be ceded.

• Thus if Donald the debtor promised to pay Cedric the cedent from the proceeds of the bank that he has just robbed; that claim is unenforceable. This means that:

Cedric could not sue Donald.

Cedric could not transfer his claim to Susan the cessionary.

• Claims which are contra bonos mores but legal are capable of transfer. An example would be the cession of Donald's pay-packet.

Personal claims (delectus personae)

Certain obligations are of such a personal nature, that they cannot be transferred. If the transfer of the obligation will result in a substantially different obligation on the debtor, then the general principle that a person may dispose of his rights, is restricted. See Sasfin v Beukes 1989 (1) SA 1 (A) at 31.

Example might be:

• A usufruct granted to a specific person entitling that person to live on a specific property.

Note that in general terms a legacy itself is capable of cession.

• Certian obligations flowing from a marriage contract.
• The obligation to perform specific employment. E.g. the obligation of Donald the accountant to perform an audit of Cedric's books, cannot be ceded.

Remember that the claim is a personal right and a vindicatory claim is a real right. Accordingly a vindicatory claim is not transferable by cession, but is transferable in the normal course by a deed or agreement of transfer.

Identifiability of claims

Although this might seem trite, in practice, it often happens that claims are so widely identified, that they become meaningless. From a drafting point of view, it is therefore important to state precisely what is being transferred. In this discussion we shall look at various problems with identifying claims, and in particular

1. The specificity principle.
2. Future and contingent claims.

Specificity principle

For an obligation to be identified, three aspects must be incorporated.

• The identity of the debtor (obligor);
• The identity of the creditor (obligee);
• The nature of the obligation.

The first two aspects need little or no explanation save to say that the cedent must have an interest or right to the claim. A cedent cannot cede a third parties claim unless he has an interest in it.

The nature of the obligation

It often happens that the nature of the obligation is too widely identified, and as a result the cession agreement will be void for vagueness.

Coopers & Leybrand v Bryant 1995 (3) SA 761 (A) is a good example of a very wide cession.

• The respondent (Bryant the cedent) sued the appellants (the debtor), a firm of chartered accountants and auditors, in a circuit court for damages arising from an alleged breach by the appellants of a verbal agreement between them. The appellant, in a special plea to the respondent's particulars of claim, contended that the respondent's claim was subject to the terms of a deed of cession (‘the deed’) concluded between him and Standard Bank (‘the bank’). Consequently he had divested himself of locus standi to institute the action in question. Respondent averred that, upon a proper construction thereof, the deed covered only his business debts.
• The cession agreement contained the following clause: ‘I / we the undersigned, hereby pledge, cede, assign and transfer [...] my/ our / the companies right title and interest in all book debts and other debts and claims of whatsoever nature, present and future due to and to become due to me / us / the company and all rights of action arising thereunder’.

The crisp fact to be decided was whether the cedent had locus standi. However, the court did not address this question, but looked rather at the cession agreement and the object of cession. The court found that Bryant had intended to cede his business debts to Standard Bank, but not his personal debts.

The court found that the matter was essentially one of interpretation: according to the 'golden rule' language had to be given its grammatical and ordinary meaning unless it resulted in some absurdity, or some repugnance, or inconsistency with the rest of the document. (At 767D/E-F paraphrased.)

Further, that the ordinary grammatical meaning of 'book debt' was a debt owed to a tradesman as recorded in his account books, but that a particular word or phrase should never be interpreted in isolation. (At 767F/G-G and H/I.)

The purpose of the cession was to provide the bank as cessionary with continuing security for allowing the respondent as cedent banking facilities. (At 768E/F-F.)

The expression 'book debts' unquestionably referred to the respondent's trading debts, and that expressions such as 'trading', 'records', 'accounts', 'books' and 'in the name of the firm in which I may be trading' were obviously intended to refer to the respondent's business. (At 768G-H.)

There was nothing in the deed to indicate that the parties intended to provide security to the bank for the respondent's personal affairs (i.e. for his private account). (At 768H-H/I.)

The respondent's claim against the appellants was clearly a personal one which was unrelated to his trading debts, and that the terms of the deed were accordingly not wide enough to include the said claim. (At 766A-A/B and B.)

The case has been trenchantly criticised by Professor Susan Scott (and correctly so) who pointed out that the purpose of the cession was to secure the bank overdraft. The deed of cession explicitly covered personal and business debts, and the courts finding of only business debts is just plain wrong. Prof Scott goes on to state that: ‘If the courts were to place sufficient emphasis on the principle of specificity, to the description of the object of cession, lawyers will pay more attention to the drafting of cession documents and avoid costly litigation. Furthermore if the courts were to address the whole issue of locus standi in the case of security cessions properly, there will be no need for this type of interpretation in deeds of cession.’

Future and conditional claims

Future claims distinguished from contingent claims.

1. A future claim is a spes futurae actionis. In other words there is merely an expectation of a claim in the future. There is no juristic fact from which it could arise, i.e. there is no existing obligation on which to base the claim.
2. A conditional or contingent claim (debitum conditionale or debitum futurum) is a claim in which there is an existing obligation, but it is not enforceable at the present time.

• future claim

1. • Blondie wants to sell her car because Blondie needs money.
   • Blondie enters into negotiations to sell the car to Donald.
   • Donald hasn’t seen the car, and has merely expressed an interest in purchasing the car.
   • Blondie urgently needs money: Blondie cedes the claim to Susan the cessionary.
   • Oh dear! There is no cession, because all that Blondie has is a spes that Donald will buy the car.

• conditional claim

1. • Future event:
     • Blondie sells the car.
     • Donald says that he will pay if he wins the lottery. (if he inherits) (if he gets married). [subject to a future event.]
     • Blondie urgently needs money and cedes her claim to Susan. -Susan is also a bit dim. This is a valid claim.
   • Time clause
     • Blondie does sell the car.
     • Donald says he will pay in three months time.
     • Blondie urgently needs money and cedes her claim to Susan the cessionary.
   • Installments
     • Blondie sells the car.
     • Donald says he will pay in five installments.
   • Blondie urgently needs money and cedes her claim to Susan.

FNB v Lynn 1996 (2) SA 339 (A) is an example of a conditional claim.

1. • Natal Earth Works (cedent) ceded its debts in securitatem debiti to FNB (cessionary).
   • They later obtained a contract with the Gov of Qua-Qua (debtor). Qua-Qua was due to pay them when a final certificate of approval had been issued.
   • Then they went insolvent before the final certificate had been issued.
   • The Liquidators (Lynn) then said that the cessionary (FNB) was not a secured creditor because the money due by Qua-Qua (debtor) was not due before NEW (cedent) went insolvent. FNB who was a secured creditor appealed.
   • The Court found that FNB (cessionary) was entitled to be treated as a secured creditor. There were various minority judgments. On various points.

Oliver JA: The claim is a contingent or conditional right [ conditional on the certificate being issued]. Future rights can be ceded and transferred in anticipando. This is the basis for ceding book debts (including future debts), ceding future rights, and factoring of future rights. Van Der Hever JA: This is a conditional right not a future right. NEW (cedent) acquired a personal right to performance against QU-QUA (debtor). The personal right was delayed [pending the certificate]. The personal right was transferred [by the deed of cession in securitatem debiti].

PG Bison Ltd & others v Master of the High Court & another Supreme Court of Appeal (judgment delivered 29 November 1999 ) is another clear case of a conditional claim.

• Pats Planks CC (the cedent) ceded its book debts to PG Bison the cessionary.]
• It was common cause that the cedent's attorney inserted the following additional clause (‘the additional clause’) into the deed of cession prior to its execution by the corporation: ‘This cession will not be implemented unless the account is overdue by 30 days and 7 days notice of the intention to implement this cession has been given’.
• It was also common cause that at the date of the cedent’s liquidation the account was indeed overdue by thirty days, but the seven days notice had not been given.
• The court found that the outcome of the appeal depends mainly upon the interpretation of the additional clause, read in context. The first step in construing the additional clause is to determine the ordinary grammatical meaning of the words in order to ascertain the common intention of the parties.
• The court found further that ‘There can be no doubt in my opinion that the rights were duly transferred to the appellants (cessionaries) and remained vested in them’ and that that the appellants (cessionaries) [can] only take steps to recover the debts directly once they have terminated the corporation’s mandate by giving notice in terms of the additional clause.

Transfer of Contingent Claims

1. The legality of contingent claims.
   • Cession of future contingent claims is not contra bonos mores, although it has been argued that such cessions limit a persons economic activities, and that they could lead to a clash of security interests.
2. Specificity principle.
   • The future claim must be determinable regarding:
     • The identity of the cedent.
     • The identity of the debtor
     • The cause of the claim.

This is to enable the cedent to determine what he is transferring and the cessionary to determine what he is getting. The following are not acceptable.

1. Any future claim against Donald of R1000.00 where the future claim against Donald is not R1000.00. [Donald’s future claims may be R5000.00 and R3000.00]
2. 50% of any future claim I have against Donald. [sum is not determinable].
3. My future claims against Donald to the maximum of R50 000.00. (the cessionary doesn’t know which claim has a maximum of R50 000.00).

The following is acceptable.

1. 50% of each of my (specified) future claims against Donald.
2. 50% of my (specified) future claim against Donald.

Construction.

1. The difficulty with ceding a future claim is that of delivery. De Wet & Van Wyk argue that a future claim cannot be ceded because transfer of a non existent thing is impossible. Prof Scott argues that there is a distinction between

• A future claim and
• A corporeal thing not yet in existence.
  • A future claim can be transferred, because there is a method of doing so. i.e the cession agreement, which would include the transfer agreement.
  • A corporeal thing not yet in existence cannot be transferred.

Materialisation When does the claim pass? When the future event happens, is it for a brief instant an obligation in the hands of the cedent, or has it already passed to the cessionary. There is no uniformity of views and needs to be determined still. Priority

1. Where more than one cession of the same future right takes place, the future rights to claim will take place in the same order as they appear.