SU13- Cession Flashcards
Define Cession
a juristic act that allows for the transfer of personal rights created by way of a contract
Differentiate b/w Cession, Delegation, Assignment and Novation
Cession- legal act of transfer
Delegation- transfer a debt from one debtor to another
Assignment- Substitution of rights and duties that are transferred to a third party
Novation- occurs when an obligation is extinguished by an agreement between the parties and is thus replaced by another obligation
Parties to cession
Cedent- Original owner of the claim
Cessionary- New owner of the claim
Debtor- Remains the same- debtor is obliged to perform
Requirements of Cession
- Cedent must be entitled to dispose of the personal rights
- The personal right must be capable of being ceded.
- A transfer agreement
- Formalities
- Legality
- The absence of prejudice to the debtor
- A valid causa
- Cedent must be entitled to dispose of the personal rights
Nemo plus iuris- you can not transfer more than you have
- The personal right must be capable of being ceded
General rule: rights freely cedable
1. Cedable rights
a. Contingent rights: Rights subject to suspensive/ resolutive conditions can be ceded.
b. Future rights: Rights that may reasonably realize may be ceded
2.1. Rights that are not cedable
a. Rights that are too personal- claims for maintenance, pain and suffering and under the actio iniurarium
b. Delectus personae- Where the identity of the creditor is of vital importance for the debtor- Contract of employment.
c. Pactum de non cedendo: A clause stating that cession may not take place/ may only be ceded by the consent of the other party
Pactum de non cedendo is only valid if…
the debtor has a legitimate reason for the prevention of
session
*constitutes a restraint on alienation
Pactum de cendedo case law: Paiges v van Ryns Gold mine Estate 1920
Facts:
*An employee had ceded his right to wages to a general dealer in order to obtain credit
*When the cessionary tried to enforce the claim against the employer, the latter raised the defence that the cession was in contravention of a clause in the
employment contract, prohibiting cession without the consent of the employer
Held: Valid because (1) The clause served a very useful purpose to the employer (2) The clause was not contrary to public policy for 2 reasons
- served to protect the employee
- was part of the agreement creating the right which was a limited, non-transferrable one from its inception
Therefore: cedent could not transfer to the cessionary any greater right than he himself had
- Transfer agreement
Consensus- meeting of the mind
**Cedent must have intention to transfer rights and cessionary must have intention to accept with
*Agreement on nature of transaction
*Agreement on what rights transferred
*Agreement on identity of parties
*Certainty
- Formalities
General rule: No formalities are required for a valid cession
*Exceptions
>Formalities created by parties
>Formalities created by law may prescribe formalities
- Legality
A cession is illegal if
a. Prohibited by statute or common law
b. Contrary to public policy or the boni mores of the community
The illegality may relate to
a. Its conclusion
b. Its implementation
c. Its underlying purpose
5.1. Legality case law: Nedcor Bank Hyperlec Mechanical supplies 2000
May not be made with a purpose that is against public policy
- The absence of prejudice to the debtor
The debtor is protected by the rule that the cession should not prejudice the debtor’s position by making it more burdensome
6.1. Prejudice to the debtor may be in two ways…
- Splitting claims
Claim can only be ceded in its entirety and can not be broken up into smaller cessions unless debtor agrees - Malafide cessions
Where the cession is made with the intention to deprive the debtor of the opportunity to raise a counter claim against the cedent
6.2.1. Splitting claims case law: Van der Merwe v Nedcor Bank 2003
Van der Merwe had a Closed corporation where he was the only member. He then ceded some claims against the corporation to himself as a natural
person (R230 000 was not the full amount).
➢ This is legal, as long as it is in done in different capacities (Dual capacity). However, the cession amounted to a splitting of the claims.
➢ The debtor did not consent to this.
➢ The split made the respondent’s position more burdensome.
➢ Where there should have been one claim (Against the Corporation) there now was 2 claims against 2 different persons.
Held: Cession was thus invalid and the appeal was dismissed
6.2.2. Malafide cession case law: LTA Engineering Co v Seacat Investments 1974
LTA had a claim that he instituted against S. S knew LTA had a legitimate claim and ceded the right to M who instituted action, but was refused summary judgement.
*The claim was ceded back to S and S ceded it to Seacat Investments. Seacat Investments then Instituted action against LTA.
*However, the court held that the cession was mala fide and intended to frustrate the right against S and prevented the debtors right to a counterclaim.
- Cedent is divested of right
-The right is not longer an asset in cedent’s estate - Rights vest in the cessionary
-Becomes asset in cessionary’s estate - Cessionary is substitute creditor
-Cessionary steps into the shoes of the cedent - Nemo plus iuris rule
- Once the right is ceded, it can not be ceded again - Performance by the debtor must be made to the cessionary
-Once the cession has taken place, performance to the cedent will not release the debtor
NB: There’s a qualification to this rule: If the debtor has not been notified of the cession and in good faith makes a payment or other performance to the cedent, he or she is released from liability
Different types of cessions
- Absolute/ordinary
- ceded in its entirety to cessionary - Security
-Borrower can cede a claim as a form of security if he/ she fails to repay the debt
Two forms of security cessions
- Fiduciary security cession
*If X gives an out-and-out cession, X loses ownership of the claim against A. Y will therefore be able to cede the claim against A to someone else. If Y does this, Y will be in breach of the fiduciary agreement, and X will be able to claim damages from Y. However, X will not be able to claim directly from A, even if she has repaid the loan to Y in full - Pledge
*If X gives a pledge cession, she will retain ‘ownership’ of the claim against A. Y will therefore not be able to cede the claim against A to someone else. However, Y remains protected since it can claim the R10 000 directly from A if X fails to repay the loan
