South African Law/Cession/Introduction

An introduction to cession

The main point of cession is the transfer of personal rights (claims) as opposed to real rights. In simplified terms cession is the transfer from one creditor to another of an obligation from a debtor.

When real rights are transferred, transfer takes place by delivery. Personal rights have no corpus and cannot therefore be delivered. Accordingly the method of transfer of personal rights is by cession.

Cession therefore encompasses two concepts.

1. First the creation of a means of transfer of personal rights; and
2. The method of transfer.

Who's who in the zoo

The principal parties to any cession agreement are the cedent and the cessionary. The debtor is not a party to the cession agreement, The debtor merely performs his obligations. It is obviously important to notify the debtor of any cession agreement when the obligation falls due, because otherwise he will execute performance to the wrong party.

• The cedent is the original owner of the claim.
• The cessionary is the new owner of the claim.
• The debtor remains the person obliged to perform.

In practise it is important to distinguish between the parties because a cession agreement is usually entered into as a result of an obligation between the cedent and the cessionary. (i.e. the cedent is usually a debtor of the cessionary) Do not confuse the obligations of the cedent and the obligations of the principal debtor.

On cession, the vinculum iuris is extinguished between the cedent and the debtor and the vinculum iuris is passed to the cessionary.

It is useful to put the parties to a cession agreement in a diagramatic scheme as follows.

At the moment of cession:

The Cedent ↔ (transfers his right to) ↔ Cessionary

↑(obligation to Cedent)

Debtor

On conclusion of the cession agreement,

Debtor ↔ (must perform the obligation to) Cessionary.

Note: On conclusion of the cession agreement, the cedent falls out of the picture, and the vinculum iuris is between the debtor and the cessionary. Thus in terms of locus standi, the cessionary takes full locus standi subject to all defences which the debtor could have asserted against the cedent. In practise the courts require the cession agreement to be mentioned in the particulars of claim, to show or prove the cessionary’s locus standi.

The need for cession

There is a commercial need to transfer obligations.

1. For example:
   • Donald owes me R100.00
   • I can sell my debt to Sue for R80.00. If Sue recovers, she makes a profit and I am happy because I have R80.00 without the hassle of having to importune or to bring action against Donald.
2. For example:
   • Donald owes me R100.00
   • I owe Sue R100.00.
   • I can cede my claim to Sue.
3. For example:
   • Donald owes me R100.00
   • I want to borrow R100.00 from Sue.
   • I cede my debt as security to Sue for due performance of my own obligation. (This is a cession in securitatem debiti, of which more anon).

The problem with cession

The theoretical problem with cession is that it straddles two branches of law, and does not easily fit into either. This has led to conceptual confusion when interpreting cession agreements.

In Roman Law: stipulatio alteri nemo potest, i.e. it is not possible to transfer an obligation.

But it happened!

So all the jurists then had to explain it, hence the three theories of cession.

1. First theory: rooted in property law.
   1. A claim is an asset in an estate.
   2. Assets can be transferred.
   3. Therefore claims can be transferred and creditors are substituted as a consequence of the transfer of the asset.
2. Second theory: rooted in law of obligations.
   1. A claim is a right in consequence of an obligation. The basic principle of the law of obligations is that a debtor can only discharge his obligation by payment to the creditor.
   2. The substitution of creditors does not affect the right itself.
   3. Therefore claims can be transferred and creditors are substituted as a consequence of transfer of the right.
3. Third theory: The dual nature i.e. both in the law of obligations and property law.
   • The claim is transferred via the law of property.
   • The creditor is substituted on performance of an additional act governed by the law of obligations.