Why it is Important to Ensure Cession Agreements are in Writing?

By Jamie-Lee Payne

A cession occurs when a cedent transfers their personal right to a cessionary. There are two types of cessions: out and out cession and cession in securitatem debiti. Cession Agreements are usually done in writing, which is encouraged as it limits any uncertainty, as opposed to verbal agreements.  

Introduction 

Courts often have to determine the enforceability of cession agreements. The court will determine this based on the terms of the cession agreement and whether the parties to the agreement complied with the terms of the cession agreement. Although verbal cession agreements are valid, this may be challenging to prove in the absence of a written agreement.  

Legal Framework 

In Coetzee N.O v Total Auctioneering Services and Sales CC t/a Consolidated Auctioneers and another [2019] JOL 41493 (GJ), the court had to determine whether a cession agreement was binding as the agreement was signed by the borrower and not the lender.1 The Applicant was the executor of Botha’s (deceased) estate. Botha had lent the Respondents (Da Silva on behalf of ‘Total’) R2.5 million, which Da Silva undertook to repay, ceding in favour of Botha his right, title and interest in certain immovable property. Da Silva only signed this agreement and the defence was, therefore, that this agreement was not valid and binding.  

The court held that there was an agreement in place since Botha lent  R2.5 million, and Da Silva (on behalf of Total) accepted the amount. It was therefore held that the agreement was in place, despite failure by Botha to sign. The court held that the Applicant was entitled to the rights and title ceded to Botha at the time of the agreement.  

Verbal Cession  

Verbal cession agreements are entered into where a lack of a written agreement exists. This may give rise to uncertainty and parties to cession agreements are encouraged to ensure that they reduce the terms of the agreement to writing. In Imbuko Wines (Pty) Ltd v Reference Audio CC (405/2021) [2022] ZASCA 110 (15 July 2022), a verbal cession was agreed upon. Dipole verbally ceded their book debt to Imbuko to collect payments from Reference Audio. Without a written agreement, the court had to determine whether a valid cession agreement existed.  

Paragraph 12 of Lynn & Main Incorporated v Brits Community Sandworks CC 2009 (1) SA 308 (SCA), provides that a cession of rights is ineffective as against a debtor until such time as he or she has knowledge of it.2 The court looked at the invoices that Imbuko made to Reference Audio and that Reference Audio made payment twice based on these invoices. The Supreme Court of Appeal, therefore, held that Reference Audio was aware of the cession and conducted itself consistently with the terms thereof.  

Conclusion 

The aim of drafting a cession agreement is to foresee any potential issues that may arise and to draft it in a way which minimises those potential issues from materialising. To prove verbal cessions, the cessionary must have knowledge of the cession. Here, as read above, the court will look at the history of the parties to show that a cession existed and that the parties acted in accordance with the terms of that cession.  

Contact an attorney at SchoemanLaw Inc for your legal needs. 

Jamie-Lee Payne |SchoemanLaw Inc

Civil and Contract Lawwww.schoemanlaw.co.z