Law of Cession Series: Part 1 Introduction

Author – Beatrice Moyo

In this blog post we discuss the law of cession. Cession is an important area of law in Zimbabwe especially when regard is had to the increasing number of immovable properties being sold through cession. Cessions have numerous uses in a variety of contexts such as being used as revocable security in transactions with creditors, or being used to irrevocably transfer rights in property. This blog post is the first of a series of blog posts which will investigate the different legal concepts in cession law that are imperative to understand for parties engaging in cession. This blog will define cession and highlight its different purposes as well as how it is regulated in law. The conclusion herein is that cession law deserves more attention and specialized drafters, knowledgeable about the nuances unique to cession agreements.

What is cession?

A cession is a contract between a cedent (person giving up the rights) and a cessionary (person receiving the rights), wherein the cedent agrees to give up his rights. Put simply, it is a transfer of personal rights by agreement, from one creditor to another, of a debtor’s obligations; it involves the substitution of a new creditor, the cessionary, for the old creditor, the cedent. Once a cession has taken place, the cessionary steps into the shoes of the cedent and the thing ceded becomes part of the cessionary’s estate. It is a well-recognized concept under Zimbabwean law. Generally what is ceded is rights and it is inappropriate to speak of a cession of obligations, however if the parties explicitly agree to cede rights and obligations the agreement will be upheld in a court of law.

Purposes of cession

Cessions have numerous purposes; firstly, it may be utilized to settle debts and obligations. Secondly, it may be used to serve as security, in the form of a right to claim against a third-party debtor, for the payment of a debt owed by the cedent to the cessionary. Thirdly, it may be used to sell and transfer rights from one person to another. Cession is accessorial in nature; in the case of Zimplow Holdings (Pvt) Ltd v Senoj Investments (Pvt) Ltd HH-761-16 this was confirmed. This means that there must be a lawful and legitimate obligation (justa causa) underlying it, in the form of an obligationary agreement. If there is no underlying obligation, there can be no valid transfer giving rise to a substantial claim.

Formalities of Cession

There are no formalities for a valid cession in Zimbabwean law. The only substantive requirement is that there must be an intention by both cedent and cessionary to enter into the agreement. It need not be in writing unless required in legislation or where it is agreed upon between the parties that writing is a prerequisite for validity. In addition, third party debtors do not need to be notified of the cession, neither is their consent required. However, it would be to the benefit of the cessionary if the third-party debtors, are informed when cession takes place, to prevent them from discharging their debt to the cedent instead of the cessionary, who has become entitled to performance. A cessionary of rights steps into the shoes of the cedent and acquires no greater rights against a third-party debtor than those which the cedent herself possessed. A debtor can raise any defence against a cessionary which was available to her as against the cadent.

Although there are no formalities, the cession must comply with common law. As indicated above, there must be a valid principal obligation to back the cession. The cession must also not be against public policy or based on duress, fraud or undue influence. Further, at the time that the cedent cedes the rights, he/she must have the capacity to cede the said rights. Cession cannot be used, to transfer personal rights which are restricted by statute or highly personal rights, such as a delectus personae^[1]; or, if it would prejudice the third-party debtor. An example is where it would result in splitting of the debt or is done with mala fide intent. One may also not resort to cession where it is prohibited by a clause in the obligationary agreement between the cedent and the third-party debtor; this is known as the pacta de non cedendo clause which prohibits the transfer of rights by means of cession.

Cession of future rights

When ceding a future right, there is an additional requirement that the right itself must be certain or ascertainable; however, rights that do not exist at the time of agreement may be ceded as long as they may come into existence in the future. At common law, future, non-existent rights could not be transferred, however the courts have held^[2] that rights which will accrue in the future, including a conditional right and a mere spes (hope) can be validly ceded. An example of a future conditional right would be the cession of rights to dividends for a limited time period; such agreement would amount to cession of a future conditional right to receive dividends, which is capable of vestment and divestment by way of cession.

Regulation of cession

Cession is largely regulated by common law, however certain types of cession are regulated by different statutes, for example Deeds Registries Act [Chapter 20:05] which address cession of notarial bonds, the Companies and Other Business Entities Act [Chapter 24:31] which regulates cession of certain rights by companies, amongst others.

Cession of rights, title and interest in immovable properties

When it comes to cession of rights in an immovable property it must be noted that there is a distinction between cession of rights and the sale agreement which results in the transfer of ownership from one person to another. Where parties enter into a contract of sale of land, real rights in the form of ownership are passed through registration in the Deeds Registry in terms of s 14 (a) of the Deeds Registries Act. Cession of rights, title, and interests over immovable property, on the other hand results in the transfer of personal rights. Cession passes limited rights which fall short of ownership, as ownership remains with the local authority or some other person pending transfer, when transfer becomes capable. Cession of rights in an immovable property usually requires registration of the cession at a local authority. Once registered, the cession serves as prima facie proof of cessionary rights. The cessionary then acquires personal rights against the sellers but will only on transfer get real rights over the property. Cession is usually utilized before the property has titled deeds.

Conclusion

In conclusion cession is a unique contractual arrangement that deserves specific attention by lawyers, real estate agents and any other professionals charged with drafting cession agreements. It is prudent for contract drafters to ensure that when drafting cession agreements, they clearly express the parties’ intention and ensure that the agreement of cession is in line with the applicable legal requirements. It is advisable that one consults a lawyer, well versed on cession law, before embarking on such a transaction.  

The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice. For clarification, assistance or any questions please contact the author Beatrice Moyo, on email at: beatricejoycemoyo@gmail.com

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[1] the right of selection of a particular person to occupy any specific position, e.g. as tenant in a lease or as partner in a firm.

[2] First National Bank of SA Limited v Lynn No and others 1996 (2) SA 339 (A).