First National Bank of SA Ltd v Lynn NO and Others

• Jurisdiction: South Africa
• Citation: 1996 (2) SA 339 (A)

First National Bank of SA Ltd v Lynn NO and Others
1996 (2) SA 339 (A)

1996 (2) SA p339

Citation	1996 (2) SA 339 (A)
Case No	405/94
Court	Appellate Division
Judge	Joubert JA, Nestadt JA, Van Den Heever JA, Olivier JA and Van Coller AJA
Heard	September 19, 1995
Judgment	November 29, 1995
Counsel	M Tselentis SC (with him A C Thompson) for the appellant.; M J D Wallis SC (with him L B Broster) for the respondents.

Flynote : Sleutelwoorde B

Cession — Nature and constitution of — Cession of future or contingent right — Whether possible.

Cession — Cession in securitatem debiti — Cession of book debts, including 'all our C right title and interest in and to all and any moneys and amounts which may now (be) or which may hereafter become due and owing to us' — Whether such cession may include future right to claim payment of money subject to suspensive condition — Right of contractor to claim balance of contract price held over in D retention fund subject to fulfilment of certain conditions and not payable before 27 August 1991 can be subject of deed of cession concluded in 1984 and validly transferred to the cessionary before provisional liquidation of contractor on 10 June 1991.

Headnote : Kopnota

(Per Joubert JA, Nestadt JA, Van den Heever JA and Van Coller AJA concurring): E Cession is a particular method of transferring rights in a movable incorporeal thing in the same manner in which delivery (traditio) transfers rights in a movable corporeal thing. It is in substance an act of transfer ('oordragshandeling') by means of which the transfer of a right (translatio juris) from the cedent to the cessionary is achieved. The transfer is accomplished by means of an agreement of transfer ('oordrags-ooreenkoms') between the cedent and the cessionary arising out of a justa F causa from which the former's intention to transfer the right (animus transferendi) and the latter's intention to become the holder of the right (animus acquirendi) appears or can be inferred. It is an agreement to divest the cedent of the right and to vest it in the cessionary. (At 345F/G-H/I.) Logically speaking, a non-existent right of action or a non-existent debt cannot be transferred as the subject-matter of a cession. (At 346C.) The parties may agree in the obligatory agreement to cede and transfer to the cessionary a future or contingent right of action (spes futurae actionis) or a future G or conditional debt (debitum conditionale, debitum futurum) as and when it

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A comes into existence and accrues or becomes due and payable, whereupon it will be transferred to the cessionary. If it never comes into existence it will amount to a non-existent right of action or a non-existent debt which cannot qualify as the subject-matter of a cession. (At 346F-G.)

On 31 December 1984 N (Pty) Ltd (the contractor) executed a deed of cession in securitatem debiti in favour of the B Bank, subsequently known as the FN Bank (the bank). The deed was headed 'Cession of Book Debts' and provided that N Ltd (the B contractor) does '. . . hereby cede, assign, transfer and make over to and in favour of (the bank) . . . all our right, title and interest in and to all and any moneys and amounts which may now (be) or which may hereafter become due and owing to us by any person whomsoever as security for the fulfilment of all obligations undertaken by us to the bank and as security for the payment of all money now and from time to time C hereafter owing by us to the bank for any cause of debt whatsoever. . . . In order to give effect to the cession herein contained, we hereby nominate, constitute and appoint the bank irrevocably and in rem suam to be our attorneys and agents, with full power and authority for use and in our name or in its own name to demand, sue for, recover and receive all debts or sums of money whatsoever which now or hereafter may become due, owing, payable or belonging to us. . . .'

The contractor thereafter entered into a construction contract (the contract) with the Government of QwaQwa (the employer) for the construction of a public road. By 29 D August 1990, the contractor had completed all work in terms of the contract. A certificate of completion was issued on 27 August 1990 specifying a sum of money that was to be retained by the employer against defective work and for maintenance for a period of one year (the retention money). At the expiry of this period, ie 27 August 1991, subject to any defect being repaired, the contractor's claim for payment of the retention money would become enforceable. On 10 June 1991 a progress certificate was issued, certifying that the balance of the retention money amounted to a E sum of R1 106 376,37, payable when a final certificate of completion was issued by the project's engineer within 14 days of the expiration of the retention period. On 10 June 1991 the contractor was placed in provisional liquidation and was finally wound up on 26 July 1991. On 2 July 1991 the engineer issued a final certificate of completion. A dispute arose between the bank and the respondents in the present case, the joint liquidators of the contractor, as to who was entitled to payment of the F balance of the retention money. The joint liquidators applied to a Provincial Division for a declaratory order that, on a proper construction of the contract of cession, no security had been conferred on the bank in respect of retention money certified in terms of the contract for payment by the employer subsequent to 10 June 1991. On 15 December 1993 the application was granted with costs against the bank. Relying on the authority of Muller NO v Trust Bank of Africa Ltd and Another 1981 (2) SA 117 (N) G , the Court held that the right to the retention money had not vested in the contractor at the time of the issue of the completion certificate and that, at most, the contractor could be said to have had a mere spes or expectation of a right not yet in existence which was not capable of cession prior to the contractor's liquidation. The bank appealed against the decision.

Held (per Van den Heever JA, Van Coller AJA concurring), agreeing with Joubert JA's analysis of the deed of cession as evidencing an intention to deal with future rights H which the contractor might acquire and not merely with rights extant at the time of conclusion of the cession agreement, that the questions to be determined were (a) whether the cession contemplated a transfer only of the contractor's then exigible debts and of future debts as and when they became exigible, or whether the parties to the document contemplated also a transfer of the contractor's claims then extant but imperfect because, for example, they were subject to some time clause or condition, I and of similar imperfect claims as and when they arose in the future; and, if the latter, (b) whether the contractor's claim against the employer was merely a future claim or such an imperfect one; and, if so, (c) whether present effective transfer was possible of such a claim, or whether future and contingent rights were equally incapable of present 'delivery'. (At 350B-E.)

Held, further, as to (a), that the inquiry had to be into what the parties to the cession had had in mind: what the contractor intended to deliver to the bank which was willing J to finance, as far as necessary, the contractor's ongoing operation by means of

1996 (2) SA p341

A overdraft facilities, and what the bank was content to accept as security for the recovery of the funds it was prepared to advance. (At 350F-F/G.)

Held, further, that it would make poor commercial sense for the bank to want no more than to ensure that the contractor channelled into the bank's possession money earned only as and when received as being exigible in reduction of the contractor's overdraft with the bank. (At 350I-I/J.)

Held, further, that in judging what was the content of the rights intended to be B transferred and accepted as security, it was relevant that the sequence provided for in the contract, as in most engineering or building contracts, was that the contractor would perform first: it was only after the contractor had spent energy as well as money for the benefit of the employer, that performance - payment - by the employer enriched thereby became due in the sense of only then becoming exigible. (At 351B-C.)

Held, further, that the personal rights intended to be transferred by the cession included rights to money owing, or which might become owing, to the contractor. The C cession did not limit the rights to be transferred to the contractor's right to money then payable; or only as and when money became payable in future (at 351G-G/H): the parties to the cession intended to extend the ambit of the rights of the contractor to be transferred to the bank as security as widely as lawfully possible. (At 351H-I.)

Held, further, as to question (c), that there was nothing in logic or in law that militated against acceptance of the notion that an extant right may be transferred to another D forthwith despite its being subject to a condition. It was accepted law that a contingent right was capable of immediate transfer: the fact that the right might in time turn out to be worth little, or less than the parties anticipated, did not detract from this proposition; and the requirement that the object of a cession had to be certain did not mean that the money value of the right which was ceded had to be precisely calculable E when the transfer of that right occurred. (At 352E - E/F, 352F/G-G and 352H/I-I.)

The dictum in Tuckers Land and Development Corporation (Pty) Ltd v Strydom 1984 (1) SA 1 (A) at 24E-25B applied.

Muller NO v Trust Bank of Africa Ltd and Another 1981 (2) SA 117 (N) doubted.

Held, further, as to question (b), that, since by 29 August 1990 the contractor had...