Security Cession
Also known as: Cessio in Securitatem Debiti, Cession in Security, Pactum Fiduciae.
What is Security Cession?
A security cession is the transfer of rights to claim from a debtor (such as book debts or insurance proceeds) to a creditor as security for a debt. South African law distinguishes between pactum fiduciae (cessionary becomes owner subject to reconveyance) and pledge (the cedent retains ownership) constructions.
Drafted and reviewed by
Attorney & Founder, My-Contracts.co.za · Legal Practice Council of South Africa (LPC F17333)
Definition and context
In South African law a cession of personal rights may be made either out-and-out (cessio in securitatem debiti) or by way of pledge. The leading authority, Grobler v Oosthuizen 2009 (5) SA 500 (SCA), confirmed two constructions. Under the pactum fiduciae / trust construction, the cedent transfers the right to the cessionary outright, and the cessionary holds it subject to a fiduciary obligation to recede the right once the secured debt is discharged. Under the pledge construction, the cedent retains ownership of the right but the cessionary acquires a limited real right enforceable against third parties and the cedent\'s insolvent estate, provided the security cession was accompanied by the required publicity.
The choice of construction has important consequences. Under the pactum fiduciae, the cessionary has legal title and may sue on the ceded claim in its own name, which simplifies enforcement but means the right forms part of the cessionary\'s insolvent estate (to the cedent\'s detriment). Under the pledge construction, the right remains in the cedent\'s estate, benefitting the cedent on insolvency of the cessionary but requiring the cessionary to sue in the cedent\'s name or procure a further cession for enforcement. Modern bank facility agreements tend to adopt a hybrid: an immediate out-and-out cession with a reverse cession back on discharge.
Security cessions of book debts are a standard feature of commercial finance, often coupled with factoring arrangements. They do not require registration in the Deeds Office (unlike notarial bonds) and are effective inter partes on signature. Against the cedent\'s insolvent estate, section 83 of the Insolvency Act 24 of 1936 recognises the cessionary as a secured creditor entitled to proceeds up to the amount of the debt. The in duplum rule and NCA reckless-credit provisions apply pari passu to debts secured by cession.
Where this term lives in law
National Credit Act 34 of 2005
Sections: 8, 90, 103(5)
Regulates consumer credit, credit providers, and the in duplum rule in South Africa.
Frequently asked questions
What is the difference between out-and-out and pledge cession?
Out-and-out cession (pactum fiduciae) transfers ownership of the ceded right to the cessionary subject to reconveyance. Pledge cession leaves ownership with the cedent but gives the cessionary a real security right. The choice affects who owns the right on insolvency.
Does a security cession require registration?
No. Unlike notarial bonds over movables, security cessions are effective inter partes on signature and against third parties on notice to the debtor (the debitor cessus).
What happens if the cessionary becomes insolvent?
Under pactum fiduciae the right falls into the cessionary's insolvent estate and the cedent has only a personal claim for reconveyance. Under pledge the right remains with the cedent, so the cedent is protected.
Can future rights be ceded in security?
Yes. South African law recognises cession of spes debiti (future claims) provided the claims are ascertainable at the time they come into existence. This is the basis for rolling security cessions over book debts.
Must the debitor cessus be notified?
Not as a validity requirement, but notice protects the cessionary against bona fide payments by the debitor cessus to the cedent. Without notice, payment to the cedent discharges the debt.
Contract templates using this term
2 templates reference Security Cession.