What is an out-and-out cession?
Is an out-and-out cession valid and enforceable in South Africa?
“‘Although the pledge construction has been recognised as the default form of security cession, there is no support for a conclusion that it has subsumed the field of security cessions … It therefore remains open to the parties to structure a cession either as a pledge or as an out-and-out cession, upon which a pactum fiduciae is superimposed.’”
“‘In the event of an outright cession, Grobler would have lost all his rights under the policies … by transferring those rights to the deceased. Nothing would remain vested in him.’ The true character of the cession depends on the intention of the parties.”
When you need a Out-and-Out Cession
- A financier, bank or factor will only advance funds if you transfer (cede) your book debts or a specific large claim to them as security — and wants the stronger, outright form rather than a pledge-type security cession.
- You are factoring or selling your receivables outright to a third party who must become the full owner of those debts and collect them in their own name.
- A lender wants the ceded right ring-fenced so that, on the borrower’s insolvency, the lender holds the right itself rather than competing as a concurrent creditor over a reversionary interest.
- You are transferring rights under an insurance policy, a loan claim, or a contractual claim entirely to another party as part of a financing, sale-of-business or restructuring transaction.
What a Out-and-Out Cession should contain
Clear words of outright (unconditional) transfer
The deed must express an unmistakable intention to transfer the right outright — that the cessionary becomes the full holder of the ceded right and that nothing remains vested in the cedent. Because courts look at substance over labels (Grobler v Oosthuizen), calling it an “out-and-out cession” is not enough; the operative wording must match the intention.
Pactum fiduciae (re-cession undertaking)
Where the out-and-out cession is given as security, include the pactum fiduciae — the cessionary’s undertaking to re-cede the right to the cedent once the secured debt is fully paid or discharged. This is what makes it a security arrangement rather than an absolute disposal, and it is the source of the cedent’s only remaining right (a personal claim to re-cession).
Identification of the ceded right
Describe precisely the personal right(s) being ceded — the specific debt, claim, policy, book debts or class of receivables — and how present and future rights are dealt with. A right cannot be transferred if it cannot be identified, and uncertainty invites disputes about exactly what passed to the cessionary.
Secured obligations (the causa / underlying debt)
State the debt or obligations the cession secures — the amount, the agreement it arises under, and whether it covers present and future indebtedness. A valid cession requires an underlying causa; for a security cession this is the secured debt that triggers the duty to re-cede once settled.
Cedent’s warranties of title and enforceability
The cedent should warrant that it is the holder of the right, that the right exists and is enforceable, that it is free of prior cessions or set-off, and that it has not already been ceded elsewhere. A second cession of the same right is generally defeated by the first — so warranties and a clean-title check matter.
Notice to the debtor (debitor cessus)
Cession is perfected between cedent and cessionary without notifying the debtor, but until the debtor is notified it can validly pay the original creditor and acquire defences and set-off. For an out-and-out cession the cessionary normally gives written notice so the debtor must pay the cessionary directly — address whether and when notice is given.
Anti-dissipation / collection and account-of-proceeds terms
Where book debts or claims are ceded, regulate who collects, into which account proceeds are paid, and the cedent’s obligations not to compromise, vary or further cede the rights. This protects the cessionary’s position between cession and full payment of the secured debt.
Re-cession, release and termination mechanics
Set out exactly how and when the cessionary must re-cede the right (or release it) once the secured debt is paid, including any notice, re-cession instrument and notification to the debtor. Without clear re-cession mechanics the cedent is left relying solely on a personal claim under the pactum fiduciae.
Out-and-out (security) cession vs cession in securitatem debiti (pledge-type) in South African law
| Feature | Out-and-out cession (with pactum fiduciae) | Cession in securitatem debiti (pledge construction) |
|---|---|---|
| What passes to the cessionary | The entire right — the cessionary becomes full holder of the ceded debt | Only the right to enforce the right on default; the substance stays with the cedent |
| What the cedent retains | A personal right against the cessionary to claim re-cession (pactum fiduciae) | The “bare dominium” / reversionary interest in the ceded right |
| On payment of the secured debt | Right must be re-ceded back to the cedent (an act of re-cession is needed) | The right automatically reverts to the cedent — no re-cession needed |
| Effect on the cedent’s insolvency | Ceded right is held by the cessionary; cedent’s estate has only a personal re-cession claim | Reversionary interest falls into the insolvent estate; cessionary ranks as a secured creditor |
| Default position if intention is unclear | Not the default — must be clearly intended and expressed | The default form a court will infer (Engen Petroleum v Flotank) |
Common South African pitfalls
- Labelling a deed an “out-and-out cession” but writing it like a pledge. South African courts decide the true nature on the parties’ intention and the substance of the wording, not the heading — in Grobler v Oosthuizen the words “out-and-out cession” were not even in the documents when they were signed, and the court construed it as a security cession.
- Not appreciating the insolvency consequences. Under a genuine out-and-out security cession the cedent is left with only a personal claim to re-cession; if the cessionary becomes insolvent before re-ceding, the cedent may rank as a concurrent creditor rather than recovering the right itself — the opposite of a pledge-type cession where the reversionary interest is protected.
- Forgetting to notify the debtor (debitor cessus). Cession is complete between the parties without notice, but until the debtor is told it can keep paying the original creditor and build up set-off and defences — eroding the value of what the cessionary thought it acquired.
- Ceding a right that has already been ceded, or is non-transferable. A prior cession of the same claim generally prevails (first in time), and some rights are incapable of cession (for example where the contract prohibits it or the right is too personal) — failing to check title and cedability undermines the whole transaction.
- Omitting clear re-cession mechanics. If the deed does not spell out how and when the right is re-ceded on settlement, the cedent is left enforcing a personal pactum fiduciae claim instead of automatically getting the right back, which is slower and riskier.
Frequently asked questions
What is the difference between an out-and-out cession and a cession in securitatem debiti?
In an out-and-out cession the entire right is transferred and the cessionary becomes its full holder, with the cedent retaining only a personal right to claim re-cession once the secured debt is paid. In a cession in securitatem debiti (the pledge construction) the cedent keeps the substance of the right — a “bare dominium” or reversionary interest — and only the right to enforce on default passes to the cessionary.
Is an out-and-out cession legal and enforceable in South Africa?
Yes. The Supreme Court of Appeal confirmed in Engen Petroleum v Flotank (2022) that parties may structure a security cession either as a pledge or as an out-and-out cession on which a pactum fiduciae is superimposed. The out-and-out cession is a recognised, enforceable form of transferring and securing personal rights in South African law.
What is a pactum fiduciae in an out-and-out cession?
A pactum fiduciae is the undertaking, superimposed on an out-and-out security cession, that the cessionary will re-cede the transferred right to the cedent once the secured debt has been settled. It is what turns an outright transfer into a security arrangement, and it is the source of the cedent’s only remaining right — a personal claim to re-cession.
Does the cedent keep a reversionary interest under an out-and-out cession?
No — that is the key difference. Under a true out-and-out cession the cedent transfers the right entirely and is left with only a personal right (under the pactum fiduciae) to claim re-cession; it does not retain a reversionary interest in the ceded right itself. A reversionary interest is the hallmark of a cession in securitatem debiti (pledge construction), not of an out-and-out cession.
How does an out-and-out cession affect insolvency in South Africa?
Because the right has been transferred outright, on the cedent’s insolvency the ceded right is held by the cessionary rather than the insolvent estate. Conversely, if the cessionary is sequestrated or liquidated before re-ceding, the cedent generally holds only a personal claim to re-cession and may rank as a concurrent creditor — a weaker position than under a pledge-type cession, where the reversionary interest is protected.
How does a South African court decide if a cession is out-and-out or in security?
The court determines the true character of the cession from the intention of the parties, read from the wording of the deed and the surrounding agreement. The label used is not decisive — in Grobler v Oosthuizen the SCA stressed substance over form, and where the intention is unclear courts lean towards the pledge (security) construction as the default.
Does an out-and-out cession have to be in writing?
There is no general statutory formality requiring a cession of a personal right to be in writing — a cession can be concluded orally or even tacitly. In practice, however, an out-and-out cession (especially for security or factoring) is always reduced to a clear written deed so that the intention to transfer outright, the pactum fiduciae and the re-cession terms are certain and provable.
Do you need to notify the debtor of an out-and-out cession?
Notice to the debtor (the debitor cessus) is not required to make the cession valid between cedent and cessionary, but it is important in practice. Until the debtor is notified, it can validly pay the original creditor and raise set-off and other defences, so a cessionary under an out-and-out cession usually gives written notice requiring payment to be made to it directly.
Sources & authority
- Engen Petroleum Ltd v Flotank Transport (Pty) Ltd (876/2020) [2022] ZASCA 98 (21 June 2022)
- Grobler v Oosthuizen (299/2008) [2009] ZASCA 51; 2009 (5) SA 500 (SCA) (26 May 2009)
- Insolvency Act 24 of 1936 (realisation of securities and ranking of secured creditors, ss 83–84)
This guide is general information, not legal advice. It reflects the law as at June 2026.