First National Bank of SA Ltd v Lynn NO and Others (405/94) [1995] ZASCA 158; 1996 (2) SA 339 (SCA); [1996] 1 All SA 229 (A); (30 November 1995)

Case no 405/94 IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION

In the matter between

FIRST NATIONAL BANK OF SA LTD Appellant

and

MW LYNN NO 1st Respondent

GB PERRY NO 2nd Respondent

LE SPENDIFF NO 3rd Respondent

TS EVANS NO 4th Respondent

GT GRAHAM NO 5th Respondent

THE MASTER OF THE SUPREME COURT 6th Respondent

CORAM: JOUBERT, NESTADT, VAN DEN HEEVER, OLIVIER JJA et VAN COLLER AJA

HEARD: 19 September 1995

DELIVERED: 30 November 1995

J U D G M E N T

JOUBERT JA:

On 31 December 1984 Natal Earthworks (Pty) Ltd ("the contractor"), as cedent,2 executed a deed of cession ("the cession") in favour of Barclays National Bank Ltdsubsequently known as First National Bank of Southern Africa Ltd, ("the Bank"), ascessionary. Thereafter, but prior to 10 June 1991, the contractor entered into a

construction contract ("the contract") with the Government of Ouaqua ("the employer")

for the construction of a certain public road which comprised two different sections, viz.

Route 5 (inclusive of a bridge on Route 6) and the rest of Route 6. On 10 June 1991

the contractor was placed in provisional liquidation and finally wound up on 26 July

1991. The first five respondents are the joint liquidators of the contractor in liquidation.

I shall refer to them collectively as "the joint liquidators" and individually by name. A

dispute has arisen between the Bank and the joint liquidators as to who is entitled to

payment of the balance of the retention monies under the contract. The joint liquidators

launched an application in the Natal Provincial Division against the Bank as respondent

for a declaratory order that upon a proper construction of the cession no security was

conferred on the Bank in respect of retention monies certified in terms of the contract

for payment by the employer subsequent to 10 June 1991. On 15 December 1993

BROOME DJP granted the application with costs. With leave of the Court a quo the

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Bank now appeals to this Court. The Master (the 6th respondent) abides the decisionof this Court.

I turn to consider the cession, dated 31 December 1984, which is headed "Cession of Book Debts." Relevant terms are the following ... "hereby cede, assign, transfer and make over to and in favour of Barclays National Bank Limited (hereinafter referred to as "the Bank") all our right title and interest in and to all and any monies 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 monies now and from time to time hereafter owing by us to the Bank for any cause of debt whatsoever.

This cession shall remain of full force and effect and be irrevocable so long as there are monies owing by us to the Bank.

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 us and in our name or in its own name to demand, sue for, recover and receive all debts or sums of money whatsoever which now4or hereafter may become due, owing, payable or belonging to us.

We do hereby confirm and agree that for so long as this Cession shall remain in existence we shall conduct our bank account or bank accounts solely at the Bank, that we shall not open or conduct any other account in any other Banking institution whatsoever and that we will not further encumber the said book debts either by factoring or ceding our residual rights therein or in any other way, without the prior written

consent of the Bank being first had and obtained

". (My underlining).

Quite obviously the cession is expressed in very wide terms. The intention of the parties to the cession, i.e. the contractor as cedent and the Bank as cessionary, is clear. The main object of making the cession was to provide the Bank with security (in securitatem debiti) in respect of the contractor's bank account with it. The cession was intended to form a continuing security for an indefinite period. The security was wide enough to embrace all debts, both present and future, which were due and payable, or might become due and payable to the contractor by its debtors. It was never intended5 by the parties to the cession to limit the security of the Bank solely to debts due and

payable when the cession was executed since such a limitation would have severely !restricted the practical effectiveness of the security.

A debt is what is due from an obligation. Consult The Oxford English

Dictionary. 2nd ed., 1989, Vol 4 s.v "due" as an adjective: "That is owing or payable,

as an enforceable obligation or debt" and s.v. "debt" as a noun: "1. That which is owed

or due; anything (as money, goods or service) which one person is under obligation to

pay or render to another".

In Whatmore v Murray 1908 TS 969 at p970 INNES CJ construed a "debt due"

as follows: "It seems to me that for a debt to be due there must be a liquidated money

obligation presently claimable by the debtor, for which an action could presently be

brought against the garnishee. If such an obligation exists, then, to my mind, a debt is

due." See also Deloitte Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman

Deutsch Pty Ltd [1990] ZASCA 136; 1991 (1) SA 525 (A) at p532 G-H: "Section 12 (1) of the

Prescription Act 68 of 1969 provides that 'prescription shall commence to run as soon

as the debt is due'. This means that there has to be a debt immediately claimable by

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the creditor or, stated in another way, that there has to be a debt in respect of which thedebtor is under an obligation to perform immediately." (My underlining).In terms of the deed of cession the contractor ceded as security to the Bank "all our right title and interest in and to all . . . monies . . . which may now [be] or which may hereafter become due and owing to us by any person whomsoever". The word "monies" is according to the deed of cession synonymous with "debts or sums of money whatsoever which now or hereafter may become due, owing, payable or belonging to us." The creditor's right of action is the correlative of the debtor's debt. The debts arising from the indebtedness of the contractor's debtors could either be debts presently due and owing on execution of the deed of cession or future debts becoming due and payable thereafter .

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 transfer7 ("oordragsooreenkoms") between the cedent and the cessionary arising out of a justacausa from which the former's intention to transfer the right (animus transferendi) andthe letter's intention to become the holder of the right (animus acquirendi) appears orcan be inferred. It is an agreement to divest the cedent of the right and to vest it in thecessionary. Moreover, the agreement of transfer can coincide with, or be preceded by

a justa causa which can be an obligatory agreement, also called an obligationary

agreement, ("verbintenisskeppende ooreenkoms") such as, a contract of sale, exchange

or donation. See Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A)

at p331 G. Even an agreement to provide security by means of a cession in

securitatem debiti is in itself adequate justa causa for the cession. See De Wet & Van

Wyk, Die Suid-Afrikaanse Kontraktereg en Handelsreg, vol 1, 5th ed, p420: "As 'n

causa noodsaaklik is vir die cessie, dan is die afspraak dat dit in securitatem debiti

geskied, tog seker genoegsame causa daarvoor . ...". In LAWSA, vol 2 (First Reissue),

1993, s.v. Cession para 229 the constituent elements of cession are enumerated as

follows:

" (a) it is an act of transfer; (b) the subject matter of the transfer is a right; and

8 (c) the transfer is effected by agreement between the cedent and the cessionary".

The legal principles which are relevant to the subject matter of a cession may,

for purposes of this appeal, be stated as follows:

1 Logically speaking a non-existent right of action or a non-existent debt can never in law be transferred as the subject matter of a cession. Van Bynkershoek (1673-1743) Vol 3 Observationes Tumultuariae 2448. 2 Where the subject matter of the cession has been described simpliciter in the obligatory agreement as the cedent's accrued right or as a debt presently due and payable (debitum purum) its transfer can be accomplished according to the agreement to transfer in such manner that the cedent divests himself of it and vests it in the cessionary. Compare Gomezius (a 16th century Spanish jurist) in his Commentariorum Variarumque Resolutionum Juris Civilis, 1572, tomus 2 cap 11 n 28: Item etiam, quod si creditor cessit alteri per contractum iura sibi competentia contra ilium, quod in tali cessione non veniunt debita sub conditione, vel in diem, sed tantum debitum purum, ita expresse notat Bald in D 31.46 & ibi Ioan. de Imola.

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3 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 or conditional debt (debitum conditionale, debitum futurum) as and when it 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 according to 1 supra. De Wet & Van

Wyk, op.cit.. p254:

"Dit beteken egter nie dat mens 'n 'vorderingsreg', wat nog nie bestaan nie, maar wat in die toekoms mag ontstaan, of 'n vorderingsreg, waaroor 'n mens nog nie beskik nie, kan cedeer nie. Hiermee wil ek nie te kenne gee dat mens jou nie regsgeldig kan verbind om 'n vorderingsreg, wat jy in die toekoms mag verwerf, aan 'n ander oor te dra nie. So 'n ooreenkoms is wel geldig, maar dit maak die ander nog nie cessionaris nie. Hy word eers cessionaris indien die vorderingsreg, nadat dit ontstaan het of verwerf is. aan hom gecedeer is." (My underlining)

The following portion of the passage in cap 5 para 4 of the Commentarius de Actionum

Cessione. 1623, by Sande (1558-1638) has been the cause of some confusion in our case

law: "Nec tantum actio, sed etiam futurae actionis spes utiliter transfertur, Cod 8.53

(54).3. Futurae actionis spes est in stipulatione aut contractu conditionali. Nam in his10 nondum res, sed spes tantum nostra est, eaque ipsa spes cedi potest, quemadmodum &spes, sive res futura promitti, vendi, oppignerari potest, D20.1.15pr, D18.4.17, 19 Inst3.15.4 ..." (My underlining). The above portion of the said passage is translated asfollows by Dr Anders in his Cession of Actions. 1906: (p59)

"Not only an action, but even the expectation of a future action may be advantageously transferred, Cod 8.53 (54)3. The expectation of a future action is comprised in conditional stipulations or agreements. For here the subject-matter has not yet accrued to us, but we have only the hope thereof, and that very hope may be ceded just as an expectation or a thing that will come into existence may form the subject of a promise, sale or pledge." (My underlining).

The authors De Wet & Van Wyk loc.cit. by stressing the underlined words of Sande maintain at p254 that it is clear "dat sy futurae actionis spes nie 'n verwagting van 'n vorderingsreg is nie, maar 'n voorwaardelike vorderingsreg." This construction by them, read in the context of their elucidating commentary in footnote 18, would appear to be sound and acceptable, viz. that Sande is dealing with a conditional right and not a mere spes (expectation) of a right as yet non-existent.

I now turn to consider the position of retention money under the contract between the contractor and the employer. It is not disputed that the contract price was R23 146 474-70 which, according to the definition of "contract price" in Clause 1 (g)

11of the General Conditions of Contract 1982 ("the General Conditions") which wereincorporated in the contract, was subject to such additions thereto or deductionstherefrom as may be made from time to time under the provisions hereinafter

contained." Final payment was deferred and would become determined and due on

completion of the work.

The relevant provisions of Clause 62 (1) of the General Conditions of Contract

read as follows:

"Certificate and payment

62 (1) The Contractor shall be paid monthly on the certificate of the Engineer the amount due to him in respect of

(a) the estimated contract value of the permanent work executed up to the end of the previous month and in addition such amount as the Engineer may consider fair and reasonable for any Temporary Works or other special items for which separate amounts are provided in the Schedule of Quantities, subject to a retention of the percentage named in the Tender [5%] until the amount retained shall reach the 'Limit of Retention

Money' named in the Tender (hereinafter called 'retention money*)

..."

It appears from Clause 62 (1) (a) that provision was made for monthly progress payments by the employer to the contractor based on monthly interim certificates issued by the engineer as prepayments or advances on the eventual final contract sum. The

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interim certificates were to represent only an approximate and proportional value of thework done and material on site at a specific date. Moreover, the amount certified was provisional and remained subject to adjustment and readjustment by the engineer in subsequent certificates.

Clause 62 (1) (a) also provides for a deduction of 5% as retention money from the monthly progress payments. "The retention money is retained by the employer as security for the due performance of the contract by the contractor and as a fund to be drawn upon either to complete the work or to rectify defects should the contractor fail to do so." (Halbury's Laws of England. 4th ed. vol 4 (2) (re-issue) para 448).

According to the contract the maintenance period was for twelve months. In

terms of Clauses 48 (1) and 49 (1) (a) the maintenance period is to commence from the

date of the certificate of completion in respect of the works. The engineer is

empowered to extend the maintenance period. Clause 62 (2) stipulates the manner of

payment of the retention money as follows:

"Where maintenance is specified, one half of the retention money shall become due and shall be paid to the Contractor when the Engineer shall have issued a Certificate of Completion in terms of Sub-Clause 48 (1) hereof and the other half when the Engineer

shall have certified payment thereof within 14 days of the expiration of the Period of

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Maintenance notwithstanding that at such time there may be outstanding claims by the Contractor against the Employer, provided always that if at such time there shall remain to be executed by the Contractor any works ordered during such period pursuant to Clauses 49 and 50 hereof, the Employer shall be entitled to withhold payment until the completion of such works of the second half of the retention money or so much thereof as shall in the opinion of the Engineer represent the cost of the work so remaining to be executed . . . ".

The issue of a final certificate by the engineer to the employer records the

completion of the contract. In this regard Clause 64 (1) provides as follows:

"The Contract shall not be considered as completed until a Final Certificate shall have been signed by the Engineer and delivered to the Employer stating that the Works have been completed and (where specified) maintained to his satisfaction. The Final Certificate shall be given by the Engineer within 14 days of completion of the entire Works or the expiration of the Period of Maintenance or latest Period of Maintenance, as the case may be, or as soon thereafter as any works ordered during such period pursuant to Clauses 49 and 50 hereof shall have been completed to the satisfaction of the Engineer, and full effect shall be given to this Clause notwithstanding any previous entry on the Works or the taking possession, working or using thereof or any part thereof by the Employer. Provided always that the issue of the Final Certificate shall not be a condition precedent to payment to the Contractor of the second half of the retention money in accordance with Clause 62 hereof."

In the present matter the accepted crucial events relating to the retention monies may be tabulated as follows: 1 At a site meeting on 6 June 1990 the contractor formally requested the employer

to accept Route 5 with the bridge on Route 6 as completed. The engineer

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conducted a site inspection and recorded on a "snag list" certain minor remedial tasks and operations to be completed by 11 July 1990. On 6 June 1990 the engineer issued progress certificate 16 in which the release of 50% of the retention monies was authorised. R762 835-36 retention money was accordingly paid by the employer to the contractor. 2 On 11 July 1990 the engineer instructed the contractor to complete the "snag list" by 31 July 1990. The latter date became the final date of completion of Route 5 and the bridge on Route 6. The certificate of completion was issued on 31 July 1990 when in terms of Clause 49 (1) (a) the maintenance period of twelve months commenced to run. This maintenance period in respect of Route 5 and the bridge on Route 6 was subsequently extended by the engineer to 30 April 1992. 3 On 27 August 1990 the engineer in terms of Clause 48 (1) issued a certificate of completion in respect of Route 6 when the maintenance period of twelve months in terms of Clause 49 (1) (a) commenced and would be operative until 26 August 1991.

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4 By 29 August 1990 the contractor had completed all work in terms of the

contract and moved off the site. 5 On 10 February 1991 the last progress certificate 24 prior to the provisional liquidation of the contractor was issued. It reflected a sum of Rl 106 376-37 as the balance of the retention money. The parties are agreed that since February 1991 until October 1991 the employer withheld an amount of Rl 105 589-39 as the balance of the second half of the retention money.

6 On 10 June 1991 the contractor was placed in provisional liquidation. 7 On 2 July 1992 the engineer issued a final Certificate of Completion.

In the present matter we are concerned with the balance of the retention money in regard to Route 6. Mr Tselentis. on behalf of the Bank, contended that in terms of Clause 48 (1) the contractor at the practical completion of the contract acquired a contingent right to the balance of the retention money. According to his argument this contingent right of the contractor by virtue of the cession vested in the Bank before 10 June 1991. I cannot agree. In my judgment Clause 62 (2) confers on the contractor a vested right to payment of the balance of the retention money "when the Engineer shall16 have certified payment thereof within 14 days of the expiration of the Period ofMaintenance." But since the period of maintenance did not expire before 10 June

1991 and no certification of payment by the Engineer occurred before the said date, itfollows that the contractor acquired no vested right to the balance of the retention moneybefore its provisional liquidation on 10 June 1991. Assuming (without deciding) that

the contractor obtained a contingent right, as claimed by Mr Tselentis. then such

contingent right would have vested on 10 June 1991 in the contractor's insolvent estate

according to the provisions of sec 339 of the Companies Act 61 of 1973 read in

conjunction with sec 20 (1) (a) and 20 (2) (a) of the Insolvency Act 24 of 1936.

In the result I would dismiss the appeal with costs, including the costs of two

counsel.

C P JOUBERT JA

CONCUR

NESTADT JA

OLIVIER, JA:

This is a dispute between a cessionary of the book debts of a company and the liquidators of that company as regards

2

the entitlement to receive payment of retention money earned by the company.The chronological sequence of events leading to this appeal is as follows:

1. On 31 December 1984 Natal Earthworks (Pty) Ltd ("the contractor") executed a deed of cession of all money "... which may now [be] or which may hereafter become due and owing to us ..." in securitatem debiti in favour of First National Bank of Southern Africa Ltd ("the bank"). 2. Much later on a date not mentioned in the papers, the contractor concluded a building contract with the Government of Quaqua ("the employer"). 3. By 29 August 1990 the contractor had completed all work in terms of the contract and moved off the site. A "certificate of completion" was issued on 27 August 1990, specifying the exact sum that was being retained by the employer against defective work and

for maintenance for the agreed period of one year. At the expiry of this period, i.e. 27 August 1991, subject to any defect being repaired, the contractor's claim for the payment of the retention moneys would become enforceable.

4. On 10 February 1991 a progress certificate was issued. It certified a sum of R1106 376,37 as the balance of the retention money. This sum would become payable when a final certificate had been issued by the Engineer which he was obliged to do within 14 days of the expiration of the retention period. 5. On 10 June 1991 the contractor was placed in provisional liquidation. 6. The respondents were appointed as liquidators of the company, 7. A final order of liquidation of the contractor was issued on 26 July 1991. 8. On 2 July 1992 the engineer issued a final certificate of completion, which meant that any retention money, not yet paid out,

4

had become due and payable.The respondents contend that the appellant, the bank, is not a secured creditor in relation to the said retention money. The crux of their contention is that there was no indebtedness to the contractor by the employer in respect of retention money prior to the provisional order of liquidation, because it was not due and payable to the contractor prior to the said order. When appellant disputed this contention, the respondents approached the Natal Provincial Division for an appropriate declaratory order.Broome J who heard the matter defined the issue between the parties as follows:

"It is trite that when on 10 June 1991 the hand of the law fell on the company there was a concursus creditorum and that all the rights enjoyed at the moment by the company vested in the liquidator. The corollary is that if the company had divested itself of a particular right before that moment then such right remained where it was and did not vest in the liquidator. The issue between the applicant and the first respondent is whether or not the cession had the effect of vesting in the hands of the 5 first respondent the right to the retention sum,"

The learned judge placed considerable reliance on the judgment in Muller NO v Trust Bank of Africa 1981(2) SA 117 (N) for support for the propositions that:

(a) the rights of the parties under a cession in securitatem debiti must be determined in accordance with the law of pledge; (b) a pledgee will, on the sequestration of the pledgor's estate, have a right to have his claim against the pledgor's estate paid from the proceeds of a corporeal movable pledged to him in respect of the claim, in preference to the claims of other creditors, if the pledge has before sequestration been perfected by delivery of the pledged property to the pledgee so as to give him a jus in re aliena' in respect of the pledged property as security for the payment of his claim. Broome J held that the effect of the issue of the certificate of

completion on 27 August 1990 did not create a right in favour of the

contractor to claim payment of the retention money:

"There are just too many uncertainties or contingencies which may arise for that to be the case. These uncertainties or contingencies operate in my judgment so as to indicate that a right to the retention monies cannot be said to have crystallised or vested in the company as at the date of the issue of the certificate of practical completion.... At best for the first respondent, (the bank) it enjoyed a mere spes or expectation which on the authority of Muller's case was not capable of being effectively ceded to the first respondent prior to the liquidation of the company."

The ratio for the decision of Broome J cannot be supported, When the certificate of completion was issued, it signified the coming into existence of a right to claim performance i.e. payment of the retention money subject to a suspensive condition, viz. the repair of any defects which might manifest themselves during the retention period. (For the purpose of this matter it is not necessary to decide whether such right had come into existence prior to 27 August 1990).

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This right was not a spes, but a conditional right to claim performance. (In respect of the meaning of conditions in the true sense and as used here, see Jurgens Eiendomsagente v Shane 1990(4) SA 664 (A) at 674 E - 675 A; Tuckers Land and Development Corporation (Ptv)Ltd v Strydom 1984(1) SA 1 (A) at 10 C - E; Van der Merwe et al. Contract: General Principles. 1993: 204 et seq. As regards the difference between a spes and a right subject to a condition, see Susan Scott, The Law of Cession. 2nd ed., 170 et seq. and cases there cited; Lubbe 1980 THRHR 117 at 119).

A true suspensive condition postpones the enforceability of a personal right ('n vorderingsreg) until the happening of a future, uncertain event. The personal right exists and forms part of the patrimony of the creditor, but its enforceability is postponed. A spes. on the other hand, is merely the expectation that in future a personal right (whether conditional or not) will come into existence.

The nature of a right subject to a suspensive condition is aptly

8

described by De Wet van Wyk (Kontraktereg en Handelsreg, 5th ed.

vol. 1, 150 - 151) as follows:

"Die voorwaarde raak hoegenaamd nie die bestaan van die ooreenkoms nie, en ook nie die kategorie waarin die ooreenkoms val nie ... Deur die ooreenkoms verbind partye hulle. Die een kan hom dus aan hierdie ooreenkoms net so min onttrek sonder die ander se toestemming as wat hy hom aan enige ander ooreenkoms kan onttrek. Uit die ooreenkoms ontstaan voorwaardelike verbintenisse; dit is immers wat partye beoog het. Die skuldeiser kan nou wel nie die prestasie onvoorwaardelik vorder nie, want dan vorder hy meer as waartoe hy geregtig is, maar aan die ander kant het hy tog 'n voorwaardelike reg op die prestasie. Hierdie voorwaardelike reg bestaan werklik, en het wel deeglik regsgevolge. Die voorwaardelike skuldeiser kan reeds voor vervulling van die voorwaarde 'n geding voer ter beskerming van sy voorwaardelike reg. Die voorwaardelike verbintenis kan ook die voorwerp wees van geldige sekerheidstelling; dit vererf positief en negatief op die skuldeiser en skuldenaar se erfgename; dit is onder lewendes oordraagbaar; dit word deur die insolvensiewetgewing in beskerming geneem." It is true that under a contract of locatio conductio opens the

contractor's right to the contract price is usually enforceable only

upon ultimate completion of the work (including the maintenance work) (Thomas Construction (Pty) Ltd v Grafton Furniture Manufacturers (Pty) Ltd 1988(2) SA 546 (A) at 563 G). It is also correct that the contractor's claim for payment of the retention money is subject to the suspensive condition that the building defects be cured. The contractor cannot enforce payment of the retention money unless and until that suspensive condition has been fulfilled. But the fact that a claim to payment is dependent on the fulfilment of a condition does not mean that it comes into existence or "vests" only upon fulfilment of the condition, On the contrary, the right is created, it forms part of the patrimony of the creditor, it "vests" in the creditor; its enforceability is merely postponed.

In the present case a suspended right to claim payment of the

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retention money came into being on 27 August 1990, As explained by De Wet and Van Wyk loc cit. that right constitutes a legal reality and not a mere spes. Inter alia it can be ceded and it forms part of the deceased or insolvent estate of the contractor.

In the result, I hold that the court a quo erred in its approach and that its judgment is untenable. On the basis quoted above the court rejected, unjustifiably, the argument put forward by the appellant that the right now under discussion is a right subject to a suspensive condition. Clearly the court was of the view that the right only "vested" when payment of the retention moneys became enforceable. It seems that the court a quo considered itself bound by the decision in Muller NO v Trust Bank of Africa Ltd and Another 1981(2) SA 117 (N). The facts of that case are stated in the

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report of the judgment of the court of first instance sub nom. Trust Bank of Africa Ltd v Muller NO and Another 1979(2) SA 368 (D). In so far as these decisions, and also Graham NO v Williams Hunt (Pty)Ltd 1995(1) SA 371 (D), held that the right to claim retention money when it falls due, is a future right, instead of a conditional right, and that it "vests" only when it becomes enforceable, they should not be followed (see also criticism by Scott, op, cit. 174 -175 and in 1982 De Jure 183 et seq.; Farlam and Hathaway, Contract: Cases. Materials and Commentary. 3rd ed (eds. Lubbe and Murray) 1988: 661). Quite simply, the effect of such decisions is to reduce all conditional rights to spes with the untenable consequence, espoused by the respondents, that if an amount is not forthwith due and payable, there is no indebtedness, i.e. there is no creditor and no

right to claim performance.

Our law accepts that an existing right of action, subject to a true condition, whether suspensive or resolutive, can be ceded. This appears from Voet Comment, ad Pand. 18.4.9; Sande, De Actionum Cessione 5,4; and cases such as National Bank of South Africa Ltd. v. Cohen's Trustee 1911 AD 235 at 256; Mc Neil v Insolvent Estate of Robertson (1882) 3 NLR 190 at 193 in fine: Tayler and RiesLtd v Clift NO and Others 1935 GWL 1 at 12; and it is supported by Scott, The Law of Cession. 2nd ed. 1991: 170; De Wet en Van Wyk, Die SA Kontraktereg en Handelsreg, 5e uit. 1992: 254; Lubbe Die Oordrag van toekomstige regte. 1980 THRHR 117).

Thus, at the latest on 27 August 1990, when the "certificate of completion" was issued, a right of action (vorderingsreg) subject to

a suspensive condition came into being. This right could be ceded by the contractor. If it had not earlier been effectively ceded or transferred by the contractor, the right of action would on that date have "vested" in him, i.e. he would have become the creditor entitled to payment of the debt if and when it became enforceable. After that date and up to the date of the provisional liquidation the contractor was entitled (subject to the provisions of the Insolvency Act relating to voidable and void dispositions) to cede the right to a third party. After the date of the provisional liquidation he obviously could not do so.

If the contractor, after 27 August 1990 and before 10 June 1991 had ceded and transferred the conditional right to payment of the retention moneys to a third party, the legal effect would have

been that the cedent would have retained the "dominium" of the right

and the cessionary would have acquired the right subject to the aforesaid condition to enforce the right. On the insolvency of the cedent the cessionary would be a secured creditor with a preferent claim. This was clearly stated by Joubert JA in Land- en Landboubank van Suid-Afrika v Die Meester 1991(2) SA 761 (A) at 771 D - G.It is common cause that the contractor did not, on or after 27 August 1990, purport to cede or transfer the right to claim the retention money to the bank.

The bank does not rely on a cession of the said right after 27 August 1990. It bases its entitlement on the prior cession of 31 December 1984. That cession took place long before the right under

discussion came into existence.Did the cession of 31 December 1984 vest in the bank, the cessionary, the right which came into existence in August 1990 with the legal consequences as set out hereinbefore? This is the crucial question in this appeal.There are two approaches to this question, one resulting in a negative answer and, therefore, success in the appeal for the respondents; the other approach and, in my view, the correct one, resulting in the opposite conclusion.The first approach takes as its point of departure the construction placed by our courts on cession. This construction is to the effect that the cession of a right requires two juristic acts, viz. the obligationary agreement and the real agreement. The first agreement

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creates rights and duties, ia. the right to claim delivery of the relevant right of action. The second, real, agreement relates to the actual delivery (or transfer) of the right of action. This agreement requires consent to give and take delivery of the relevant right of action (see Johnson v Incorporated General Insurances Ltd 1983(1) SA 318 (A) at 331 G - H). These two juristic acts may be incorporated in one declaration or document (the Johnson-case. supra, at 331 G - H).The attack on the cedability of the expectation of future rights (spes) is then based on two arguments:(i) Although it is nationally possible that parties can enter into a contract relating to the cession or transfer of the expectation of future rights (a spes), they cannot, before the envisaged right comes

17

into existence, transfer that right, They cannot transfer in

anticipando that which does not exist. And in order to transfer the

right, they will have to conclude the real agreement after the righthad come into existence (which did not occur in the present case),

This view is expressed succinctly by Lubbe, op cit. 128 as

"Die boustene van die Suid-Afrikaanse vennoensreg is subjektiewe regte, wat saaklik of persoonlik van aard kan wees. In hierdie stelsel is geen plek in te ruim vir 'n sogenaamde spes of verwagting, iets wat nog geen vermoënsbestanddeel is, maar aan 'n ander oorgedra sou kan word nie." This view is shared by other academics: De Wet en Van Wyk,

op cit.. 254; E Kahn, Contract and Mercantile Law through the

Cases. 1971: 243. A contrary view is that of Scott, op cit.. 178:

"In the case of future rights, the method of transfer facilitates the possibility of transferring such rights in anticipando, as the

18

transfer is effected by means of an agreement. This transfer agreement can be concluded in anticipando, that is, before the right has materialized, and if this agreement is the sole requirement for the cession, it is regarded as a completed juristic act which cannot be dissolved unilaterally by one of the parties concerned."

(ii) The second argument is that there is no common law authorityrecognising the cedability of a spes. It is contended that theauthorities relied upon by our courts for the view that a spes iscedable - Sande op cit. 5,4 and Voet, Comment, 18,4,9 - do notsupport the said view.

After an exhaustive review of the said texts, Lubbe, op cit. 121

concludes as follows:

"Uit hierdie bespreking behoort dit duidelik te wees dat die skrywer hiervan van mening is dat die gewraakte uitlatings van Sande en Voet hoegenaamd nie steun bied vir die gedagte dat volgens ons gemenereg 'n spes as sodanig oordraagbaar sou gewees het nie. Die skynbare afwesigheid van ander

19

gesagsbronne ten gunste van die oordraagbaarheid van 'n spes bevestig die vermoede dat so 'n instelling nie in die Romeins-Hollandse gemenereg bestaan het nie."

The second and opposite approach to the problem of the cedability of a spes proceeds as follows.

It assumes the correctness of the two arguments, (i) and (ii) set out above, viz. that the transferability of a spes in anticipando of the coming into being of a right is a logical impossibility and that there is no common law authority upholding such cedability.It accepts, however, that, as part of the legal and commercial reality in our country over many decades, the cession and transfer in anticipando of a spes have been and are daily recognised.

There are many cases reported in our law, from as early as 1882, in which it has been accepted that a future right can be ceded

20

and transferred in anticipando. In certain cases this has taken place without reference to any common law authority, and in others with reference to the above-mentioned texts of Sande and Voet.The list of decisions of our local and provincial divisions in this respect is a long one. I mention the main ones: McNeil v Insolvent Estate of Robertson (1882) 3 NLR 190 at 193 in fine: Consolidated Finance Co Ltd v Renvid 1912 TPD 1019 at 1023; Jenkins & Co v Roberts 1912 CPD 937; Farmers Co-op Ltd v The Master 1959(3) SA 342 (SR) at 344 G; Goode. Durrant and Murray Ltd v Hewitt and Connel NNO 1961(4) SA 286 (N) at 290 G - H; Industrial Finance & Trust Co Ltd v Schneider & London 1925 WLD 92 at 93; Goode. Durrant & Murray (SA) Ltd v Glen and Wright NNO 1961(4) SA 617 (C); Schreuder v Steenkamp 1962(4) SA 74 (O);

21

Steverlynck Bros Modern Weaving (Pty) Ltd v D H Gunn, NO 1968(2) PH A 88 (T); Western Bank Ltd v Registrar of Financial Institutions 1975(4) SA 37 (T) at 53 E - F; Thos Barlow & Sons (Natal) Ltd v Dorman Long (Africa) Ltd 1976(3) SA 97 (D) at 100 F; Blackman v Wellspread Investments (Pty) Ltd 1976(2) PH A 73 (C); Randbank Bpk v Morris NO 1977(2) SA 21 (SEC); Wispeco (Pty) Ltd v Herrigel NO 1983(2) SA 20 (C).

As far as decisions of this Court are concerned, three cases deserve mention.In National Bank of South Africa Ltd v Cohen's Trustees 1911 AD 235, Lawrence J at 256 refers to Sande as authority for the rule that contingent rights can be ceded. It is, however, not clear whether the learned judge had in mind a right subject to a condition or a

22

spes.In Waikiki Shipping Co. v. Thos. Barlow & Sons (Nalan) 1978(1) SA 671 (A) this Court touched on the cedability of a spes far too pertinently for its comments to be considered merely en passant or per incuriam. Jansen JA with whom Trollip, Rabie, Kotze and Joubert JJA concurred, expressly stated that "No doubt a cession may be framed to relate explicitly to the spes ..." (at 678 A). He also stated unambiguously that a spes may be ceded, and referred to the controversy relating to the nature and precise effect of such a cession (at 677 H).The third case is Bank of Lisbon and South Africa Ltd v The Master

and Others 1987(1) SA 276 (A). That case dealt with the cession of the reversionary interest resulting from a prior cession in securitatem

23

debiti of book debts to a bank. In discussing the effect of such a

cession Galgut AJA states at 294 C:

"When book debts are ceded in securitatem debiti... the cedent cedes to the cessionary the exclusive right to claim and receive from the existing and future 'book debtors' the amounts owing to them. The amounts collected by the cessionary are credited to the account of the cedent."

I do not accept that Galgut AJA, in placing his seal of approval on the cession of future debts did so per incuriam. Rather, in my view, he gave expression to the well-known commercial practice and the generally recognised legal position mentioned above.Finally, the commercial and legal institutions of the cession of books debts (defined in Rennie NO v The Master: Glaum NO v The Master 1980(2) SA 600 (C) at 609 B - C) and factoring are based on the cedability and transferability of future rights in anticipando (see

24

Scott, op. cit.. 52 - 53).The position, in my view, then is that it has been accepted in commerce and by the courts of our country for more than a century that future rights can be ceded and transferred in anticipando. The decisions of our courts have thus been regarded for a very long period of time as being correct. Clearly these decisions have been acted upon and served as the basis for the general and well-known practice of taking security in the form of the cession of book debts (including future debts), cession of existing and future rights in securitatem debiti and factoring of existing and future rights. In these circumstances I am not inclined to hold that these decisions are wrong (see Holmes' Executor and Others v Rawbone and Others. 1954(3) SA 703 (A) at 711 E - F; Harris and Others v Minister of the

25

Interior and Another 1952(2) SA 428 (A) at 454; John Bell & CoLtd v Esselen 1954(1) SA 147 (A) at 154; Cullinan v Noordkaaplandse Aartappelkernmoerkwekers Koöperasie Bpk 1972(1) SA 761 (A) at 767 - 8; Tuckers Land and Development Corporation (Pty) Ltd v Strydom 1984(1) SA 1 (A) at 16 - 17; Rainbow Diamonds (Edms) Bpk v Sanlam 1984(3) SA 1 (A) at 14 in fine; Du Plessis NO v Strauss 1988(2) SA 105 (A) at 141 F -143 C; Ellispark Stadion Bpk v Minister van Justisie 1990(1) SA 1038 (A) at 1051 F - H; see also Willis Faber Enthoven (Pty) Ltd v Receiver of Revenue and Another 1992(4) SA 202 (A) at 220 E - G). Although there may be considerations of public policy militating against upholding the cedability of future rights (as to which see Lubbe, op cit., 131 - 140), they have not been canvassed in the

26

present case. If it is considered that the present position needs review, that is a task that should be undertaken by the legislature.Consequently I hold that the cession of 31 December 1984 was a valid one and that, if it had incorporated a transfer in anticipando of the right now under discussion (which only came into being at a much later stage) it would have been legally effective.Did the cession of 31 December 1984 incorporate a transfer of the right under discussion in anticipando?The cession sets out that "We (the contractor) ... do 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 monies and amounts which may now or which may hereafter become due and owing to us by any person whomsoever ... we hereby nominate,

27

constitute and appoint the Bank irrevocably and in rem suam to he

our Attorneys and Agents, with full power and authority for us and in our name or in its own name to demand, sue for, recover and receive all debts or sums of money whatsoever which may now or hereafter become due, owing, payable or belonging to us..."

In my view, this formulation is wide enough to indicate an intention of transferring and receiving transfer of the right in anticipando. Especially the words "... transfer and make over..." and the reference to monies and amounts becoming due and owing in future indicates a present mutual intention of now transferring rights as they will come into existence in the future (see also Standard General Insurance Co Ltd v SA Brake CC 1995(3) SA 806 (A) at 815 A - B).

28

I conclude, therefore, that on 31 December 1984 the bank and the contractor concluded a contract by which the contractor's right to claim payment of the retention money (even though that right was subject to a suspensive condition) when it came into being on 27 August 1990, was transferred to the bank.The effect of this cession and transfer is exactly the same as if the right had been ceded after 27 August 1990 but before 10 June 1991 and as explained above, following Land- en Landboubank van Suid-Afrika v Die Meester, supra: The cedent, the contractor, retained the "dominium" of the right and the cessionary, the bank, acquired the right, subject to the suspensive condition mentioned above, to enforce payment of the retention moneys if and when it became payable. On the liquidation of the contractor on 10 June

29

1991, the aforesaid dominium fell into the insolvent estate, and the cessionary became a secured creditor with a preferent claim.The relief sought by the liquidators (the present respondents), viz. a declaratory order that the bank (the present appellant) is not, by virtue of the cession of 31 December 1984, a secured creditor, cannot, for the reasons set out, be granted.

Consequently I agree with the order proposed by my colleague Van den Heever JA.

P J J OLIVIER JA

VAN DEN HEEVER JAI have read the judgment of Joubert A but have come to a different conclusion.

I obviously have no quarrel with his erudite elaboration on the propositions that a cession is by definition an act of transfer; and that rights are transferable only once they come into existence - of importance in view of the legal fiction equating a cession of incorporeal rights in securitatem debiti with the legal institution of a pledge of corporeals as security. The fiction has its origin in the practical needs of modem commerce but has caused much strenuous intellectual gymnastics on the part of scholars and lawyers in trying to prise one legal concept into the garb of another not ideally suited.

Similarly, I accept without reservation his factual findings that the cession in issue here was expressed in very wide terms; and that there can be no doubt that it intended to deal with future rights which the contractor would acquire, not merely with rights extant as at 31

December 1984, the date of the relevant cession.

In my view the questions to be determined are -

(a) whether the cession contemplated a transfer only of the contractor's then exigible debts and of future ones as and when they became so exigible; or whether the parties to the document contemplated also a transfer of the contractor's claims then extant but imperfect because, for example, subject to some time clause or condition, 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 is merely a future claim or such an imperfect one; and if so, (c) whether present effective transfer is possible of such a claim, or whether future and contingent rights are equally incapable of present "delivery".

In examining the first of these, a legislator's intention with the phrase debt due is irrelevant, whether in relation to garnishee orders in terms of Transvaal Ordinance No 12 of 1904 or the determination of the

date of commencement of the running of prescription under the Prescription Act. The inquiry must be what the parties to the cession had in mind: what the contractor intended to deliver to the Bank which was willing to finance, so far as necessary, the contractor's ongoing operation by means of overdraft facilities, and what the Bank was content to accept as security for the recovery of the funds it was prepared to advance.

In defining the ambit of the questions which need to be answered,

I have used the words debts and claims because my colleague has done

so, as did the document to be interpreted. The words may be misleading.

"The subject matter of cession is a right, often referred to as a claim and less felicitously as the cession of a debt. The expression 'cession of a right of action' is also used but there is little advantage in doing so since the right of action (to enforce performance) is a power which is inherent in the right (to performance) and cannot be detached from it as a separate cedable entity."

(per P M Nienaber, dealing with Cession in LAWSA, First Re-issue Vol

2 par 241. See too the discussion of the judgment in TRUST BANK OF

5

AFRICA v MULLER NO 1979 (2) SA 368 (D), by Scott in 1982 DE JURE 183 at 186.) I return to this below.It would make comparatively poor commercial sense for the Bank to want nothing 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. A contractor would ordinarily while things are going well do so in any event, from self-interest: to keep flowing the funding it needs to enable it to earn money by performing under its contract with the employer. It is when things go wrong - when the employer stops paying and/or other creditors agitate for payment of their claims - that it becomes important that the Bank insisted on security; provided, of course, that the commercial content of the rights transferred (as distinct from merely undertaken to be transferred) is worthwhile. In judging what was the content of the rights intended to be transferred and accepted as security, it is relevant that the sequence provided for in the agreement between the

contractor and the employer, as in most if not all cases of similar engineering or building contracts, is that the contractor performs first. It is only after he has spent energy as well as money for the benefit of the employer, that performance - payment - by the employer enriched thereby becomes due in the sense of only then becoming exigible.

Due does not necessarily mean immediately payable, as reference to any dictionary reveals - including the Oxford dictionary which refers in turn to Wharton's Law Lexicon: "A debt is said to be due the instant that it has existence as a debt; it may be payable at a future time". It may mean merely "earned" (WARBURTON v HAYWORTH, 6 QBD 1). See too BASIL BRIAN NEL NO v THE BODY CORPORATE OF THE SEAWAYS BUILDING AND THE REGISTRAR OF DEEDS, CAPE TOWN, (AD) (unreported 25 August 1995). This judgment stressed that the meaning of the word depends on the context in which it is used.

Some of the words and phrases used in the cession could have been dispensed with, as the passage from LAWSA points out. In the

paragraph immediately following that quoted, the author says

"In the frequently employed phrase 'cession of a right, title and interest', the words 'title and interest' bear no particular significance except perhaps to stress the totality of interests to be transmitted."

The document in question here certainly did so seek to stress the totality of interests in question.

Juggling all the permutations postulated by the wording used in the cession, the personal rights intended to be transferred included rights to money owing, or which might become owing, to the contractor. The cession does not limit the rights to be transferred to the contractor's right to money then payable; or only as and when money becomes payable in future. I do not think it is in dispute that one can effectively cede one's right to money that is payable perhaps years hence, for example to the money one has invested on fixed-term deposit.

In my view the parties to the cession - the document on the strength of which credit facilities were afforded by the Bank and enjoyed

by the contractor - clearly intended to extend the ambit of the rights of the contractor which were transferred or to be transferred to the Bank as security, as widely as lawfully possible. I can think of no reason why, where the document says the cession is of "monies due and owing", that should be understood as though owing were an incorrect and tautologous synonym for due in the sense of forthwith claimable instead of the phrase meaning "monies due as well as monies owing"; nor why owing should be limited to mean "owing in a presently calculable amount".

The next question is whether our law places any obstacle in the parties' way, preventing them from achieving what they set out to do. The cession in question emphasised that object by conferring on the Bank, irrevocably and in rem suam, the right to institute action for all debts or sums of money due or owing or payable or belonging to the contractor. Since cession is by definition an act of transfer of incorporeal rights, there is perhaps a subconscious temptation to regard this as the expedient whereby one may put the cessionary in possession of a right

without transferring ownership of the right to him, just as transfer of possession without transfer of ownership is effected when a corporeal object is pledged. But Scott and Nienaber and doubtless others warn against being misled by phrases imprecisely used. A right of action does not exist independently of the underlying right itself. The former is merely the procedural manifestation of the latter. A mandatory has no independent right of action, unless he is in truth a cessionary posing as a mandatory. In MULLER NO v TRUST BANK OF AFRICA LTD 1981 (2) SA 117 (N), the court spoke throughout of the cession of a right of action not yet in existence. That may have misled the court into regarding the object of the cession there as the expectation of a future right since the procedural manifestation of the underlying right would acquire meaning only once the underlying right became exigible.

There is nothing in logic that militates against acceptance of the notion that an extant right may be transferred to another forthwith despite its being subject to a condition. If Sande perhaps said it was impossible

it was in another age and of procedural rules different to ours, not rules of logic. Our law on this issue has developed, by fits and starts but nevertheless, by trying to argue logically, with the analogy of pledge in mind. Admittedly logic has problems because of the dissimilarity between what is ceded, and what is pledged. In my view the effect of the judgment of my colleague in TUCKERS LAND AND DEVELOPMENT CORPORATION (PTY) LTD v STRYDOM 1984 (1) SA 1 (A) 24E-25B is that it is accepted that a contingent right is capable of immediate transfer. See too, for example, BANK OF LISBON AND SOUTH AFRICA LTD v THE MASTER AND OTHERS 1987 (1) SA 276 (A) at 294 C-I; Lubbe in THRHR 1980 128 re BARNHOORN v DUVENAGE 1964 (2) SA 486 (A). (See p 494F-G of this.) If a contract is concluded between A and B subject to a condition which results in A acquiring a personal right which passes to his heirs on the death of A, in my view there is no reason today to accept that that personal right is incapable of being passe by cession. In due course it

may prove in money terms to be worth little, or less than the parties anticipated. The requirement that the object of a cession must be certain does not mean that the money value of the (defined) right which is ceded must be precisely calculable when the transfer of that right occurs.

To come then to the final issue, whether the retention money could be properly described as owing by the employer to the contractor though not yet exigible, by virtue of the agreement between those two, when the contractor was liquidated. If so, the right had vested in the Bank prior to the liquidation of the company by virtue of the cession.

I did not understand Mr Wallis to argue that the 1984 cession would relate only to book debts then in existence. His argument was not that something more had to be done to bring future contracts within its compass. He accepted that if a right had vested in the contractor by the time the contractor was liquidated he would be out of court. But, he urged, the contractor had no right when the certificate was issued on 27 August, by reason of the terms of its agreement with the employer.

The parties to the contract we are concerned with envisaged an ongoing relationship in the course of which the content of the original contract could change substantially. Although they agreed on the overall task to be done, the parties accepted that delivery could be effected in separate stages. The maintenance stage was quite separate from the construction stage. When the former started, the employer had been given the full benefit of the contractor's expenditure and labours, as approved by the engineer on the employer's behalf. Clause 33 provides that

"On the completion of the Works the Contractor shall clear away and remove from the Site all Constructional Plant, surplus materials, rubbish and Temporary Works of every kind and leave the whole of the Site and the Works clean and in a workmanlike condition to the satisfaction of the Engineer ..."

Since by 29 August 1990 the contractor had completed all work in terms of the contract and moved off the site, and the work had been accepted

by or on behalf of the employer, the contractor was owed what it had earned, subject only to the condition that it could forfeit portion of that if it did not maintain the work done for the period agreed upon and/or did not remedy such minor defects as might become manifest during the period in question.

In short, in my view the contractor acquired before liquidation a personal right to performance by the employer of its part of their bargain. That performance - payment - was delayed for the maintenance period, and was subject to the condition that the amount held in the retention fund could be reduced. That personal right was transferred in terms of the cession to the Bank before liquidation and the Master was in my view correct in upholding the objection of the appellant to the joint liquidators' account.

The appeal is upheld with costs including the costs of two counsel and the costs of the application for leave to appeal, which were reserved. The order of the court below is replaced with one dismissing the14 application with costs including the costs of two counsel.

L VAN DEN HEEVER JA CONCUR:

VAN COLLER AJA)