In September 2025 the Supreme Court of Appeal delivered a welcome judgment describing clearly the differences between types of cessions in security of a debt (in securitatem debiti) and an out-and-out cession permanently divesting the cedent of all rights in an insurance policy.
The deceased, in relation to a property transaction, agreed to “cede as an absolute Cession, an existing Life Assurance Policy of R4 million on his life in favour of the Lessor, so as to safeguard the Lessor against payment of its rental and outstanding balance due by the Lessor under its Mortgage Bond with a Financial Institution in the event of the death” of the cedent.
Cession is the legal means by which incorporeal rights are transferred: The cedent is divested of certain rights in the subject matter of what is ceded, in favour of the cessionary. It generally involves an agreement to cede (pactum cedendo), often, but not necessarily always, followed by the conclusion of a deed of cession, which is a separate legal act. The extent to which a cedent is divested of their rights depends on the nature of the cession and the underlying cause (causa) of the transaction.
There are two forms of security cession. The first form is a pledge where the cedent retains ownership of the right and a reversionary interest in the subject matter of the cession (in this case the insurance policy). When the debt secured is discharged, the subject matter reverts to the cedent without the need to cede the subject matter of the cession back. Alternatively, there may be an obligation requiring the cessionary to recede the subject matter. The cedent is not divested altogether and in perpetuity of their rights in the subject matter. If the transfer of ownership is subject to a fiduciary agreement to recede (pactum fiducia), even if implied, the subject matter of the cession, or what remains thereof, reverts to the cedent once it has served its purpose. On the facts it was found that the cession was to “safeguard” the creditor against a future or contingent debt and not to cede the policy for the cessionary to do whatever it thought fit and for whatever purpose with the proceeds. That was held not to be businesslike or plausible or rational in relation to the circumstances of the transaction, despite wording in the document which suggested an out-and-out cession.
In the circumstances it was held that the cession was made with the avowed object of only securing the debt and not to pass full ownership of the policy. The court confirmed that conclusion reached in the court appealed from and dismissed the application for leave to appeal.
Anyone involved in cessions of rights, including rights in insurance policies, should read and have access to this judgment which is a clear exposition of the legal issues involved and the way in which cessions will be interpreted according to the words used, the context in which they are used and the purpose of the transaction.