GENERAL FINANCE COMPANY (PRIVATE) LIMITED v ROBERTSON 1980 ZLR 166 (A)

Author: Trodat Zimbabwe

GENERAL FINANCE COMPANY (PRIVATE) LIMITED v ROBERTSON 1980 ZLR 166 (A)

1980 ZLR p166

Flynote

Cession — meaning of cession — whether includes transfer of obligations — rights of debtor against cessionary. D Sale — essentials of whether sale can exist without obligation to receive and transfer merx — rights arid duties of parties to sale.

Headnote

Even where rights only have been ceded, the debtor can raise any defence against the cessionary which was available to him against the cedent, notwithstanding that the defence arises out of a breach by the cedent of his obligations under _E the principal contract.

Depending on its context the word “cession” may describe a contract whereby obligations as well as rights are transferred.

No agreement of sale is constituted where the purchaser has no right to obtain possession and the seller no duty to transfer the thing sold? such a contract _F is a donation.

If a seller fails to shield the buyer against eviction by a person with a better title to the property, he must restore the purchase price and pay any damages suffered by the buyer as a result of the eviction.

The respondent had purchased a motor­car under a hire­purchase agreement from _G one F,  who gave out that he owned the car? F  immediately ceded the agreement and his purported ownership of the car to the appellant. Neither the hire­purchase agreement nor the cession expressly obliged the appellant to transfer ownership to respondent. Before the full purchase price had been paid the car was claimed by its real owner, and with the agreement of the appellant the respondent paid the real owner the price it demanded. The _H respondent thereupon refused to pay appellant any further instalments under the hire­ purchase agreement and claimed damages from the appellant. On appeal from a judgment of a magistrate dismissing the appellant’s claim for the balance of the instalments outstanding and ordering it to pay respondent damages.

1980 ZLR p167

Held that if there were no obligation to pass transfer of the motorcar under the hire­ purchase agreement there would be no sale, and the respondent would be entitled to repayment of any sum he paid under the agreement and would _A certainly be released from making further payments.

Held, therefore, that the magistrate had rightly dismissed the appellant’s claim for outstanding instalments.

Held, further, that it would make nonsense of transactions relating to the cession of hire purchase agreements if the cessionary were to acquire ownership of the thing sold without any obligation to pass transfer of it. _B

Held, therefore, that the appellant had accepted cession of F ‘s obligations as well as his rights, and was liable to respondent in damages for failing to protect him against eviction.

Cases cited

de Bruyn v Centenary Finance Co (Pty) Ltd 1977 (3) SA 37 (T)?

Kleynhans Bros v Wessels Trustee 1927 AD 271? _C

Frye’s (Pty) Ltd v Ries 1957 (3) SA 575 (A)?

Lammers & Lammers v Giovannoni 1955 (3) SA 385 (AD)?

Helby v Matthews & Ors [1895] AC 471?

Western Credit Bank Ltd v van der Merwe 1970 (3) SA 461 (C)? Voet 21.2.31?

van der Westhuizen v Yskor Werknemers se Onderlinge Bystandsvereniging 1960 (4) SA 803 (T)?

Milner v Union Dominions Corporation (SA) Ltd & Anor 1959 (3) SA 674 (C)?

Green v Griffiths (1886) 4 SC 346? _E

Rolfes, Nebel & Co v Zweigenhaft 1903 TS 185? Calyvas v Standard Bank 1926 AD 56.

Books cited

Norman, Purchase and Sale in South Africa, 4th edition? _D

Mackeurtan, Sale of Goods in South Africa, 4th edition?

Case information

R.R. Horn, SC, for the appellant: The terms of the cession on the front of the agreement make it clear that appellant and respondent both _F envisaged that Flood would cede his rights to appellant and the “acknowledgment of cession by purchaser” immediately under the cession similarly emphasizes that it is rights, not obligations, that are to be ceded. Furthermore it is inappropriate to speak of a “cession” of obligations: Trust Back of Africa Ltd v Imperial Garage and Filling

Station, 1963 (1) SA 123 (AD),  _G Wille and Millin’s Mercantile Law of South Africa (17th edition), 6566. Under the common law a cession of rights by one party to a hire­purchase contract does not bring the cessionary into the contractual relationship which exists and continues to exist between the original seller and the purchaser: Diemont, Law of Hire Purchase in _H South Africa, 4th edition, pages 178­9, Milner v Union Dominions Corporation (SA) Ltd & Anor., 1959 (3) SA 674 (AD)? van Zyl v. Credit Corporation of SA Ltd., 1960 (4) SA 582 (AD) at 589A, and see, for a summary of this case, 1960 Annual Survey at pages 119­20. As far as respondent’s counterclaim is concerned, it is to Flood, not appellant, that respondent must look.

1980 ZLR p168

A. P de Bourbon, for the respondent: Under the common law the seller is obliged to protect a purchaser against eviction: Lammers & Lammers v Giovannoni, 1955 (3) SA 385 (AD) at 390A­B, Alpha Trust (Edms.) van der Watt, 1975 (3) SA 734 (AD). If the _A seller fails to protect the possession of the purchaser and fails to shield the purchaser against eviction, then the purchaser has a right of action in rem against the seller. This right applies not only to a refusal to continue making payments under the contract of sale but extends to the right to re claim that which has already been paid: Pothier, Sale, Part II, paragraph _B 69, quoted in de Bruyn v Centenary Finance Co. (Pty.) Ltd., 1977 (3) SA 37 (T) at 49­50. Subject to any valid estoppel, a debtor may avail himself of any defences ­ not merely personal to the cedent ­ of which he might have availed himself against the cadent at the time of the notice of cession in an action against a cessionary: Walker v Syfret, NO, 1911 AD 141 at 162? _C Scottish Rhodesian Finance Ltd v Olivier, 1965 RLR 128 (AD) at 134E­F, 136E­G. If it is correct that the appellant succeeded only to the rights under the contract, the respondent is entitled in law to refuse to pay any further instalments of money due under the contract. The case of de Bruyn v Centenary Finance Co., 1977 (3) SA 37 (T) _D is correctly decided. Accordingly, render common law the respondent was excused from paying any further sums to the appellant.

The section of the agreement on the standard form of the appellant headed “The Cession” is more than simply a cession of rights. It _E involves a delegation of certain duties. These duties are the ones connected with ownership. The whole purpose of the agreement is to allow the appellant to become the owner in the full sense and, when payment in full has been made, to pass on to the respondent the full ownership of the vehicle. This can only mean that the obligations attendant upon _F ownership are intended to pass between Flood and the appellant and subsequently between the appellant and the respondent.

The only way in which the respondent was required to mitigate his loss was to pay the sum claimed by UDT as soon as possible to avoid further interest being levied. The events thereafter do not assist the appellant. _G The respondent was entitled, once having obtained title, to improve the motor­vehicle and sell it at a profit. Any profit does not affect his damages.

In the alternative, if the case of de Bruyn v Centenary Finance Co _H is correctly decided and the respondent is entitled to resist the claim for the remaining instalments on the basis that it is an action in rem that he would be entitled to raise against the seller and the cessionary, then on a similar principle the right of the purchaser to claim back that which has

1980 ZLR p169

Golding JA already been paid to the seller is an action in rem. The right of the purchaser to claim back what has already been paid when there is a breach of _A the warranty against eviction is well established, and is based on the actio empti: Alpha Trust (Edms.) van der Watt, 1975 (3) SA 734 (AD) per BOTHA, JA, at 748F. In these circumstances the respondent is entitled to be repaid by the appellant that which he has paid to the appellant. _B

In the further alternative, the respondent paid the sum of $3 200,16 to the appellant in the bona tide but mistaken belief that the amount was due to the appellant. In fact the amount was not so due because the appellant was unable to protect the possession of the respondent and prevent his eviction, and was unable to pass title. The contract was thus _C voidable. This was at the time of payment unknown to the respondent. Compare Nkosi v Totalizator Agency Board (Transvaal), 1980 (1) SA 122 (T).

Judgment

Goldin JA: This appeal against a judgment in the magistrates Court _D concerns the rights and obligations of the parties under a hire­purchase agreement. Mr Flood and the respondent entered into a hire­purchase agreement on the 22nd November, 1977, whereby the former, as seller, sold to the respondent a second­hand Jaguar motor­car on hire­ purchase for the sum of $6 900. After adding the usual charges and deducting the initial cash payment, the balance due by the purchaser was $6 350,88 payable by two instalments of $1250 and 22 instalments in the sum of $175,04. On the same day on which Flood and the respondent entered into the hire­purchase agreement, they recorded, in the same document, that the appellant and Flood entered into an agreement of cession.

A dispute exists whether Flood ceded or transferred his rights only under _F the hire­purchase agreement or whether he also transferred his obligations to the appellant, in particular the obligation to transfer the vehicle to the respondent.

In March, 1978, it became known that Flood was not the owner of the vehicle and that a finance company, UDT Limited, was entitled to repossess. _G the vehicle as owner. The vehicle was in fact under hire­purchase with UDT Limited in England with an amount outstanding and due for payment of the balance of the purchase price of $3 846,96. The respondent paid this sum to UDT Limited and thereafter refused to pay the balance of the outstanding instalments. By this time, Flood had disappeared and _H it is not known where he is.

The appellant commenced an action against the respondent for the payment of the balance of the purchase price of $3150,72. The respondent denied liability to pay on the ground that the appellant was unable

1980 ZLR p170

Golding JA to give transfer of the vehicle against payment. The respondent further counter­claimed for the payment by the appellant of damages in the amount paid by the respondent to UDT Limited in order to vindicate ownership of the vehicle. A variety of alternative grounds upon which _A the respondent resisted payment to the appellant and claimed payment from the appellant do not have to be canvassed, as these aspects are no longer in dispute.

The magistrate dismissed the appellant’s claim and awarded damages _B in the said sum of $3 846,96 to the respondent with costs of suit.

The main dispute is whether the respondent can defeat the appellant’s claim for payment by relying on the appellant’s inability to give transfer of the vehicle. It is common cause that the appellant is not able to give transfer, having denied liability to do so and consented to the respondent’s _C vindication of the vehicle from its true owner at his own expense as his own vehicle.

Mr Horn for the appellant contended that Flood as seller only ceded his rights under the agreement and accordingly there was no obligation _D upon the appellant to transfer the vehicle, which obligation remained enforceable only against Flood. I will deal with the cession and existence of an obligation to transfer the vehicle at a later stage. I assume for the purpose of this submission that there was an obligation on the part of the seller to give transfer but that rights were ceded to the appellant. _E

A cessionary of rights steps into the shoes of the cedent and acquires no greater rights against a debtor than those which the cedent himself possessed. A debtor can raise any defence against a cessionary which was available to him as against the cadent. Such a defence would usually arise from the breach of an obligation under the contract with the cedent, _F but in doing so the debtor does not hold the cessionary liable for obligations under the contract but merely relies on the principle that no person can transfer a better right than he himself possesses (de Bruyn v Centenary Finance Company (Pty) Ltd 1977 (3) SA 37 (T) at page 42). Mr Horn’s contention, therefore, that the respondent cannot raise Flood’s _G obligation to give transfer as a defence against the cessionary is wrong in law.

In the alternative, Mr Horn submitted that even if the cedent’s inability to give transfer could be raised as a defence against the cessionary’s _H claim for the balance of the purchase price, the debtor, namely the respondent, is estopped from relying on this obligation.

[The learned Judge then dealt with the question of estoppel, which was based on an undertaking allegedly given by the respondent and, having

1980 ZLR p171

Golding JA

found that no such undertaking had been given, the learned Judge continued:] _A

A further question raised on appeal is whether or not there was in fact an obligation to give transfer or possession of the vehicle under the hire purchase agreement. The relevant condition in the agreement reads:

   5.      The Purchaser shall take the goods in the condition in which the same are at the time of delivery and the Seller shall be under no obligation B to ascertain whether the goods are fit or suitable for the Purchaser’s intended use thereof. All conditions and warranties as to fitness, description, state or suitability or which might otherwise be attached to the goods either at Common Law or under any

Statute are expressly excluded during the currency and on completion of this Agreement, save and except for the warranties stipulated by Section 12 of the Act. C The Purchaser acknowledges that no representation by the Seller or his authorized agent has induced the Purchaser to enter into this Agreement.”

Section 12 of the Act has been replaced in identical terms by section 11 of the Hire ­ Purchase Act [Chapter 284], subsections (1) and (2) of which _D read as follows:

“11. (1) In every agreement there shall be ­

(a)      an implied warranty that the purchaser shall have and enjoy quiet possession of the goods?

(b)      an implied condition on the part of the seller that he is not and will E not be precluded from passing the ownership of the goods to the purchaser at the time when the ownership is to pass?

(c)      an implied warranty that the goods shall be free from any charge or encumbrance in favour of anythird party at the time when the owner ship is to pass?

and such warranties and conditions shall be implied notwithstanding any agreement F on the contrary.

(2) Every agreement shall be deemed to contain any warranties or conditions implied in a contract for the sale of goods under any law.”

Section 11, however, does not apply to an agreement under which the _G purchase price exceeds the sum of $3 000 and therefore does not apply to this hire­purchase agreement. (See section 3 of the

Act.)

Mr Horn in his Heads of Argument points out that the provisions of section 3 of the Act were overlooked by both parties and by the magistrate in the Court below. He submitted that on a proper construction _H of condition 5, and since warranties set out in section 12 (now section 11) do not apply, there was no obligation on the part of the seller to ensure that the respondent enjoyed quiet possession of the goods or to pass transfer of the vehicle to him. In my view, condition 5 as read in the context of the agreement as a whole relates to conditions and warranties

1980 ZLR p172

Golding JA as to state or suitability and the words: “or which might otherwise be attached to the goods either at Common Law or under any Statute are expressly excluded” mean and are intended to refer to the conditions and warranties expressly mentioned or similar to them, that is to say ejusdem _A generic. I do not think that it can be rightly said that after referring to “fitness, description, state or suitability”, the obligation to give transfer or quiet enjoyment of the property is excluded by the use of the words “or which might otherwise be attached to the goods”. _B

Under the common law, a seller does not guarantee that he is the owner of the subject­ matter of the sale because the sale of another’s property is not void merely because the seller is not the owner of the property sold. But he undertakes to give vacua possessio to the purchaser _C (see

Kleynhans Bros v Wessels’ Trustee, 1927 AD 271 at 290 and Frye’s (Pty) Ltd v

Ries 1957 (3) SA 575 (A) at 581). If, however, a seller fails to shield the buyer against an eviction by a person with a better title to the property, he must restore the price and pay any damages suffered by the buyer as a result of the eviction (Lammers and Lammers v

Giovannoni, 1955 (3) SA 385 (AD) at 390). A seller is under _D obligation to transfer to the purchaser all his proprietary rights in the thing sold. From the very nature of an agreement of purchase and sale it is clear that if there is no legal obligation to buy flowing from a contract it cannot properly be said to constitute an agreement of purchase and sale (see dictum of LORD HERSCHELL in Helby v Matthews _E and Others [1895] AC 471, which has been widely followed in South African Courts as set out in Western Credit Bank Ltd v van der Merwe, 1970 (3) SA 461 (C) at 464).

Similarly, no agreement of sale is constituted where a purchaser’s right _F to obtain possession or the seller’s duty to transfer the things sold do not exist. It is perhaps relevant to mention that even where the purchaser knows at the time of the sale that the subject­ matter thereof is not the property of the seller or that it is the property of a third party the purchaser is still entitled to recover the price paid and obviously to refuse _G to pay any unpaid portion thereof (Voet 21.2.31? Norman’s Purchase and Sale in South Africa, 4th edition at 291? van der Westhuizen v Yskor Werknemers se Onderlinge Bystandsvereniging, 1960 (4) SA 803 (T.)).An alleged contract of sale in which there is no obligation to give possession or transfer the subject­matter is not a sale, but a donation. _H There can be no sale if it is agreed that the property shall not pass to the purchaser (see

McKeurtan, Sale of Goods in South Africa, 4th edition at page 4). Accordingly, if there was no obligation to pass transfer of the vehicle under this hire­purchase agreement, there would be no valid

1980 ZLR p173

Golding JA contract of sale and the purchaser would become entitled to repayment of any sum paid under the purported agreement and certainly would be _A released from making further payment. On this view, even if Mr Horn’s contention is right, the appellant would still not be entitled to his claim for payment of outstanding instalments.

For these reasons, the magistrate rightly dismissed the appellant’s claim for outstanding instalments. _B

The respondent successfully counter­claimed for damages in the sum of $3 846,96, being the amount he paid to UDT Limited in order to vindicate and acquire ownership of the vehicle. When the matter went on appeal the magistrate, in further reasons for his judgment and in reply to the ground of appeal, stated that he awarded damages on a wrong basis _C because he should have deducted from the amount the respondent paid to the English finance house the amount he avoided paying to the appellant, and that his judgment in favour of the respondent should be reduced in this manner. The effect of this would be to deduct the sum of $3 150,72 from the sum of $3 846,96 leaving a balance of $696,24. _D Counsel for both parties conceded that if the respondent became entitled to damages this was a correct amount to be awarded. The question that therefore remains is whether or not the appellant was liable to pay damages. _E

It has already been said that where there has been a cession of rights only, a debtor may rise any defence in rem against the cessionary which he would have possessed against the cedent. Where, however, there has been a transfer of obligations as well as rights it obviously follows that the debtor can enforce any obligation under the contract against the cessionary. _F On the first page of the hire­purchase agreement under the heading “Cession” the following is signed by the seller:

“I/We do hereby tender Cession of this Agreement and the ownership of the goods referred to General Finance Company Private) Limited and warrant as an essential term that the information contained in the said G Agreement is correct? and on our behalf and on behalf of the said Company do hereby give notice to the Purchaser that we are about to sell and cede our rights under the foregoing Agreement including that of ownership of the goods referred to therein to General Finance Company (Private) Limited, or their assignees, and that from now and henceforth you will have possession of the goods as bailee/s on behalf of the new owner thereof.” H

This is followed by “An Acknowledgment of Cession” by the purchaser and signed by him.

Before considering whether the appellant did not assume the seller’s obligation to transfer the vehicle to the purchaser, I will deal with a sub­

1980 ZLR p174

Golding JA mission by Mr Horn which he particularly emphasised. He contended that it is inappropriate to speak of a cession of obligations and there fore where parties speak of a cession they are dealing with the transfer of rights and not of obligations. For this view he relied on the case of _A Milner v Union Dominions Corporation (SA) Ltd & Anor, 1959 (3) SA 674 (C), where WATERMEYER J, dealing with counsel s submissions said at 676H:

“He referred to the somewhat common, but strictly speaking inaccurate, B use of the word ‘cession’ in relation to a lease as meaning a transference by the tenant of all his rights and obligations under the lease to another person, as opposed to a sub­letting which involves merely a transference of rights, . . .” The learned judge went on to say at page 677A:

“Giving to these words their ordinary meaning, and having regard to the C fact that the word ‘cede’ is the appropriate word to use in relation to rights and an inappropriate word to use in relation to obligations, I have come to the conclusion that all that is alleged . . . is a cession of rights and not a delegation of obligations.”

The use and meaning of the terms “assignment” and “cession” has been _D the subject of several earlier decisions. Thus in Green v Griffiths (1886) 4 SC 346, DE VILLIERS CJ, says at 351:

“In regard to assignees, however, by our law, agreeing in this respect with that of Scotland, but not with that of England, an assignment is not complete as such unless it has the effect of substituting the assignee as tenant in lieu E of the original lessee­in other words, of transferring the lessee’s contractual obligations towards the lessor from the lessee to the assignee.”

In Rolfes, Nebel & Co v Zweigenhaft, 1903 TS 185, WESSELS J, says at page 189:

“I have used the word ‘assignment’ because it is used in the plea, though F no such term with respect to leases is known to the Roman or Roman­Dutch law. It belongs purely to the terminology of English and Scotch law.”

In the case of Colyvas v Standard Bank, 1926 AD 56, a transfer of rights and obligations was described as an “out and out cession”.INNES CJ, says at page 58:

“Certainly the obligation was not transferred by the operation of the cession itself. It was not an out and out cession by which, with the assent of the company, one insured was substituted for another, the second succeeding to all the rights and undertaking all the obligations of his predecessor.” H

However, whatever the inference or effect which arises from the use of the word “cession” it is necessary to determine whether, in fact, the appellant assumed the seller’s obligation to give transfer and thereby rendered itself liable for any damages sustained by virtue of a breach of this con­

1980 ZLR p175

Golding JA tractual obligation. The Court must have regard to the substance and the real meaning and nature of a contract and not the form or any description _A given or employed by the parties.

As will be seen from what appears above, the seller refers to tendering “cession of this agreement”. Thereafter reference is made to a “cession of rights”, obligations not being mentioned. An

examination of the agreement itself clearly establishes, however, that the seller transferred and the B appellant acquired the seller’s obligations as, well as his right to transfer the vehicle to the respondent. Under “Terms and Conditions” contained in the agreement, paragraph 1 reads as follows:

“1. In these terms and conditions­

The words ‘the Seller’ shall mean and include any cessionary of the C original seller?”

The reference to “any cessionary” could relate to either one who acquired rights or assumed obligations or both. The real question is whether this agreement properly construed imposes, the obligation on the appellant _D to give transfer. As has already been mentioned the seller, in the agreement described as a “cession”, tendered “cession of this Agreement and the ownership of the goods referred to” to the appellant. The purchaser contemporaneously in an “acknowledgment of cession” “recognises the new ownership” and agrees that he shall “forthwith hold possession of the said goods as bailee on behalf of the new owners, subject to the terms _E and conditions of the said agreement”, the agreement referred to being the hire­purchase agreement. It would make nonsense of transactions of this kind and would be contrary to the provisions of the agreement of cession and the hire­purchase agreement entered into by the parties in the same document and at the same time, if the appellant as cessionary, having _F acquired the ownership of this vehicle, did not at the same time assume the obligation to pass transfer.

I now turn to the question of costs. The appellant has failed in its appeal against the decision of the magistrate dismissing its claim for _G unpaid instalments, but has succeeded in the reduction of damages from $3 846,96 to $696,24 as mentioned above. If the respondent had agreed to the reduced award of damages at the outset, or at least after the magistrate had agreed that his award should be reduced in the manner in which it has now been done, the appellant would have failed on the _H counter­claim as well. It is not possible to speculate concerning whether the appellant would have proceeded with its appeal against the dismissal of its claim if the respondent had abandoned the portion of damages by which it has been reduced in this Court. The issues involved in the appeal by the appellant may be of sufficient importance to it in the conduct of its

1980 ZLR p176

Golding JA business to proceed with this appeal regardless of the quantum of damages involved. The appellant could also have substantially shortened the proceedings by confining itself to an appeal against quantum of damages. _A

In the course of argument, Mr de Bourbon for the respondent agreed that the proper amount of damages to have been awarded was the sum of $696,24. Similarly, Mr Horn also agreed to this and in the result no time was wasted in canvassing the quantum of damages to be awarded if the respondent became entitled to damages. The hearing of the appeal lasted _B all day, and the time was almost entirely taken up with argument and submissions on which the appellant failed. In the first place, the appellant failed in the appeal on the claim for unpaid instalments. Secondly, it failed in its contention that it was not liable to pay damages. In view of the fact, however, that the reduction in the quantum of damages was only _C agreed during the hearing in reply to questions from the Court and that the appellant had to come to this Court to obtain a reduction in damages, I am of the view that the appellant should not be made to pay all the taxed costs incurred by the respondent. In all the circumstances, the proper order is to deprive the respondent of a portion of his costs to which he _D would have been entitled if he had abandoned that portion of the judgment in his favour which was reduced on appeal. In the circumstances, the appellant should be ordered to pay two­thirds of the respondent’s costs of appeal.

The order of costs by the magistrate must stand. In that Court the _E respondent succeeded on the appellant’s claim and obtained an award of damages, the appellant having denied any liability for damages.

Accordingly, the judgment by the magistrate is altered to the following extent: _F

“Plaintiff is ordered to pay the defendant damages in the sum of $696,24 and costs of suit.” The appellant is ordered to pay two­thirds of the respondent’s taxed costs on appeal.

Lewis ACJ: I agree. _G

Baron JA: I agree. _H

Atherstone & Cook, attorneys for the appellant.

Condy, Chadwick & Elliott, attorneys for the respondent.