This is an agreement between two parties, where
one party (Lender/Creditor) is given the right to take the other party’s
(Debtor/Borrower) property if the other party’s obligation/debt isn't repaid,
but in the meantime, the property stays in the borrower's possession.
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The
Cession of Priority of Rank Agreement is a legal principle which facilitates
the transaction of significant amounts of money in the market.
The Cession of Priority of Rank Agreement is a
bilateral act intended to have a legal effect, especially on a right. In this
contract the debtor hands over their rights to the creditor. The cession of
priority of rank can be written in two ways, as an outright cession, or the
cession of security. In the case where it is the giving up of security, the
debtor then agrees to transfer their right to take any action on a debt owed to
them (the principal debt). The creditor accepts the debtor’s cession as security
for the debt owed by the debtor (the secured debt). The cession of priority of
rank agreement is written in an obligatory manner such as in a loan or sale
agreement.
An often unnoticed principle is that a cession of priority of rank agreement is auxiliary in the way that it functions. Its authenticity is fostered not only on being in accordance with common law, but also on the existence of a valid obligatory duty. In an agreement of cession of priority rank used in security, the cession of priority of rank ensures the release of the secured debt. These methodologies stem from a 1930’s judgment, but they may have existed even before then. It is this nature of the Cession of Priority of Rank Agreement to be accessorial which a supreme court confirmed. The court considered whether, as a matter of law, it was properly qualified to cede a claim after the underlying duty was bought to an end by payment.
in
an earlier case The plaintiff obtained a judgment against the defendants (two
defendants), which ordered the defendants to payment a sum of the money to the
plaintiff. The plaintiff then attached one of the defendant’s properties to
execute against the judgment. Enter the rescue corporation (Angel Corp.), who
agreed to loan the defendants money, off which the proceeds would be used to
settle defendant’s indebtedness to the Bank. To secure the loan, the defendants
agreed (i) to procure a cession of priority of rank agreement of shares in the
company; (ii) to register a covering mortgage bond over the attached
properties; and (iii) that the Bank’s judgment would be ceded, all in favor of
the Angel Corporation. The Bank also agreed to cede, outright, its judgment
debt to the Angel Corporation against payment Angel Corp. of the judgment debt
plus an additional amount. After further complications, Angel Corp. paid the
Bank and sometime later the Bank ceded its judgment debt and additional rights,
to Angel Corp. Believing it had acquired the judgment debt by cession as
security for its loan, Angel Corp. applied to a High Court for an order that it
be substituted as execution creditor on a trust that the defendant is the sole
shareholder. the defendant applied for leave to intervene in Angel Corp.’s
application on the basis that she and her daughters would suffer direct
financial loss and lose their livelihood. The court dismissed Angel Corp’s
application to be substituted as execution creditor.
The
supreme appeals court held, as stated above, that a Cession of Priority of Rank
Agreement is a bilateral juristic act whereby the debtor transfers its rights
to the creditor. No formalities are needed for the agreement to be legally
binding neither for the cessionary act itself, the parties may reach an
agreement on the formalities with which the cession of priority of rank must
comply. The cession of priority of rank may be express or tacit or may be
inferred from the conduct of the parties. Whilst the cession of priority of
rank need not be reduced to writing, the parties may agree that it should be in
writing, in which event it will only be valid if reduced to writing. The
supreme appeals courts examined the deed of Cession of Priority of Rank
Agreement to find out the parties’ intended outcomes. It held that it is a
principle of contract interpretation that words must be attributed to their
meaning in the context of the agreement, and must be applied to the subject
matter to which they relate. The parties, held the supreme appeals courts,
intended that on signature of the deed of cession, the Bank would transfer the
right to the judgment debt to Angel Corp.
the
supreme appeals courts found that at the time that the Bank ceded the judgment
debt, there was nothing to cede as Angel Corp., under its agreement with the
defendants, paid the debt. In law, transfer by relinquishment of a non-existent
right constitutes a void. The supreme appeals courts also considered admissible
correspondence between the Bank’s attorneys and Angel Corp’s attorneys. It came
to the outcome that the parties had thereby clearly supposed that the Bank
would cede its claim once receiving full payment.
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cession
cession
ˈsɛʃ(ə)n/
noun:
cession; plural noun: cessions
1. the formal giving up of rights, property,
or territory by a state.
"the
cession of twenty important towns"
synonyms:
surrender,
surrendering, ceding, conceding, concession, relinquishment, yielding,
giving
up, handing over, transfer, transference, transferral, granting, grant,
bequest;
resignation,
abdication, abandonment, forgoing, forsaking, sacrifice, waiving, waiver,
renunciation
"the
cession of this province to the Kingdom of Italy"
Legal Definition of
Cession
1. an act of ceding : a yielding (as of
property) to another: as
a. in the civil law of Louisiana : assignment
or transfer of property rights by a debtor to a creditor
b. transfer of liability by an insurer to a
reinsurer
transfer
of control of management or sovereignty over specific property or territory
particularly by written agreement
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