Cession of Priority of Rank Agreement

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