Van der Merwe borrowed R230,000 from Nedcor Bank secured by a bond. When he defaulted on payments, Nedcor sued him in the Transvaal Provincial Division and obtained default judgment. Van der Merwe applied to set aside the default judgment, claiming a valid defence based on set-off. His defence was that Kniehalter Boerdery CC (a close corporation of which he was the sole member) had a claim of R230,000 against Nedcor arising from four purchase contracts for Volvo front-loaders. Kniehalter had paid deposits totalling R453,427.60 but the contracts were allegedly invalid due to mistake or were repudiated by Nedcor. Kniehalter then purportedly ceded R230,000 of its claim to Van der Merwe personally, who sought to set this off against his bond debt. Shortly after the cession, Kniehalter was placed under provisional liquidation, which was later made final.
The appeal was dismissed with costs. The default judgment against Van der Merwe remained in place.
A cession that purports to split a single claim between the cedent and cessionary, without the consent of the debtor, is invalid and of no legal effect. The rationale is that such fragmentation aggravates the debtor's position by confronting the debtor with multiple creditors instead of a single creditor. The prohibition applies regardless of whether the cedent and cessionary are related entities or the same person acting in different capacities. An invalid cession cannot form the basis for a valid set-off.
The court noted that while there may be an exception to the rule against splitting claims in the context of co-sureties who can each insist on cession of a portion of the principal debt, this exception (if it truly exists) has no application outside the suretyship context. The court also confirmed that the principle in Gutman NO v Standard General Insurance Co Ltd (that one person cannot contract with himself even when acting in different capacities) was incorrectly decided and was overruled in Vaal Reefs Exploration and Mining Co Ltd v Burger 1999 (4) SA 1161 (SCA). The court explicitly stated it was unnecessary to investigate the other objections raised by Nedcor regarding the enforceability of Kniehalter's claim, the validity of the cession on other grounds, or the validity of the subsequent reliance on set-off, since the invalidity of the cession due to impermissible splitting was dispositive.
This case reaffirms the fundamental principle in South African law that a creditor cannot cede part of a single claim to create multiple creditors without the debtor's consent. It clarifies the prohibition against fragmenting claims through cession and demonstrates how this rule protects debtors from having to defend against multiple parties in respect of what was originally a single obligation. The case also illustrates the proper application of legal principles regarding cession and set-off in the context of setting aside default judgments.