lOMoARcPSD|21955909
Learning Unit 2 Payment Chpt 6
Methods of Payment Law (Varsity College)
Studocu is not sponsored or endorsed by any college or university
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Learning Unit 1: Banks and banking law
Theme 1: Introduction to banking law
Define all relevant terminology in terms of the Banks Act:
Banks play an important part in the functioning of the economy by performing various
roles, including that of payment and loan intermediary, as well as provider of payment
settlement facilities.
4 Principal methods of payment:
 Money: physical money including cash
 Payment cards: debit and credit cards
 Funds transfer: customers instruction to the bank to transfer funds from one account
to another
 Negotiable instruments: cheques and letters of credit
Discuss all the exclusions from the Act:
The Banks Act does not apply to the following:





The South African Reserve Bank (SARB).
The Land Bank
The Development Bank of Southern Africa
The Corporation for Public Deposits
The Public Investment Commissioners
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Financial Intelligence Centre Act (FICA): FICA residential address

The provision and verification of a residential address: The obligation to provide an
address and the need for such to be verified appears to have been the chosen
safeguard against identity fraud.
The value of providing a residential address for purposes of identifying a customer has
been questioned. De Koker argues that the negative impact of residential address
verification increases as a result of the high level of internal migration.
In South Africa, the verification of a client’s address has presented certain difficulties,
particularly with low-income individuals. The drafters of the FICA and its regulations
were aware of the fact that individuals who lived in informal settlements and rural
areas could face problems in verifying their residential address.
Compare the different tiers of banks available in South Africa:
First Tier banks:
 Commercial bank: is a financial institution that provides banking services for their
customers, including businesses, organisations and individuals.
Banking services include the offering of current, deposit and savings accounts, as well
as providing loans to their customers.
 Investment bank: is a financial institution that assists individuals, companies and
governments in raising capital by underwriting and/or acting as the client’s agent in the
issuance of securities.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Second-tier banks:
 Mutual bank: is defined as a juristic person registered as a mutual bank, and whose
members qualify as such by virtue of being shareholders and being entitled to
participate in exercising control in a general meeting of the bank
 The Postbank of South Africa: Is a savings financial institution that operates as a
division of the South African Post Office.
Third-tier banks:
 Village banks: The objectives of village banks are to provide appropriate financial
services at a local level and to provide a link to a first-tier bank.
 Stokvels: Generic name for a wide range of credit and savings associations which one
encounters in disadvantaged communities. They provide banking-type services
including savings and credit services.
 Mobile banking services: A number of cellular companies have developed software for
their clients to use their cellphones as paying devices. Payments which take place
through cellphones are generally referred to as mobile payments.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Theme 2: Banking law and its sources
Analyse the impact of various phenomena on South African banking law:
We have seen an expansion of the pool of modern SA banking-law principles
which are as a result of the following 5 fundamental phenomena:
1. Banking law as part of the law of obligations
2. Bank-customer relationship is a multi-faceted one
3. Government policy of legislating to replace the common law
4. Globalisation
5. Major practical changes in banking sector
Discuss the sources of banking law in South Africa:
Primary sources include:

Legislation – Constitution
Other legislation may include:






 National Payment Systems Act
 National Prosecuting Authority Act
 Debt Collectors Act
Judicial precedent
Custom or Trade Usage
Code of Banking Practice
Roman law
Roman-Dutch law
Indigenous law -Stokvels
Secondary sources include:
 International law
 The Basel Committee on Banking Supervision: supra-national banking body.
Aim: to foster co-operation between banking regulators & establish agreed
minimum standards for supervision of international banking groups. South African
Reserve Bank rigidly follows standards laid down by Basel Committee. Sa
incorporates them by way of Regulation and they became part of our municipal law
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Theme 3: The South African banking system
Discuss the function of the South African Reserve Bank:
SARB plays a pivotal role in the regulation of Banks in South Africa.
Primary role: To protect the value of the SA currency in the interests of balance &
sustainable growth. Mandate of SARB is derived from Constitution.
SARB plays multiple roles:
Lead regulator in SA –responsible for bank regulation & supervision Issues banking
licences to banking institutions & monitoring their activities in terms of either Banks
Actor Mutual Banks Act .
Section 10 (1) (c) (i) of SARB Act –SARB may ‘perform such functions, implement
such rules & procedures and, in general, take such steps as may be necessary to
establish, conduct, monitor, regulate & supervise payment, clearing or settlement
systems. ‘


National Payment System Act enables SARB to perform these functions
Authority to perform these functions vests in National Payment System
Department of SARB
S 10 of SARB ACT –SARB may exercise various powers relating to the financial
market.
Theme 4: The bank-customer relationship
#General elements of the Bank-Customer Relationship:
Loan: It is generally accepted that the basic relationship between a bank and its
customer in respect of a current account is one of debtor and creditor.
If the account reflects a credit balance, the customer is the creditor and the bank, the
debtor. Money deposited by the customer to the credit of the account is essentially a
loan given by him to the bank.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Where the account is overdrawn, the roles of the parties are reversed: the bank is the
creditor and the customer, the debtor
Formation of the Bank-Customer relationship:
The bank-customer relationship is formed when a bank agrees to open an account on
behalf of a person and accept him as its customer. The contract is normally concluded
by way of offer and acceptance.
The prospective customer makes an offer by completing and submitting an application
form to open an account and the bank may either accept or reject this offer. If the bank
decides to accept the offer, the contract comes into existence when the bank
communicates its acceptance to the customer.
Duties of the bank: Keeping and accounting customers account with the bank.
Repaying and collecting payments on behalf of the customer.
Furnishing customer with statements of account.
Duties of the customer: To pay overdrawing’s, interest and bank charges.
To exercise reasonable care in drawing payment instructions
To reimburse and indemnify the bank.
Circumstances in which the bank-customer relationship terminates:




Agreement: Parties tacitly agree
Notice of termination: Customer summarily terminates his contract with the bank.
Death or dissolution of the customer: if natural person
Sequestration of the customer: restricts banks’ ability to perform mandate with
customer.
Consequences of termination: The whole of the balance standing to the credit of the
customers account becomes immediately repayable by the bank. Also ends certain
duties that the bank owes to its customer
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
In essence, the bank-customer relationship is a multi-faceted one that exhibits elements
of different types of contract, most notably those of loan for consumption (mutuum) and
mandate (mandatum).
Pinto v First National Bank of Namibia 2012 (A98/2001) NAHCMD 43: explains how
the naturalia of the contract of mandate does not exclude the imposition of statute.
Statute thus overrides the common law contractual terms between the banker and the
customer in the interests of justice. This is important when considering our unjust and
unfair terms contained in section 48 of the Consumer Protection Act 68 of 2008 (CPA)
the broad “interests of justice” yardstick.
Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers 2001 (1) SA 256 (C):
contractual terms are often entered into between individuals and often between poor
and vulnerable people on one hand, and powerful, well-resourced companies on the
other.
This may very well assist in developing fair and relevant rules for this ever-changing
contractual landscape between bank and customer.
Relationship between principal and agent & mandator and mandatory:
The relationship of the mandator and mandatory is governed by our common law
naturalia principles and the bank owes a duty of reasonable care to the mandator in
carrying out its instructions.
Should the bank fail to carry out the instructions in a reasonable manner, then the Bank
will be liable for breach of mandate (contract).
This principle of fiduciary care is extended to an agent acting on behalf of a principal; in
that the agent must act in the best interests of the principal and not in her/ his own
interests. The mandator also has a duty to act with reasonable care when making
payment instructions.
Learning Unit 2: Payment
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Theme 1: Nature of payment
What is payment? Payment is the rendering of what is owed under a monetary obligation by
a person competent to render it to a person competent to accept it. It discharges the
obligation and any obligation accessory to it.
What is solutio? Discharge of an obligation by performance.
How is the rendering of what is owed achieved? If the creditor refuses the debtors tender
of payment, no payment takes place, even if the tender is a valid one.
What does it mean that payment is a bilateral act? Requires the agreement or co-operation
of both parties.
What is the general rule for payment to have taken place? The debtor must, as a rule, give
the creditor an unfettered right to immediate use of the funds in question.
Theme 2: Various concepts relating to money
Explain concepts relating to payment and their legal effect:
Def money: Money in the sense of the currency has been judicially defined as ‘that which
passes freely from hand to hand throughout the community in final discharge of debts.
Does it include e-money & foreign currency? E-money and Foreign currency is not money
for legal purposes.
What is generally accepted to constitute money for commercial purposes? Notes and
coins.
Medium, amount, and time and place of payment
What is legal tender? That is, in banknotes and coins that the creditor is obliged to accept in
redemption of the debt.
What constitutes as legal tender? Section 17 of the SARB Act


Banknotes – any amount
Gold coins – any amount
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909

Other coins – any amount, per transaction, not exceeding:
R50, where coins of denomination of R1, R2 or R5 are tendered.
R5, where coins of denomination of 10, 20, 50 cents are tendered.
50c where coins of denomination of 1c,2c or 5c are tendered.
What is the difference between “money of account” and “money of payment”?
Money of account is the currency in which a debt is expressed or liability to pay damages is
calculated.
Money of payment is the currency in which such debt or liability is to be discharged.
Which rate of exchange prevails when currency other than ZAR is converted into ZAR?
If the debt is expressed in a foreign currency then, unless agreed otherwise, the debtor has
the choice of paying in that currency or paying in South African currency converted at the
rate of exchange prevailing at the time of payment.
When is the tender of payment of valid? For a tender of payment to be valid it must be for
the full amount owing. The creditor may insist on the exact sum being paid – he cannot be
made to give change – and unless agreed otherwise, he is not compelled to accept payment
in instalments. The amount owing and payable is generally that specified in the contract.
What about currency fluctuations? South African law applies the principle of currency
nominalism, in terms of which the debtor must pay the sum stipulated as being due,
irrespective of any interim fluctuations in the purchasing power of the currency.
When must payment be made? Payment must be made at the time or within the period
expressly or tacitly agreed upon (if any).
How are time periods computed? To determine precisely when an agreed period of days,
weeks, months or years expires, the court must ascertain, if possible, what the parties
themselves intended, by examining the wording of the contract in the light of any admissible
evidence. If, through this process, the court can arrive at the common intention of the
parties, it must give effect to that intention.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Where must payment be made? The debtor must make payment at the place expressly or
tacitly agreed upon.
What is the effect Reg 3(1)(c) of the Exchange Control Regulations?
(1) Subject to any exemption which may be granted by the Treasury or a person authorised
by the Treasury, no person shall, without permission granted by the Treasury or a person
authorised by the Treasury and in accordance with such conditions as the Treasury or such
authorised person may impose:
(c) make any payment to, or in favour, or on behalf of a person resident outside the
Republic, or place any sum to the credit of such person; or
Critically discuss the common law and statutory law in respect of
payment of monetary debts
At common law, a party who owes a monetary debt may pay it before the date stipulated for
payment, provided the time clause was inserted in the contract purely for his benefit.
If the time clause was inserted solely for the benefit of the creditor, or for the benefit of
both parties, the creditor is not obliged to accept early payment.
Critically evaluate the guarantee of payment
Payment guarantees are typically used in sales of land to ensure that payment takes place. In
a sale of land for cash, the buyer is obliged, in principle, to pay the price against (pari passu
with) registration of transfer of the land in the Deeds Registry.
In practice, it is not possible to determine precisely when registration will take place and so
it is accepted that the buyer need not pay at the exact moment of transfer, it being sufficient
if he pays when the fact of transfer may be registered without the buyer making payment at
all
The following should be noted regarding the required payment guarantee:
 There is no prescribed from for the guarantee.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
 Unless agreed otherwise, the guarantee need not be a bank guarantee and it not be
irrevocable.
 The buyer is bound to furnish the guarantee only once the seller indicates that he is
willing and able to lodge the transfer documents.
 If the buyer sues to enforce transfer, he may tender the required guarantee in his
summons.
#Payment by post
For payment to discharge monetary debt debtor must place money or payment instrument
at creditor’s disposal.
If debtor chooses to post cheque postal order or other payment instrument to creditor & it
does not reach him debt is not paid &debt is not discharged.
But courts have made exception to rule & hold that mere act of posting
discharges debt if following requirements are satisfied:




Creditor requests or authorises debtor to send his payment by post
In case of cheque debtor complies with any agreed terms regarding manner in which
cheque is to be drawn.
Debtor posts instrument in correctly addressed & stamped envelope.
Instrument is lost or stolen in transit & in case of cheque paid by bank in
circumstances entitling it to debit account of drawer of instrument.
Above exception does not apply if parties have agreed that any payment made by
debtor must be received by creditor in order to be effective.
Payment by & to a 3rd person
Payment of monetary debt may be made by:
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909



Debtor’s agent
surety for debtor
independent 3rd person –3rd person may make payment without debtor’s knowledge
or consent & even against his will.
Creditor may not refuse tender of payment on basis that it comes from someone other than
debtor or person appointed by debtor.
For 3rd person to discharge obligation he must make it clear to creditor that he is paying for
or in name of debtor &he must make payment unconditionally.
Obligation is not discharged if:



3rd person fails to indicate for whom he is paying, or
He tenders payment subject to condition that creditor is not obliged to accept, or
He pays what is owed not to discharge debt but to purchase & obtain cession of
creditor’s claim against debtor
Having made payment on behalf of debtor - 3rd person has right of recovery against him in
certain circumstances.
Parties to contractual debt may agree that payment of debt will be made by an
independent 3rd person –someone who is not party to their contract.
In such a case payment by 3rd person discharges debtor's obligation.
Such 3rd person not being party to contract cannot be compelled to render payment, but
debtor may be held liable for breach of contract if 3rd party fails to pay.
Receipt for payment

A party who pays debt is entitled to receipt & may withhold payment until he is given
one.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909

A bank that pays out on cheque to party purporting to be payee may demand that he
indorse instrument as form of receipt.
Apportionment of payment
If parties have agreed in advance how money is to be applied : e.g. they have stipulated
that creditor must apply money to particular debt or that he may allocate money to
whichever debt or debts he sees fit court must give effect to that agreement.
If parties have not concluded any prior agreement on how payment is to be apportioned
among debts, then question depends on whether either debtor or creditor has allocated
payment to any particular debt or debts.
 Debtor who owes two or more monetary debts to one creditor may make payment to
creditor which is insufficient to discharge all debts.
 In such case it is necessary to determine HOW payment is to be appropriated between
debts
Debtor may before or at time of making payment indicate to which debt (or debts) payment
is to be applied. If he does payment must be appropriated accordingly.
He need not give an express indication if his intention is clear in circumstances
Debtor’s intention will generally be clear for example where:




He has consistently agreed to creditor appropriating his payments in manner adopted
Amount of payment corresponds with one particular debt
He admits one debt & disputes others
Creditor has demanded payment of one of debts & debtor without any explanation has
forwarded amount demanded
If debtor has not expressly indicated appropriation & circumstances do not suggest one
creditor may choose debt(s) to which to apply payment.
For creditor’s appropriation to be effective he must make his intention known to debtor
before or at time of payment so as to give debtor an opportunity of stipulating otherwise.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Creditor is required to act fairly in making his choice & he cannot appropriate payment to
debt which is disputed or not yet due or not legally enforceable.
Payment in full settlement:
A debtor who denies owing full amount claimed by creditor may tender payment of lesser
amount &accompany tender with words ‘in full settlement’.
May creditor keep payment & sue for balance? Answer depends on whether parties have
concluded a compromise.
In this regard following should be noted:

Compromise is essentially agreement between parties to disputed obligation or to
lawsuit, settling matter in dispute each party receding from his previous position &
conceding something.
Typical reasons for a party agreeing to compromise are that he is:



Uncertain as to merits of his side of dispute or
Unsure whether he will be able to prove his version of events in court or
Not prepared to incur inconvenience (trauma) or expense of litigation
Compromise is usually classified as form of novation because it is intended to replace & has
effect of replacing any obligation which exists between parties.
But it differs from novation in three respects:



It must be concluded to settle dispute between parties
Each party must depart from his prior position & concede something either by
diminishing his claim or increasing his liability; &
Agreement does not require valid existing obligation as prerequisite for its formation.
Parties often conclude compromise precisely because they are uncertain as to whether there
is any obligation between them.
If claim in respect of which they agree to compromise is invalid validity of compromise is not
affected.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
Set-off
Set-off or compensation (compensatio) is method by which mutually owed debts
(contractual or otherwise) are extinguished.
Set-off has same extinguishing effect as payment & is regarded as its legal equivalent. It
promotes economic efficiency in that it allows reciprocal debts to be discharged without
expense & inconvenience of duplication of performance.
Requirements for set-off to operate:
 Parties to set-off must be separate legal entities
 Parties must be mutually indebted to each other (each must be both creditor & debtor
of other) & each must owe & be owed in same capacity.
 Debts must be of same kind (eiusdemgeneris).
 Debts must be due and enforceable.
 Debts must be liquidated
Effect of set-off








Set-off operates automatically (ex lege) as soon as requirements set out above are met
It need not be specifically invoked
In this respect it differs from payment which involves voluntary act on part of debtor
Set-off must be pleaded & proved for court to be able to take cognisance of it.
Set-off discharges both of debts wholly or in part.
It has same effect as full or partial payment of each debt.
If debts are for same amount both are completely extinguished.
If debts are for different sums greater is reduced by amount of smaller which is
extinguished.
When set-off is excluded?
Parties may by agreement exclude applicability of set-off to their reciprocal debts e.g. either
of debts will be paid ‘without deduction or set off.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)
lOMoARcPSD|21955909
In some instances, set-off is excluded by statute or by common law.
Granting of sequestration or liquidation order creates a concursus creditorum which
prevents set-off from taking place.
Proof of payment




If debtor alleges that he has paid his debt onus is on him to prove it.
If he fails to establish his allegation on balance of probabilities, judgment must go
against him (there is no question of court granting absolution from instance).
Receipt is prima facie proof of payment of a money debt
Party who makes payment of debt is entitled to receipt &may withhold payment until
he receives one.
Prescription
What does it mean when debt has “prescribed”?
Prescription refers to the termination of a debt or obligation through the effluxion of time.
The Prescription Act 68 of 1969 sets out the periods of prescription for different types of
debt with the prescription period for a basic debt being three years.
Once prescription period has passed debt is no longer legally enforceable & creditor may not
bring claim against debtor.
Downloaded by Genevieve Asem (Genevieveacademics@gmail.com)