UNIT 1: NATURE OF PAYMENT
Payment
• It is an obligation by a debtor to discharge a debt owed to the creditor.
o It is rendering of owed money by competent debtor to competent receiver - Sharrock
• It is a performance of an obligation or delivering what is due – S v Harvey
• It is the delivery on what is owed to a competent deliverer and receiver – Harrismith v Odendaal
Requirements of Payments (When can payment takes place)
• The debtor must give creditor unconditional right to immediate use of funds
o If there are conditions, NO payment occurs.
o If creditor refuses the debtor`s tender of payment, no payment occurred even if the
tender was valid
o No payment occurs if funds transferred are not immediate & unconditionally available
▪ Even If the creditor accepts something less than full & immediate funds, this will
only discharge the obligation.
• There must be a bilateral Juristic act – 2 parties with consent and co-operation.
• The parties must have capacity to act (18 years and older)
• The creditor must accept the payment
o Where the creditor refuses to accept the payment, NO payment occurs event if valid.
Forms of Payments
• Electronic money
• Mobile Money (Apple pay, e-wallet)
• Payment cards (bank cards)
• EFT
• Bills of Exchange (e.g., Cheques)
• Cash
• Virtual currencies: digital representation of money (e.g., tokens, cryptocurrency)
• Cryptocurrencies
• Barter Exchange (E.g., Paying with assets)
Vereins-und v Veren Investments – payment is deemed to have occurred where parties have agreed to
the manner of payment even though the payment method is not the same.
Requirements of Money
• It must tangible
• It must be issued under the authority of the state
• It has a nominal value
• Serves as a universal means of exchange in a state.
, Legal Tender
• It is the way in which payment of money or debt should be settled.
o It can be by the use of bank notes and coins
• In SA, only the reserve bank has power to issue (legal tender) banknotes and coins.
o S17 of SA Reserve Bank – outlines that legal tender includes:
▪ Banknotes & gold coins.
▪ Coins up to R50 where they are denominated in R1, R2 or R5.
▪ Coins up to R5 where they are denominated in 10c, 20c or 50c.
▪ Coins up to 50c where they are denominated in 1c,2c or 5c.
• Foreign currency is not money.
o Payment using foreign currency is a criminal offence for both parties.
o Payment in foreign currency must converted at the rate of exchange at time of payment
and NOT the time when the contract was concluded, for it to be legal.
ELEMENTS FOR VALID TENDER OF PAYMENT
Amount of payment For a tender of payment to be valid, it must be for full amount owed.
• The receiver of payment is entitled to insist of exact amount of payment.
• The creditor is not forced to accept payment in instalment unless otherwise.
Principal of currency nominalism applies:
• The debtor must pay the stipulated amount due irrespective of fluctuations.
• Risks & losses of creditor & creditor:
➢ Creditor: loss resulting from depreciation (weaker rands)
➢ Debtor: loss resulting from appreciation (stronger rands).
Time & Place of Payment must be made at the place where it was expressly or tacitly agreed on.
Payment Where there is NO agreement: legislation, trade usage & common law applies to deter.
Parties` Intention must be given effect to -> court will look at the wording of the contract
Places effective for payment:
• Cash payment: place where the debtor delivers cash to creditor.
• Electronic payment: place where funds are received or transferred to the payee.
Payment by a 3rd party General rule: Debtor is not expressly required to extinguish by themselves.
• Payment can made by agent, surety or independent 3rd party.
Third party can make payment without the knowledge/consent of the debtor
• In this case, the creditor may NOT refuse the payment.
The 3rd party must make it clear that they are paying on behalf of the debtor + the payment must be
unconditional to discharge the debt.
The 3rd party has a right of recourse against debtor for prescription period of 30 yrs..
Where parties agree to have payment made by 3rd party, 3rd party`s payment discharges debtor obligation
• 3RD party cannot be compelled to make a payment.
• Debtor can be liable for breach of contract if 3rd party fails to pay.
Payment to a 3rd party Payment must be made to a person who is competent to receive it.
Creditor can assign a 3rd party to receive payment on their behalf & terminate anytime.
Parties can agree to make payment to a 3rd party by a contractual right.
• The debtor in this regard has the duty to pay the 3rd party.
, Right & Duties of a creditor who received payment of Issuance of receipts.
• The debtor has a right to a receipt and may withhold payment until he is given one
o Failure to give receipt to debtor = criminal offence
• Appropriation of Payment
o Where a party has 2 account to pay & pay without stipulating which account it goes to:
o Where there is an agreement: debtor and creditor agree which acc the money goes to.
o Where there`s NO Agreement: debtor can decide which account to send the money to
o Where debtor doesn’t do it:
▪ creditor use his discretion to equitably choose (usually acc with more money)
o Where there is NO agreement at all: residual rules will apply
▪ Payment is applied to the most burdensome debt first
▪ If the debts are equally onerous -> pay oldest debt first
▪ If the debts are equal in date chronology -> pay debts pro rata (proportionally)
RELEVANT LEGAL PRINCIPLES
Conditional Payment For a tender of payment to be valid, there must be contract which is unconditional.
• If the payment is conditional, the creditor can refuse to accept payment.
Payment in Full & Final It happens where a debtor owes R10K but only pay R5K. It is Compromise & can sue.
Settlement • Where a creditor accepts the R5 000, he cannot sue the debtor.
▪ If there`s breach of the compromise, the parties cannot fall back to the original claim.
• Where a creditor rejects, he cannot keep payment & must return it to debtor.
Set-off (Compensatio) It is a termination of debts mutually owed automatically by law or ex lege.
Aim: It promotes economic efficiency by allowing reciprocal debt to discharge.
▪ E.g., Thabo owe Andile R600 but Andile owes me R300. They can agree that t
settle the overall debt by set-off. Andile must pay the outstanding R300.
Requirements of Set-off:
• Parties must be separate legal entities
o There must be no Principle of “connected persons”.
o They must not be identical/exclusively related to one other (family, org).
• Both parties must owe each other (mutually indebted)
• Debt must be in the same kind (money)
• Debt must be due and enforceable
• Debt must be a liquidated claim – ascertainable, capable of easy & speedy proof
Frustration of Payment A debtor is excused from making a payment if:
• The creditor makes it clear that he will not accept any tender of payment
• The debtor tenders full and unconditional payment but the creditor refuses.
• The creditor makes it impossible for debtor to make payment Ito contract.
• The creditor fails to carry out his obligation to account to debtor.
Payment
• It is an obligation by a debtor to discharge a debt owed to the creditor.
o It is rendering of owed money by competent debtor to competent receiver - Sharrock
• It is a performance of an obligation or delivering what is due – S v Harvey
• It is the delivery on what is owed to a competent deliverer and receiver – Harrismith v Odendaal
Requirements of Payments (When can payment takes place)
• The debtor must give creditor unconditional right to immediate use of funds
o If there are conditions, NO payment occurs.
o If creditor refuses the debtor`s tender of payment, no payment occurred even if the
tender was valid
o No payment occurs if funds transferred are not immediate & unconditionally available
▪ Even If the creditor accepts something less than full & immediate funds, this will
only discharge the obligation.
• There must be a bilateral Juristic act – 2 parties with consent and co-operation.
• The parties must have capacity to act (18 years and older)
• The creditor must accept the payment
o Where the creditor refuses to accept the payment, NO payment occurs event if valid.
Forms of Payments
• Electronic money
• Mobile Money (Apple pay, e-wallet)
• Payment cards (bank cards)
• EFT
• Bills of Exchange (e.g., Cheques)
• Cash
• Virtual currencies: digital representation of money (e.g., tokens, cryptocurrency)
• Cryptocurrencies
• Barter Exchange (E.g., Paying with assets)
Vereins-und v Veren Investments – payment is deemed to have occurred where parties have agreed to
the manner of payment even though the payment method is not the same.
Requirements of Money
• It must tangible
• It must be issued under the authority of the state
• It has a nominal value
• Serves as a universal means of exchange in a state.
, Legal Tender
• It is the way in which payment of money or debt should be settled.
o It can be by the use of bank notes and coins
• In SA, only the reserve bank has power to issue (legal tender) banknotes and coins.
o S17 of SA Reserve Bank – outlines that legal tender includes:
▪ Banknotes & gold coins.
▪ Coins up to R50 where they are denominated in R1, R2 or R5.
▪ Coins up to R5 where they are denominated in 10c, 20c or 50c.
▪ Coins up to 50c where they are denominated in 1c,2c or 5c.
• Foreign currency is not money.
o Payment using foreign currency is a criminal offence for both parties.
o Payment in foreign currency must converted at the rate of exchange at time of payment
and NOT the time when the contract was concluded, for it to be legal.
ELEMENTS FOR VALID TENDER OF PAYMENT
Amount of payment For a tender of payment to be valid, it must be for full amount owed.
• The receiver of payment is entitled to insist of exact amount of payment.
• The creditor is not forced to accept payment in instalment unless otherwise.
Principal of currency nominalism applies:
• The debtor must pay the stipulated amount due irrespective of fluctuations.
• Risks & losses of creditor & creditor:
➢ Creditor: loss resulting from depreciation (weaker rands)
➢ Debtor: loss resulting from appreciation (stronger rands).
Time & Place of Payment must be made at the place where it was expressly or tacitly agreed on.
Payment Where there is NO agreement: legislation, trade usage & common law applies to deter.
Parties` Intention must be given effect to -> court will look at the wording of the contract
Places effective for payment:
• Cash payment: place where the debtor delivers cash to creditor.
• Electronic payment: place where funds are received or transferred to the payee.
Payment by a 3rd party General rule: Debtor is not expressly required to extinguish by themselves.
• Payment can made by agent, surety or independent 3rd party.
Third party can make payment without the knowledge/consent of the debtor
• In this case, the creditor may NOT refuse the payment.
The 3rd party must make it clear that they are paying on behalf of the debtor + the payment must be
unconditional to discharge the debt.
The 3rd party has a right of recourse against debtor for prescription period of 30 yrs..
Where parties agree to have payment made by 3rd party, 3rd party`s payment discharges debtor obligation
• 3RD party cannot be compelled to make a payment.
• Debtor can be liable for breach of contract if 3rd party fails to pay.
Payment to a 3rd party Payment must be made to a person who is competent to receive it.
Creditor can assign a 3rd party to receive payment on their behalf & terminate anytime.
Parties can agree to make payment to a 3rd party by a contractual right.
• The debtor in this regard has the duty to pay the 3rd party.
, Right & Duties of a creditor who received payment of Issuance of receipts.
• The debtor has a right to a receipt and may withhold payment until he is given one
o Failure to give receipt to debtor = criminal offence
• Appropriation of Payment
o Where a party has 2 account to pay & pay without stipulating which account it goes to:
o Where there is an agreement: debtor and creditor agree which acc the money goes to.
o Where there`s NO Agreement: debtor can decide which account to send the money to
o Where debtor doesn’t do it:
▪ creditor use his discretion to equitably choose (usually acc with more money)
o Where there is NO agreement at all: residual rules will apply
▪ Payment is applied to the most burdensome debt first
▪ If the debts are equally onerous -> pay oldest debt first
▪ If the debts are equal in date chronology -> pay debts pro rata (proportionally)
RELEVANT LEGAL PRINCIPLES
Conditional Payment For a tender of payment to be valid, there must be contract which is unconditional.
• If the payment is conditional, the creditor can refuse to accept payment.
Payment in Full & Final It happens where a debtor owes R10K but only pay R5K. It is Compromise & can sue.
Settlement • Where a creditor accepts the R5 000, he cannot sue the debtor.
▪ If there`s breach of the compromise, the parties cannot fall back to the original claim.
• Where a creditor rejects, he cannot keep payment & must return it to debtor.
Set-off (Compensatio) It is a termination of debts mutually owed automatically by law or ex lege.
Aim: It promotes economic efficiency by allowing reciprocal debt to discharge.
▪ E.g., Thabo owe Andile R600 but Andile owes me R300. They can agree that t
settle the overall debt by set-off. Andile must pay the outstanding R300.
Requirements of Set-off:
• Parties must be separate legal entities
o There must be no Principle of “connected persons”.
o They must not be identical/exclusively related to one other (family, org).
• Both parties must owe each other (mutually indebted)
• Debt must be in the same kind (money)
• Debt must be due and enforceable
• Debt must be a liquidated claim – ascertainable, capable of easy & speedy proof
Frustration of Payment A debtor is excused from making a payment if:
• The creditor makes it clear that he will not accept any tender of payment
• The debtor tenders full and unconditional payment but the creditor refuses.
• The creditor makes it impossible for debtor to make payment Ito contract.
• The creditor fails to carry out his obligation to account to debtor.
