VHD 320 Syllabus Theme 2: Cheque Law
STUDY UNIT 1: THE CHEQUE AS
PAYMENT INSTRUMENT
TEXTBOOK PAR 31.01 – 31.15
1. EXPLAIN HOW THE CHEQUE COLLECTION PROCESS OPERATES;
• A cheque ≠ legal tender and a creditor is therefore not obliged to accept a cheque
as payment
o Because a cheque is primarily a payment instrument, it is seldom negotiated
and is usually deposited in the payee’s account, to be collected on his behalf
• The Automated Clearing Bureau (ACB) was established in 1973 by the SA clearing
banks to provide for the computerised collection and payment of cheques
o This system used magnetic ink in the identification and clearing of cheques
(Volksklas Bank Bpk v Bankorp + Greef and Nagel 1992 De Jure 56)
• ACB has been replaced by Bankserv
PRESENTMENT OF CHEQUES FOR PAYMENT
• Ito section 50(4): When a holder of a bill presents it for payment, he shall exhibit the bill
to the person from whom he demands payment, and when a bill is paid, the holder
shall forthwith deliver it to the party paying it
o Where the cheque is cashed over the counter
• To make provision for the banking practice in which the ACB is used to present cheques
electronically for presentment, section 43A provides that a cheque may (subject to
certain requirements) be presented for payment to the drawee by a collecting bank
obo the holder
o Such presentment may take place:
▪ (a) at a place designated in the rules of any clearing house of which
both the drawee bank and the collecting bank are members;
▪ (b) at a place of payment designated by the drawee bank; or
▪ (c) by means of data transmitted in terms of an agreement to which
both the drawee bank and the collecting bank are party by, or on
behalf of, the collecting bank to the drawee bank, identifying the
cheque with reasonable certainty.
• A cheque is deemed to be identified with reasonable certainty
if:
o (a) the sum ordered to be paid by the cheque;
o (b) the number of the cheque, if any;
o (c) the name and number of the account against which
the cheque is drawn; and
o (d) the drawee bank, are specified or are readily
ascertainable by the drawee bank from the date
transmitted by or on behalf of the collecting bank.
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, VHD 320 Syllabus Theme 2: Cheque Law
• Collection process – how does it operate?
o Bankserv – magnetic ink to identify and clear cheques
• Bankserv = a computerised process of set-off
o Collecting bank’s account – credited
o Drawee bank’s account – debited
• Cheque routed to Drawee Bank
o Prescribed period within which drawee must decide whether he wants to
dishonour
▪ This prescribed period is very NB wrt the whole issue of time of payment
of a cheque
o In case of dishonour cheque must be sent bank via Bankserv to collecting
banker
Collection process
- Cheque drawn on Standard bank (drawee bank)
- Cheque is crossed
- Chris Campher is payee
- ABSA Bank is collecting bank
- Chris Campher cannot physically go to Standard Bank since it has a cross on it
- His account at ABSA will be provisionally credited with the amount of the cheque
2. KNOW THE PROBLEMS SURROUNDING THE TIME OF PAYMENT OF CHEQUE S;
NB: can expect essay question in exam to write a critical note pertaining to the time of
payment of a cheque – refer to Malan par 215; Nagel & Pretorius 2004 THRHR; Volksklas v
Bankorp; Rosen; Wavecrest; Burg Trailers (15 marks)
• Where a cheque is paid over the counter → payment takes place when the money is
handed to the drawer
• However, the question as to the time of payment of a cheque becomes complicated
when payment is effected through the instrumentality of a collecting bank and the ACB
(when the collection process has been started)
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, VHD 320 Syllabus Theme 2: Cheque Law
• The determination of the time of payment is of special importance when the drawer
attempts to countermand payment of a cheque, since payment can only be
countermanded if payment had not already taken place
• The time of payment is also of importance where the drawer is sequestrated before
payment is effected, because in such a case the creditor will only have a concurrent
claim against the insolvent estate
• Where a payment ≠ made directly to the holder of a cheque, but is made through the
instrumentality of a collection bank and a clearing bureau → the clearing arrangement
should apply
o Payment is then only final when the period, laid down by the clearing
agreement and in which the drawee may decide to honour the cheque,
expires without notice of dishonour by the drawee
• Volksklas v Bankorp (SCA) (Bloemfontein)
o When prescribed period in which drawee may decide to honour expires
without notice of dishonour
▪ Facts:
• Drawee banker = Volksklas
• Collecting banker = Trust Bank (Bankorp)
• The drawer of the cheque stopped payment before that
prescribed period had expired (after a decision had been
made by the drawee bank to honour the cheque)
• Did the drawer stop the cheque in time?
o We look at the prescribed period
o Payment will only take place after the prescribed period
has expired without notice of dishonour
• Therefore the drawer did stop it in time
▪ SCA distinguished facts in Rosen (2 branches of same bank)
▪ Prescribed period provides notice of payment to payee and collecting
bank
▪ Thus, where it expires and no notice of dishonour – payment has taken
place
▪ Where drawee and collecting bank is same bank (even though 2
different branches) notice unnecessary (you don’t give notice to
yourself)
• Rosen & Wavecrest
o Decision was that the time of payment is the moment when drawee decides to
honour cheque (when the decision was made to honour the cheque = that will
be the moment of payment)
• Burg Trailers v Absa; Nagel and Pretorius
o Confirmed the Volksklas case
o NB to take note of a Second relevant period – “holding period” of 10 days
(applies to payee)
o Banking practice – cheque must ‘lie’ for 10 days; only then can payee insist that
payment has taken place
▪ Must refer to this case in critical note in exam
• Nagel and Pretorius
o Volksklas should apply
o Legal certainty important
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, VHD 320 Syllabus Theme 2: Cheque Law
o In their opinion the decision is incorrect and that the Volksklas case should
actually be the only correct viewpoint on when payment takes place
• The courts are not at idem wrt the moment of payment
3. KNOW THE DIFFERENCE BETWEEN ACCEPTANCE, CERTIFICATION AND
GUARANTEED CHEQUES;
• A bank usually ≠ accept cheques, but in terms of the contractual relationship between
the bank and the drawer, merely pays his customer’s cheques provided that funds or
overdraft facilities are available
o However, banks often certify cheques or guarantee the payment thereof
▪ A bank-certified cheque may in general be described as a cheque that
is marked by a bank to the effect that funds in the amount thereof are
available, either unconditionally or for a certain period.
▪ For example: Good for R . . . until 8/1/2005 together with the signatures
of two authorised bank officials on the back of the cheque.
o In this regard, section 72A(1) provides that a cheque is certified if the drawee
signs it and adds words to the cheque that indicate that the cheque will be
paid or that funds are available for its payment.
▪ “Good for R2000” and signatures of bank officials
▪ The liability of the drawee certifying a cheque is similar to that of the
acceptor of a bill
o Section 72A(2) provides that when a drawee of a cheque certifies it, he
undertakes that he will pay the holder, or the drawer or an indorser who has
been compelled to pay the cheque, the amount recoverable in terms of
section 55 according to the tenor of his certification.
▪ Effect of certification – drawee undertakes to pay and statutory
estoppels
▪ Can certified cheque be countermanded?
• Wavecrest – in case of fraud interdict against bank (see below)
• In addition, the drawee is precluded from denying to a holder in due course:
o (a) the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the cheque; and
o (b) the existence of the payee and his then capacity to indorse.
• A further question is whether or not payment of a certified cheque can be
countermanded.
o In terms of section 73, the bank’s duty to pay a cheque is terminated, amongst
others, when the customer countermands payment
o General rule: Because the bank’s liability against the holder due to the
certification of the cheque is independent from the relationship between itself
and the drawer, it is submitted that a countermand by the drawer will not
relieve the bank from this independent duty [see Greeff and Nagel 1992 De Jure
56].
o Exception: Where the holder obtains the cheque through fraud, however, the
independence of the bank’s duty should not protect the holder. In Wavecrest
Enterprises v Cema Africa (Pty) Ltd (in liquidation) the court held that the drawer
was entitled to countermand payment of a cheque because of the holder’s
fraud, and to an interdict restraining the bank from paying the cheque [see
also the discussion of this case by Greeff and Nagel 1992 De Jure 56].
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, VHD 320 Syllabus Theme 2: Cheque Law
▪ Thus, as a general rule, no – as the bank is liable and won’t be willing to
allow you to stop the mandate
▪ However the court held that an interdict may be obtained where there
is fraud
4. KNOW THE RULES APPLICABLE WHERE CHEQUES ARE SENT BY MAIL.
SENDING CHEQUES BY MAIL (NB)
• The following rules apply when cheques are sent by mail: (Mannesmann Demag (Pty)
Ltd v Romatex Ltd case)
o If cheque is mailed without the creditor’s consent → the underlying debt is not
discharged and the debtor bears the risk
o However, where the creditor requested or authorised(definite agreement that
the cheque may be mailed): the underlying debt is discharged and the creditor
will bear the risk
MANNESMAN DEMAG (PTY) LTD V ROMATEX LTD
• The issues before the Court were:
o Whether the cheque has been posted
o If so whether the plaintiff had made a request to defendant with regard to
payment, which on compliance transferred the risk of possible loss of the
cheque to the plaintiff
o If so, whether it was implicit in the arrangement between the parties, that the
cheque:
▪ Had to be made out to “Mannesmann Demag (Pty) Ltd and not to
“Mannesmann Demag”
▪ Had to be crossed and marked ‘not transferable’ and not simply ‘not
negotiable account payee only’, in order to transfer the risk to the
plaintiff
If not, whether it was implicit in the arrangement that the defendant was obliged within a
reasonable period after posting to ascertain whether the cheque had been met by its
bankers and, if not, whether it had been received by plaintiff and, if not, to countermand
payment
• The debtor must take precautionary measures iro the outward appearance of the
cheque: Greenfields case:
o Court held that it is NB to look at the way in which the cheque has been drawn
o Cheque must be drawn in a safe way
o In this case the cheque was a bearer cheque which is not a safe way as any
person or thief can become holder of the cheque
o Cheque must be crossed + full name of the payee must be indicated + must at
least be an order instrument
o Debtor must thus take precautionary measures iro the outward appearance
• Stabilpave (Pty) Ltd v Sars
o Decision by the court a quo + full bench + then SCA decision
o Facts:
▪ SARS mailed a cheque to the company Stabilpave
▪ This cheque was for a tax refund for R750 000
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, VHD 320 Syllabus Theme 2: Cheque Law
▪ There was a notice on the assessment where the company was notified
that the cheque will be mailed unless the company has provided its EFT
particulars
▪ The ECT particulars were not given and eventually the cheque was sent
to the company via mail and intercepted
o Question:
▪ Who is going to carry the risk in this situation?
o Judgment:
• The court a quo held that there was an agreement and that the
notice boiled down to an agreement between the parties that
the cheque may be mailed and therefore the company carried
the risk
• SCA: SARS had to pay again; referred to the opinion of Nagel
and Pretorius and held that the notice is not an agreement
• Nagel and Pretorius 2010 and 2014 THRHR
o The notice/a notice is not an agreement
o Agreement will only exist where there had been an offer AND acceptance
o Decision was criticised and notice not an agreement
o There may have been a tacit agreement between the parties = however, the
fact that Stabilpave didn’t have any choice does not mean that there was a
tacit agreement
▪ Fact that they knew the cheque will be posted also does not mean that
they gave consent
o However on appeal the court referred to these articles and the viewpoint and
held that a notice is not an agreement
Example:
You live with your parents in Bloemfontein and you have an account at a pharmacy there.
Must pay account and you want to mail a cheque as payment. What if the cheque is
intercepted and it never reaches the pharmacy.
What is your position? Will you have to pay again? What is the legal position of the
pharmacy?
This all revolves around the question as to whether there had been an agreement
between the parties on whether the cheque will be mailed. Was there consent from the
creditor that it can be mailed?
Reading list
1. Malan, Pretorius and Du Toit Malan on Bills of Exchange, Cheques and Promissory Notes (5th
edition 2009) par 189, 196, 199, 215.
2. Volkskas Bank Bpk v Bankorp Bpk 1991 3 SA 605 (A).
3. Wavecrest Enterprises v Cema Africa (Pty) Ltd 1991 CLD 266 (C).
4. Nagel and Pretorius 2004 THRHR 640.
5. Nagel and Pretorius 2010 THRHR 482-486.
6. Nagel and Pretorius 2014 THRHR 346-349
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, VHD 320 Syllabus Theme 2: Cheque Law
MALAN, PRETORIUS AND DU TOIT
MALAN ON BILLS OF EXCHANGE,
CHEQUES AND PROMISSORY NOTES PAR
189, 196, 199, 215.
189 Cheque collection process
The "Automated Clearing Bureau (Pty) Ltd" was established by the South African clearing
banks in 1973 to provide for the computerized collection and payment of cheques. This
system uses sophisticated electronic data equipment and processes cheques by means of
magnetic ink character recognition (MICR). It also provides a magnetic tape service for
clearing direct debit and credit transactions.
All MICR cheques are standardized and have a codeline in which are precoded in
magnetic ink certain characters representing the serial number of the cheque, the drawee
bank, the branch, and the drawer's account. The bank at which a cheque is deposited
encodes in the codeline the amount of each cheque. Cheques deposited in areas in which
the ACB operates are listed and sent in batches of fifty by the collecting banks to the ACB
centres where they are electronically "read" at speeds ranging from 1600 to 2600 per minute,
and the encoded information transferred to magnetic tape. Cheques are then sorted
according to bank, branch, account and serial number. Processing usually takes place on
the days on which cheques are deposited for collection, and banks settle with each other
the next day but under the previous day's date. Magnetic tapes are delivered to banks on
the evening of processing and the cheques the following day. The customer's account is
debited by the drawee bank's
computer on the day the magnetic tapes are delivered,
Through the use of the MICR system it is now possible to debit cheques on the same day as
they are drawn. This system does not involve any fundamental change in the cheque
collecting procedure; it merely provides for the computerization of parts of the existing
process.
Generally, therefore, the ACB, as far as the collection of cheques is concerned, acts as a
mandatary and not as a representative of the participating banks or their customers.
196 Acceptance, certification and guaranteed cheques
Cheques are used to pay debts and for this reason they are seldom accepted by the bank.
However, there is no reason why they cannot legally be accepted: the acceptance need
comply only with the requirements for the acceptance of bills: Although a cheque is seldom
accepted, it is often certified. Before the enactment of section 72A by Exchange
Amendment Act, 2000, considerable doubt as to the legal consequences flowing
from certification existed.
The certification of a cheque can take various forms but, generally, the face of the cheque
is stamped with the words "Bank Guaranteed Cheque", and the words "Good for R ... to ...
"Marked good for R .. . on together with the signature of (usually) two authorised bank
officials are placed on its back.
The English court requires "strong and unmistakable words" for the acceptance of a cheque,
and it has been said that certification merely adds to the negotiability of a cheque by
showing that it was drawn on sufficient funds without necessarily obliging the drawee bank.
In the United States of America, marking or certification is equivalent to acceptance by the
drawee bank.
Canadian precedent holds that if certification at the request of the holder does not amount
to an acceptance, it is an agreement by the drawee bank to pay the holder.
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In South African law the little authority that there was seemed to favour the view taken by
the English cases that certification merely added to the negotiability of the cheque by
showing that it was drawn on sufficient funds. There is no reported judgment in South Africa
on the certification of cheques prior to the 2000 amendment imposing such liability and it
was suggested that the following approach should be followed: although some of the
expressions used to certify a cheque could be interpreted as the signification by the drawee
of his assent to the order of the drawer so that it could amount to an acceptance in terms
of section 15(1) certification is generally not intended or understood to be an acceptance.
However, it is suggested that certification may nevertheless impose contractual liability on
the drawee bank to the holder where the drawee bank intends to be liable, or where the
words used can reasonably be construed as amounting to an undertaking to pay, and the
holder accepts this undertaking or relies on the words used. In terms of this contract the
drawee undertakes or guarantees payment of the cheque. It is submitted that a
countermand of payment given in terms of section 73(a) will not discharge the drawee bank
from this independent obligation to effect or guarantee payment of the cheque. Any doubt
that may have existed as to the effect of certification is removed by section 72A which
imposes liability on the drawee bank certifying a cheque on the instrument itself and
equates its liability that that of the acceptor. The liability of a certifying bank in terms of
section 72A thus differs from the liability bank under a cheque or other card. A cheque card
is a numbered metal or plastic is to customers and containing an undertaking by the bank
to "guarantee", on certain conditions, cheques drawn on them. The liability of a bank under
a cheque card is founded not on acceptance of the cheque, but on a contract of
guarantee concluded dehors the instrument. The terms of this guarantee are combined in
the card. Being a guarantee, the liability of the drawee bank is independent of an not
accessory to that of the drawer. Its purpose is to relieve the payee of the risk of countermand
and of the cheque being drawn on insufficient funds.
In Europe the cheque card is frequently used, particularly the eurocheque and eurocard,
but it is less popular in South Africa and a credit card, which combines several functions,
including those of a cheque card, is commonly utilized.
No doubt exists that the bank is liable where it guarantees payment either by incorporating
the terms of the guarantee on the back of the or by setting out the cheque coupled with
the use of a cheque or other card. In both cases the payee obtains a direct contractual
right, which is independent of the relations between the drawer and the payee, against the
drawee, the offer of the drawee bank having been conveyed to him by the customer as a
nuntius. Like all contractual claims it must be exercised in good faith.
199 Payment by cheque
A cheque is neither money nor legal tender. However, it is a generally accepted instrument
of payment: it is one of the cashless media by which a person can dispose of amounts
standing to his credit with a bank which will be readily accepted in payment of debts.
Payment to the creditor or his authorised agent discharges a debt sounding in money.
While a creditor is not obliged to accept a cheque in payment, in ordinary commercial
contracts it is a convenient and generally accepted method of discharging debts. It follows
that a debtor is entitled to pay by cheque if his creditor expressly or impliedly agrees to
accept a cheque in payment.
The consequence« of paying by cheque are the same as those of paying by bill or note.
Payment by cheque is based on an agreement between debtor and creditor that the
debtor will be entitled and the creditor obliged to accept a cheque in conditional payment
of a debt.
In some cases a creditor, in the absence of an agreement, may be estopped from insisting
on payment in cash.
Unless it has been expressly agreed, or can be implied, the acceptance of a cheque in
payment entails no novation of the debt for which it is given. Acceptance of a payment
suspends the rights of the creditor under the underlying obligation only until such time as the
instrument is paid or dishonoured. Thus, the acceptance of a cheque for a debt amounts
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STUDY UNIT 1: THE CHEQUE AS
PAYMENT INSTRUMENT
TEXTBOOK PAR 31.01 – 31.15
1. EXPLAIN HOW THE CHEQUE COLLECTION PROCESS OPERATES;
• A cheque ≠ legal tender and a creditor is therefore not obliged to accept a cheque
as payment
o Because a cheque is primarily a payment instrument, it is seldom negotiated
and is usually deposited in the payee’s account, to be collected on his behalf
• The Automated Clearing Bureau (ACB) was established in 1973 by the SA clearing
banks to provide for the computerised collection and payment of cheques
o This system used magnetic ink in the identification and clearing of cheques
(Volksklas Bank Bpk v Bankorp + Greef and Nagel 1992 De Jure 56)
• ACB has been replaced by Bankserv
PRESENTMENT OF CHEQUES FOR PAYMENT
• Ito section 50(4): When a holder of a bill presents it for payment, he shall exhibit the bill
to the person from whom he demands payment, and when a bill is paid, the holder
shall forthwith deliver it to the party paying it
o Where the cheque is cashed over the counter
• To make provision for the banking practice in which the ACB is used to present cheques
electronically for presentment, section 43A provides that a cheque may (subject to
certain requirements) be presented for payment to the drawee by a collecting bank
obo the holder
o Such presentment may take place:
▪ (a) at a place designated in the rules of any clearing house of which
both the drawee bank and the collecting bank are members;
▪ (b) at a place of payment designated by the drawee bank; or
▪ (c) by means of data transmitted in terms of an agreement to which
both the drawee bank and the collecting bank are party by, or on
behalf of, the collecting bank to the drawee bank, identifying the
cheque with reasonable certainty.
• A cheque is deemed to be identified with reasonable certainty
if:
o (a) the sum ordered to be paid by the cheque;
o (b) the number of the cheque, if any;
o (c) the name and number of the account against which
the cheque is drawn; and
o (d) the drawee bank, are specified or are readily
ascertainable by the drawee bank from the date
transmitted by or on behalf of the collecting bank.
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, VHD 320 Syllabus Theme 2: Cheque Law
• Collection process – how does it operate?
o Bankserv – magnetic ink to identify and clear cheques
• Bankserv = a computerised process of set-off
o Collecting bank’s account – credited
o Drawee bank’s account – debited
• Cheque routed to Drawee Bank
o Prescribed period within which drawee must decide whether he wants to
dishonour
▪ This prescribed period is very NB wrt the whole issue of time of payment
of a cheque
o In case of dishonour cheque must be sent bank via Bankserv to collecting
banker
Collection process
- Cheque drawn on Standard bank (drawee bank)
- Cheque is crossed
- Chris Campher is payee
- ABSA Bank is collecting bank
- Chris Campher cannot physically go to Standard Bank since it has a cross on it
- His account at ABSA will be provisionally credited with the amount of the cheque
2. KNOW THE PROBLEMS SURROUNDING THE TIME OF PAYMENT OF CHEQUE S;
NB: can expect essay question in exam to write a critical note pertaining to the time of
payment of a cheque – refer to Malan par 215; Nagel & Pretorius 2004 THRHR; Volksklas v
Bankorp; Rosen; Wavecrest; Burg Trailers (15 marks)
• Where a cheque is paid over the counter → payment takes place when the money is
handed to the drawer
• However, the question as to the time of payment of a cheque becomes complicated
when payment is effected through the instrumentality of a collecting bank and the ACB
(when the collection process has been started)
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, VHD 320 Syllabus Theme 2: Cheque Law
• The determination of the time of payment is of special importance when the drawer
attempts to countermand payment of a cheque, since payment can only be
countermanded if payment had not already taken place
• The time of payment is also of importance where the drawer is sequestrated before
payment is effected, because in such a case the creditor will only have a concurrent
claim against the insolvent estate
• Where a payment ≠ made directly to the holder of a cheque, but is made through the
instrumentality of a collection bank and a clearing bureau → the clearing arrangement
should apply
o Payment is then only final when the period, laid down by the clearing
agreement and in which the drawee may decide to honour the cheque,
expires without notice of dishonour by the drawee
• Volksklas v Bankorp (SCA) (Bloemfontein)
o When prescribed period in which drawee may decide to honour expires
without notice of dishonour
▪ Facts:
• Drawee banker = Volksklas
• Collecting banker = Trust Bank (Bankorp)
• The drawer of the cheque stopped payment before that
prescribed period had expired (after a decision had been
made by the drawee bank to honour the cheque)
• Did the drawer stop the cheque in time?
o We look at the prescribed period
o Payment will only take place after the prescribed period
has expired without notice of dishonour
• Therefore the drawer did stop it in time
▪ SCA distinguished facts in Rosen (2 branches of same bank)
▪ Prescribed period provides notice of payment to payee and collecting
bank
▪ Thus, where it expires and no notice of dishonour – payment has taken
place
▪ Where drawee and collecting bank is same bank (even though 2
different branches) notice unnecessary (you don’t give notice to
yourself)
• Rosen & Wavecrest
o Decision was that the time of payment is the moment when drawee decides to
honour cheque (when the decision was made to honour the cheque = that will
be the moment of payment)
• Burg Trailers v Absa; Nagel and Pretorius
o Confirmed the Volksklas case
o NB to take note of a Second relevant period – “holding period” of 10 days
(applies to payee)
o Banking practice – cheque must ‘lie’ for 10 days; only then can payee insist that
payment has taken place
▪ Must refer to this case in critical note in exam
• Nagel and Pretorius
o Volksklas should apply
o Legal certainty important
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, VHD 320 Syllabus Theme 2: Cheque Law
o In their opinion the decision is incorrect and that the Volksklas case should
actually be the only correct viewpoint on when payment takes place
• The courts are not at idem wrt the moment of payment
3. KNOW THE DIFFERENCE BETWEEN ACCEPTANCE, CERTIFICATION AND
GUARANTEED CHEQUES;
• A bank usually ≠ accept cheques, but in terms of the contractual relationship between
the bank and the drawer, merely pays his customer’s cheques provided that funds or
overdraft facilities are available
o However, banks often certify cheques or guarantee the payment thereof
▪ A bank-certified cheque may in general be described as a cheque that
is marked by a bank to the effect that funds in the amount thereof are
available, either unconditionally or for a certain period.
▪ For example: Good for R . . . until 8/1/2005 together with the signatures
of two authorised bank officials on the back of the cheque.
o In this regard, section 72A(1) provides that a cheque is certified if the drawee
signs it and adds words to the cheque that indicate that the cheque will be
paid or that funds are available for its payment.
▪ “Good for R2000” and signatures of bank officials
▪ The liability of the drawee certifying a cheque is similar to that of the
acceptor of a bill
o Section 72A(2) provides that when a drawee of a cheque certifies it, he
undertakes that he will pay the holder, or the drawer or an indorser who has
been compelled to pay the cheque, the amount recoverable in terms of
section 55 according to the tenor of his certification.
▪ Effect of certification – drawee undertakes to pay and statutory
estoppels
▪ Can certified cheque be countermanded?
• Wavecrest – in case of fraud interdict against bank (see below)
• In addition, the drawee is precluded from denying to a holder in due course:
o (a) the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the cheque; and
o (b) the existence of the payee and his then capacity to indorse.
• A further question is whether or not payment of a certified cheque can be
countermanded.
o In terms of section 73, the bank’s duty to pay a cheque is terminated, amongst
others, when the customer countermands payment
o General rule: Because the bank’s liability against the holder due to the
certification of the cheque is independent from the relationship between itself
and the drawer, it is submitted that a countermand by the drawer will not
relieve the bank from this independent duty [see Greeff and Nagel 1992 De Jure
56].
o Exception: Where the holder obtains the cheque through fraud, however, the
independence of the bank’s duty should not protect the holder. In Wavecrest
Enterprises v Cema Africa (Pty) Ltd (in liquidation) the court held that the drawer
was entitled to countermand payment of a cheque because of the holder’s
fraud, and to an interdict restraining the bank from paying the cheque [see
also the discussion of this case by Greeff and Nagel 1992 De Jure 56].
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▪ Thus, as a general rule, no – as the bank is liable and won’t be willing to
allow you to stop the mandate
▪ However the court held that an interdict may be obtained where there
is fraud
4. KNOW THE RULES APPLICABLE WHERE CHEQUES ARE SENT BY MAIL.
SENDING CHEQUES BY MAIL (NB)
• The following rules apply when cheques are sent by mail: (Mannesmann Demag (Pty)
Ltd v Romatex Ltd case)
o If cheque is mailed without the creditor’s consent → the underlying debt is not
discharged and the debtor bears the risk
o However, where the creditor requested or authorised(definite agreement that
the cheque may be mailed): the underlying debt is discharged and the creditor
will bear the risk
MANNESMAN DEMAG (PTY) LTD V ROMATEX LTD
• The issues before the Court were:
o Whether the cheque has been posted
o If so whether the plaintiff had made a request to defendant with regard to
payment, which on compliance transferred the risk of possible loss of the
cheque to the plaintiff
o If so, whether it was implicit in the arrangement between the parties, that the
cheque:
▪ Had to be made out to “Mannesmann Demag (Pty) Ltd and not to
“Mannesmann Demag”
▪ Had to be crossed and marked ‘not transferable’ and not simply ‘not
negotiable account payee only’, in order to transfer the risk to the
plaintiff
If not, whether it was implicit in the arrangement that the defendant was obliged within a
reasonable period after posting to ascertain whether the cheque had been met by its
bankers and, if not, whether it had been received by plaintiff and, if not, to countermand
payment
• The debtor must take precautionary measures iro the outward appearance of the
cheque: Greenfields case:
o Court held that it is NB to look at the way in which the cheque has been drawn
o Cheque must be drawn in a safe way
o In this case the cheque was a bearer cheque which is not a safe way as any
person or thief can become holder of the cheque
o Cheque must be crossed + full name of the payee must be indicated + must at
least be an order instrument
o Debtor must thus take precautionary measures iro the outward appearance
• Stabilpave (Pty) Ltd v Sars
o Decision by the court a quo + full bench + then SCA decision
o Facts:
▪ SARS mailed a cheque to the company Stabilpave
▪ This cheque was for a tax refund for R750 000
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▪ There was a notice on the assessment where the company was notified
that the cheque will be mailed unless the company has provided its EFT
particulars
▪ The ECT particulars were not given and eventually the cheque was sent
to the company via mail and intercepted
o Question:
▪ Who is going to carry the risk in this situation?
o Judgment:
• The court a quo held that there was an agreement and that the
notice boiled down to an agreement between the parties that
the cheque may be mailed and therefore the company carried
the risk
• SCA: SARS had to pay again; referred to the opinion of Nagel
and Pretorius and held that the notice is not an agreement
• Nagel and Pretorius 2010 and 2014 THRHR
o The notice/a notice is not an agreement
o Agreement will only exist where there had been an offer AND acceptance
o Decision was criticised and notice not an agreement
o There may have been a tacit agreement between the parties = however, the
fact that Stabilpave didn’t have any choice does not mean that there was a
tacit agreement
▪ Fact that they knew the cheque will be posted also does not mean that
they gave consent
o However on appeal the court referred to these articles and the viewpoint and
held that a notice is not an agreement
Example:
You live with your parents in Bloemfontein and you have an account at a pharmacy there.
Must pay account and you want to mail a cheque as payment. What if the cheque is
intercepted and it never reaches the pharmacy.
What is your position? Will you have to pay again? What is the legal position of the
pharmacy?
This all revolves around the question as to whether there had been an agreement
between the parties on whether the cheque will be mailed. Was there consent from the
creditor that it can be mailed?
Reading list
1. Malan, Pretorius and Du Toit Malan on Bills of Exchange, Cheques and Promissory Notes (5th
edition 2009) par 189, 196, 199, 215.
2. Volkskas Bank Bpk v Bankorp Bpk 1991 3 SA 605 (A).
3. Wavecrest Enterprises v Cema Africa (Pty) Ltd 1991 CLD 266 (C).
4. Nagel and Pretorius 2004 THRHR 640.
5. Nagel and Pretorius 2010 THRHR 482-486.
6. Nagel and Pretorius 2014 THRHR 346-349
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MALAN, PRETORIUS AND DU TOIT
MALAN ON BILLS OF EXCHANGE,
CHEQUES AND PROMISSORY NOTES PAR
189, 196, 199, 215.
189 Cheque collection process
The "Automated Clearing Bureau (Pty) Ltd" was established by the South African clearing
banks in 1973 to provide for the computerized collection and payment of cheques. This
system uses sophisticated electronic data equipment and processes cheques by means of
magnetic ink character recognition (MICR). It also provides a magnetic tape service for
clearing direct debit and credit transactions.
All MICR cheques are standardized and have a codeline in which are precoded in
magnetic ink certain characters representing the serial number of the cheque, the drawee
bank, the branch, and the drawer's account. The bank at which a cheque is deposited
encodes in the codeline the amount of each cheque. Cheques deposited in areas in which
the ACB operates are listed and sent in batches of fifty by the collecting banks to the ACB
centres where they are electronically "read" at speeds ranging from 1600 to 2600 per minute,
and the encoded information transferred to magnetic tape. Cheques are then sorted
according to bank, branch, account and serial number. Processing usually takes place on
the days on which cheques are deposited for collection, and banks settle with each other
the next day but under the previous day's date. Magnetic tapes are delivered to banks on
the evening of processing and the cheques the following day. The customer's account is
debited by the drawee bank's
computer on the day the magnetic tapes are delivered,
Through the use of the MICR system it is now possible to debit cheques on the same day as
they are drawn. This system does not involve any fundamental change in the cheque
collecting procedure; it merely provides for the computerization of parts of the existing
process.
Generally, therefore, the ACB, as far as the collection of cheques is concerned, acts as a
mandatary and not as a representative of the participating banks or their customers.
196 Acceptance, certification and guaranteed cheques
Cheques are used to pay debts and for this reason they are seldom accepted by the bank.
However, there is no reason why they cannot legally be accepted: the acceptance need
comply only with the requirements for the acceptance of bills: Although a cheque is seldom
accepted, it is often certified. Before the enactment of section 72A by Exchange
Amendment Act, 2000, considerable doubt as to the legal consequences flowing
from certification existed.
The certification of a cheque can take various forms but, generally, the face of the cheque
is stamped with the words "Bank Guaranteed Cheque", and the words "Good for R ... to ...
"Marked good for R .. . on together with the signature of (usually) two authorised bank
officials are placed on its back.
The English court requires "strong and unmistakable words" for the acceptance of a cheque,
and it has been said that certification merely adds to the negotiability of a cheque by
showing that it was drawn on sufficient funds without necessarily obliging the drawee bank.
In the United States of America, marking or certification is equivalent to acceptance by the
drawee bank.
Canadian precedent holds that if certification at the request of the holder does not amount
to an acceptance, it is an agreement by the drawee bank to pay the holder.
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In South African law the little authority that there was seemed to favour the view taken by
the English cases that certification merely added to the negotiability of the cheque by
showing that it was drawn on sufficient funds. There is no reported judgment in South Africa
on the certification of cheques prior to the 2000 amendment imposing such liability and it
was suggested that the following approach should be followed: although some of the
expressions used to certify a cheque could be interpreted as the signification by the drawee
of his assent to the order of the drawer so that it could amount to an acceptance in terms
of section 15(1) certification is generally not intended or understood to be an acceptance.
However, it is suggested that certification may nevertheless impose contractual liability on
the drawee bank to the holder where the drawee bank intends to be liable, or where the
words used can reasonably be construed as amounting to an undertaking to pay, and the
holder accepts this undertaking or relies on the words used. In terms of this contract the
drawee undertakes or guarantees payment of the cheque. It is submitted that a
countermand of payment given in terms of section 73(a) will not discharge the drawee bank
from this independent obligation to effect or guarantee payment of the cheque. Any doubt
that may have existed as to the effect of certification is removed by section 72A which
imposes liability on the drawee bank certifying a cheque on the instrument itself and
equates its liability that that of the acceptor. The liability of a certifying bank in terms of
section 72A thus differs from the liability bank under a cheque or other card. A cheque card
is a numbered metal or plastic is to customers and containing an undertaking by the bank
to "guarantee", on certain conditions, cheques drawn on them. The liability of a bank under
a cheque card is founded not on acceptance of the cheque, but on a contract of
guarantee concluded dehors the instrument. The terms of this guarantee are combined in
the card. Being a guarantee, the liability of the drawee bank is independent of an not
accessory to that of the drawer. Its purpose is to relieve the payee of the risk of countermand
and of the cheque being drawn on insufficient funds.
In Europe the cheque card is frequently used, particularly the eurocheque and eurocard,
but it is less popular in South Africa and a credit card, which combines several functions,
including those of a cheque card, is commonly utilized.
No doubt exists that the bank is liable where it guarantees payment either by incorporating
the terms of the guarantee on the back of the or by setting out the cheque coupled with
the use of a cheque or other card. In both cases the payee obtains a direct contractual
right, which is independent of the relations between the drawer and the payee, against the
drawee, the offer of the drawee bank having been conveyed to him by the customer as a
nuntius. Like all contractual claims it must be exercised in good faith.
199 Payment by cheque
A cheque is neither money nor legal tender. However, it is a generally accepted instrument
of payment: it is one of the cashless media by which a person can dispose of amounts
standing to his credit with a bank which will be readily accepted in payment of debts.
Payment to the creditor or his authorised agent discharges a debt sounding in money.
While a creditor is not obliged to accept a cheque in payment, in ordinary commercial
contracts it is a convenient and generally accepted method of discharging debts. It follows
that a debtor is entitled to pay by cheque if his creditor expressly or impliedly agrees to
accept a cheque in payment.
The consequence« of paying by cheque are the same as those of paying by bill or note.
Payment by cheque is based on an agreement between debtor and creditor that the
debtor will be entitled and the creditor obliged to accept a cheque in conditional payment
of a debt.
In some cases a creditor, in the absence of an agreement, may be estopped from insisting
on payment in cash.
Unless it has been expressly agreed, or can be implied, the acceptance of a cheque in
payment entails no novation of the debt for which it is given. Acceptance of a payment
suspends the rights of the creditor under the underlying obligation only until such time as the
instrument is paid or dishonoured. Thus, the acceptance of a cheque for a debt amounts
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