Countermanding payment of a cheque - SSRN

Countermanding payment of a cheque∗ CJ Nagel BA LLD Professor of Mercantile Law, University of Pretoria JT Pretorius BIur LLB LLM LLM LLD Professor of Banking Law, University of South Africa

OPSOMMING Afgelasting van betaling van ’n tjek Hierdie artikel handel met verskeie grondliggende aspekte van die tjekreg, soos die verband tussen die onderliggende verhouding tussen twee kontrakspartye en die wisselverbintenis wat tussen hulle ontstaan waar die skuldeiser bereid is om ’n tjek ter voldoening aan die skuld uit die onderliggende verhouding te aanvaar. Dit lei noodwendig tot die vraag of die skuldenaar (trekker) geregtig is daarop om betaling van ’n tjek af te gelas weens byvoorbeeld kontrakbreuk (nie-nakoming van die onderliggende verbintenis) deur die skuldeiser. Hiermee saam gaan dan die wesenlike vraag, naamlik tot op welke tydstip die skuldenaar (trekker) betaling kan afgelas, want indien ’n tjek reeds deur die betrokkene bank geskied het, kan die trekker nie meer betaling afgelas nie. In hierdie verband speel die tussenkoms van die Automated Clearing Bureau in die klaring van tjeks ’n deurslaggewende rol aangesien ’n bepaalde spertyd geld waarbinne ’n betrokkene bank moet besluit om betaling van ’n tjek goed te keur of nie. Teen hierdie agtergrond word verskeie knelvrae en onduidelikhede wat spruit uit ’n onlangse beslissing van die Hoogste Hof van Appèl in hierdie verband uitgelig en bespreek.

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INTRODUCTION

A legal obligation envisages performance and is extinguished when the required performance is duly made.1 Monetary obligations must normally be discharged by the payment of the appropriate sum of money, that is to say, by means of legal tender.2 It is trite that a cheque is not legal tender3 and that a creditor, to ________________________

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The authors thank the honourable judge Frans Malan for his valuable comments during the preparation of this article. The mistakes, however, remain our own. 1 Van der Merwe, Van Huyssteen, Reinecke and Lubbe Contract general principles (2003) 482; Lotz “Obligations” 19 LAWSA (1997, 1st re-issue) para 252. 2 Malan and Pretorius (assisted by Du Toit) Malan on bills of exchange, cheques and promissory notes in South African law (2002) para 41 (hereafter Malan); B&H Engineering v First National Bank of SA Ltd 1995 2 SA 279 (A) 285. For a definition of legal tender see ss 14, 15 and 17 of the South African Reserve Bank Act 90 of 1989. Legal tender consists of notes of the South African Reserve Bank, outstanding notes of another bank for which the Reserve Bank has assumed liability, and undefaced and unmutilated coins which are lawfully in circulation in the Republic and of current mass. S 17(2)(b) restricts the debtor’s capacity to pay a debt by means of coins. 3 Malan para 199; Tjollo Ateljees (Edms) Bpk v Small 1949 1 SA 856 (A) 876; Esterhuyse v Selection Cartage (Pty) Ltd 1965 1 SA 360 (W) 362.

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COUNTERMANDING PAYMENT OF A CHEQUE

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whom a money debt is owing, may insist on strict compliance with the contract and demand payment by means of legal tender, that is, cash.4 However, the creditor may agree to accept a cheque in payment of the debt.5 Indeed, it is a principle of our law that a debtor is only entitled to pay by cheque if his creditor expressly or impliedly agrees to accept a cheque in payment of the debt.6 When a cheque is delivered in payment of a debt, the original obligation between the parties that gave rise to the debt (also called the “underlying obligation”), is not extinguished.7 The taking of a cheque in payment of a debt creates an additional or auxiliary (cambial) obligation alongside the underlying obligation that strengthens or fortifies the underlying obligation.8 Delivery of a cheque ________________________

4 B&H Engineering 285. Wessels The law of contract in South Africa (1951) para 2227 stated it thus: “As a general rule, payment means payment in cash, and a creditor cannot be compelled to accept payment by cheque, however good the credit of the debtor may be and however large his credit balance at the bank on which the cheque is drawn.” See also Esterhuyse v Selection Cartage (Pty) Ltd 362. 5 The creditor may, eg, agree to accept a cheque for the payment of the debt because both parties are spared the inconvenience or risk of carrying or transporting cash. See Sharrock and Kidd Understanding cheque law (1993) 3 for some of the reasons why cheques remain attractive to the public as a method of payment. An important advantage of making a payment by means of a cheque is the consideration that the loss or destruction of the cheque itself does not necessarily relieve the debtor or drawer from liability. See Pretorius “Lost cheques” 1999 THRHR 615 for a discussion of this principle. 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 (B&H Engineering 285–286; Palmer v Rhodes (1888) 5 HCG 56 61; Schneider and London v Chapman 1917 TPD 497 500 503; Estate Lowry v Saporiti (1909) 30 NLR 35 43; Sibbald v Dakota Motors 1956 3 SA 203 (T) 206–207; Colley v UDC Rhodesia Ltd 1976 1 SA 821 (RA) 823). 6 Malan para 199. 7 Unless it has been expressly agreed or can be implied (Darling v Registrar of Deeds Cape Town 1912 AD 28 35), the taking of a cheque in payment of a debt does not bring about a novation of the debt for which it was given (Holliday v Hulett (1880) 2 NLR 43 44; Harris v Pieters 1920 AD 644 652; Tregellas v Hardy & Co 1921 CPD 352; Bassa Ltd v East Asiatic (SA) Co Ltd 1932 NPD 386 392; Kaplan v Schulman 1933 CPD 544 547; Grewar & Hanekom (Pty) Ltd v Roux 1959 2 SA 182 (C) 183; Adams v SA Motor Industry Employers Association 1981 3 SA 1189 (A) 1199–1200; Hallmark Motor Group (Pty) Ltd v Phillip Motors CC [1997] 4 All SA 707 (W) 710a–c). In B&H Engineering 285G–I Grosskopf JA explains: “A cheque may be intended to replace or novate the original debt. In such a case the original debt would fall away. The creditor would be limited to any claim which he may have on the instrument. This result would, however, seldom accord with the requirements of commercial practice or expectations of businessmen, and the law requires clear evidence of an intention to novate in such cases. The giving of a cheque is normally intended, not to novate the debt for which it was given, but to discharge it by payment. Since the creditor only receives his money under the cheque when the drawee bank pays it, commercial sense requires that the underlying debt should continue in existence until the creditor actually receives the money.” 8 The cambial obligation does not replace the underlying obligation but the two obligations co-exist and are cumulative, both being directed at payment of the same debt (Malan para 14). In Adams v SA Motor Industry Employers Association 1981 3 SA 1189 (A) 1199 Jansen JA explained: “[I]n our law the matter may be clarified by reference to the position where a negotiable instrument such as a promissory note is given in respect of an existing debt. There can be little doubt that – unless a novation is intended, which is not presumed – two obligations then exist: the original obligation and the obligation arising from the note. They are interdependent. The original obligation may, in a sense, be said to be the causa of the new obligation (Saambou-Nasionale Bouvereniging v Friedman 1979 3 SA 978 (A) continued on next page

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in payment of a debt results in the suspension of the action arising from the underlying obligation, until the cheque is dishonoured.9 It follows that if the cheque obligation is paid or discharged, the underlying obligation is also automatically discharged.10 If the cheque is dishonoured the creditor can take action against the debtor. In practice the creditor would rather sue on the cheque, which would provide the creditor with procedural and other advantages.11 The creditor may, if the creditor so chooses, rely on the underlying obligation to enforce his claim against the debtor.12 ________________________

992A) and defences in respect of the original obligation may be raised in respect of the new obligation; performance of either discharges the other. Fortified by two obligations in respect of the same performance, the creditor has, however, no free election to enforce the original obligation. Our cases have followed the English law that, upon acceptance by the creditor of the negotiable instrument, the right to enforce the original obligation is suspended until maturity of the instrument, and when the creditor claims payment of the original obligation he must account for the negotiable instrument.” See also Rosen v Wasserman 1984 1 SA 808 (W) 813E–H and Malan “Evolusie van die Wisselreg” 1976 TSAR 1 15–16. 9 B&H Engineering 285–286; Ewers v The Resident Magistrate of Oudtshoorn (1880) Foord 32; Tregellas v Hardy and Co 1921 CPD 352; Gordon v Tarnow 1947 3 SA 525 (A) 540; Hofmeyr and Marquard v Goldberg 1963 2 SA 313 (C) 315–316. 10 In Mannesmann Demag (Pty) Ltd v Romatex (Pty) Ltd 1988 4 SA 383 (D) 389 the court explains: “When a debtor tenders payment by cheque, and the creditor accepts it, the payment remains conditional and is only finalised once the cheque is honoured.” In B&H Engineering 286 the court said: “The fundamental point is that we are dealing with a contractual relationship between the debtor and the creditor. In law the creditor is entitled to payment in cash but he agrees to accept a cheque. Of necessity this entails that there will be some delay (and, indeed, some uncertainty) in the creditor’s receipt of the money, and the law regulates the respective rights of the parties to make provision for this. Once the creditor has received his money from the bank, however, the purpose of the agreement to accept a cheque has been achieved. The creditor has been paid.” 11 B&H Engineering 286A. The court explains 287D–E: “The purpose of the law . . . is to provide in a practical way for the problems which arise where payment is made by cheque rather than by cash. Looked at from the creditor’s point of view, he has sacrificed the certainty of cash for the uncertainty and delay of a cheque. The main risk that he takes is that the bank, for some reason or other, fails to pay the cheque. This risk is unavoidable, since the bank is under no contractual duty towards the payee. The risk is to some degree ameliorated by the payee obtaining the advantages which attach to the possession of a liquid document. He can, if necessary, enforce the document against the drawer.” The main advantage of an action based on a liquid document is the right to apply for provisional sentence. See Malan, Oelofse, De Vos, Pretorius and Nagel Provisional sentence on bills of exchange, cheques and promissory notes (1986) 2ff for a full discussion of this special remedy. 12 This right to fall back on the underlying obligation is especially important to the creditor when he holds some form of security for compliance with the underlying obligation. In Moss & Page Trading Co (Pty) Ltd v Spancraft Furniture Manufacturers & Shopfitters (Pty) Ltd 1972 1 SA 211 (D) 215 it was said: “It is thus clear that the debt arising from the original transaction remains intact and may be enforced if the negotiable instrument is dishonoured . . . It is equally important to note, however, that (a) the right to enforce the original obligation is suspended until maturity of the instrument and this [is] whether the instrument was given by the debtor or by a third party, and (b) when the creditor claims payment of the original obligation he must account for the negotiable instrument.” See also Bruyns NO v Beestekraal Supply Stores (Pty) Ltd 1959 3 SA 219 (T) 221; Adams v SA Motor Industry Employers Association 1981 3 SA 1189 (A) 1199–1200; Rosen v Wasserman 1984 1 SA 808 (W) 813. In South African Breweries Ltd v Ribeiro t/a Doc’s Liquor Merchants [1999] 4 All SA 627 (W) the meaning of the phrase “to account for” when used where the creditor who had accepted a cheque in payment sued on the continued on next page


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If a debtor pays a debt or obligation by means of a cheque, the debtor is entitled to countermand payment of the cheque.13 Countermanding payment “terminates the duty and authority of a banker to pay a cheque drawn on him by his customer”.14 Furthermore, “if payment of a cheque is countermanded, presentment for payment is dispensed with. If the cheque remains unpaid, the cheque is dishonoured and the holder is entitled immediately to sue the drawer without giving notice of dishonour”.15 The drawer of a cheque will usually be justified in countermanding payment of a cheque if there has been some breach of contract or misconduct on the part of the creditor. This will be determined by the ________________________

underlying obligation was discussed. It was contended that the phrase meant that the creditor had to return, or tender return of, the cheque before being able to sue on the underlying obligation. Wunsh J held that the creditor had to give a satisfactory explanation of the status and whereabouts of the instrument, “i.e. that it has not parted with it and that it is not suing on it” (633a). He summarized the authorities relied upon and said that it was clear that “what is meant by the creditor having ‘to account to’ the debtor for a negotiable instrument when it sues the debtor on the original cause of action is that the creditor must have the instrument in its own possession, not having transferred it to another who would be able to sue the debtor on it, or must establish that it has been destroyed or unlawfully removed from its possession” (633f ). One can understand that where the instrument had been transferred to a third party, judgment cannot be given against the debtor. To hold otherwise would expose him to the risk of being sued by a holder in due course, ie, of being held liable twice for the same debt. It is also clear that where the instrument had been lost or destroyed the risk of being sued twice does not arise. However, it is not sufficient to require that the instrument be in the possession of the creditor when he sues the debtor because the mere possession of the instrument is no guarantee against the creditor issuing or negotiating it anew and thereby exposing the debtor to the same risk, namely of being sued twice for the same debt. If regard is had to the agreement between the parties ito which the instrument is given and taken in payment of a debt it seems to follow that where the creditor, in disregard of this agreement, sues on the underlying obligation he has to return the instrument. If he does not, there is the risk of the debtor being held liable twice. Moreover, it is surely implied in the agreement between the parties that if the creditor does not proceed on the instrument he must return it. Why should he be entitled to retain the instrument if he elects not to rely upon it? It therefore seems that the contention of counsel that to “account for” the instrument means “to return [it] to” is probably the correct interpretation. 13 The common law recognized the drawer’s right to countermand payment: Cohen v Hale (1878) 3 QBD 371; M’Lean v Clydesdale Banking Co (1883) 9 App Cas 95. See also Crawford Crawford and Falconbridge Banking and bills of exchange (1986) Vol II para 6105 and Mather Banker and customer relationship and the accounts of personal customers (1977) 117ff. There is some uncertainty as to whether the drawer is entitled to countermand payment of a bank-guaranteed or certified cheque. See in this regard Hugo “Countermanding payment of a bank cheque: A brief note” 1999 Stell LR 226; Pretorius “Countermanding payment of a certified cheque” 1992 SA Merc LJ 210, “Aspects of bank guaranteed and certified cheques” 1999 SA Merc LJ 564; Dijkman “Countermand of a certified cheque” 1988 SALJ 83 and Stassen “Regsgevolge van Bankgewaarborgde tjeks” 1985 De Rebus 149. 14 Per Grosskopf JA in B&H Engineering 288G–H. Malan para 214 remarks: “Countermand of payment is the most important way in which a bank’s duty to pay a cheque is terminated. In an old judgment it was said: ‘It must always be remembered that a bank can be sued just as much for failing to honour a cheque as for cashing a cheque that had been stopped’.” The old judgment referred to is Westminster Bank Ltd v Hilton (1926) 43 TLR 124 126. This passage was quoted in Navidas (Pty) Ltd v Essop; Metha v Essop 1994 4 SA 141 (A) 151. 15 Per Grosskopf JA in B&H Engineering 289D–E.

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circumstances of each case.16 However, the drawer will be entitled to countermand payment of the cheque only as long as the cheque has not yet been paid.17 It is thus crucial to determine when payment of a cheque takes place in order to establish whether the drawer of the cheque is entitled to countermand payment.18 This question can be quite complicated where a cheque is presented for payment through the Automated Clearing Bureau.19 2

THE AUTOMATED CLEARING OF CHEQUES

2 1 The Automated Clearing Bureau The Automated Clearing Bureau (Pty) Ltd (ACB) was established by the South African clearing banks in 1973 to provide for the computerized collection and payment of cheques.20 This system uses sophisticated electronic data equipment and processes cheques by means of magnetic ink-character recognition (MICR) through the medium of a clearing house.21 The automated clearing of cheques is regulated by an agreement (the so-called “clearing house rules”) between the ACB and participating financial institutions.22 The automated clearing of cheques usually commences when the collecting bank provisionally credits the account of a customer with the amount of the ________________________

16 Here it should be borne in mind that the creditor will be armed with a liquid document and that the onus to prove the misconduct or breach would rest on the drawer (debtor). 17 Oelofse “Enkele regsaspekte van ontwikkelings in die bankwese” 1985 MBL 6 8; (hereafter Oelofse “Bankwese”), “The moment of payment of a cheque cleared through an automated clearing bureau” 1986 J of International Banking L 4; Visser “The automated clearing of cheques” 1991 (21) Businessman’s Law 3 4; Malan para 214; Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 3 SA 605 (A) 613F–G. 18 Determining the time of payment of a cheque may also be important in cases of insolvency; see Oelofse “Bankwese” 8 and Vroegop “The time of payment in paper-based and electronic funds transfer systems” 1990 Lloyd’s Maritime and Commercial LQ 64. 19 Where payment of a cheque takes place over the counter, payment is effected when the money is actually transferred (Bankorp 612H–I; and see Chambers v Miller (1862) 13 CB(NS) 125, 143 ER 50; Balmoral Supermarket Ltd v Bank of New Zealand [1974] 2 NZLR 155, [1974] 2 Lloyd’s Rep 164; Oelofse “Bankwese” 9; Vroegop 65). 20 Report of the Committee of Inquiry into a Giro System (1977) paras 26–30; Malan para 189; Malan “The liberation of the cheque” 1978 TSAR 107 109–110 and Greeff and Nagel “Die Tydstip van betaling en die sertifisering van tjeks” 1992 De Jure 56 57. 21 For a description of the functioning and mechanisms of the system see Malan para 189; Rosen v Barclays National Bank Ltd 1984 3 SA 974 (W) 976F–977F; Bankorp 609C–G. See also Wavecrest Enterprises v Cema Africa (Pty) Ltd (In Liquidation) 1991 2 CLD 266 (C) 270. The banks are presently in the process of introducing a system called “codeline clearing”. In practice, codeline clearing (“CLC”) differs fundamentally from MICR clearing. CLC is a data-based rather than a paper-based clearing system. With CLC, the collecting bank captures the information concerning the individual cheques internally on its own computers and only forwards the data concerning the cheques to the ACB. See Pretorius “Codeline clearing” 2001 SA Merc LJ 260 for a discussion of some of the legal implications of CLC. It is submitted that CLC does not, and should not, affect the drawer’s right to countermand payment of a cheque. 22 Although these clearing house rules are “confidential” and are said to be designed for the benefit of the banking industry alone, they have indeed been referred to and applied by the court in Rosen v Barclays National Bank Ltd 976F–977F and in Bankorp. For criticism of the “confidentiality” of these rules, see Oelofse “Bankwese” 6 9 and Pretorius “Professionele aanspreeklikheid, die invorderingsbank en regshervorming” 1987 MBL 56 65 fn 73.


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cheque deposited with it for collection.23 All items for clearing are then delivered daily (or within the time period prescribed in terms of the clearing house rules) to the ACB for processing on the day on which they are deposited. When a cheque is processed by the ACB the account of the individual drawer of the cheque is also provisionally debited by the ACB’s computer. The next day each financial institution receives statements of account showing the amounts of the cheques drawn on it and cheques collected by it. The resulting balances are provisionally credited and debited against the accounts of the participating institutions with the Reserve Bank. The individual cheques drawn on a particular bank are then also delivered to it by the ACB. These cheques are then usually forwarded to the particular branch of the drawee bank unless there is some internal arrangement whereby the particular cheques are forwarded to some central depository.24 When the drawee bank physically receives a cheque it has to decide within the period specified in terms of the clearing-house rules whether or not to honour that cheque.25 If the drawee bank decides to dishonour a cheque, the cheque has to be returned via the ACB (where the process of debiting and crediting is reversed) to the collecting bank.26 2 2 Rosen v Barclays National Bank Ltd27 In Rosen Goldstone AJ expressed the view that payment of a cheque takes place the moment the drawee bank makes the decision to honour the cheque and not on expiration of the specified period during which the drawee bank would have been entitled to have dishonoured the cheque in terms of the clearing agreement. The main difficulty with the Rosen approach was that it ignored the terms of the clearing agreement, so that it is impossible for an outsider to determine at what moment a cheque is paid28 as there is no external manifestation of the decision to honour the cheque. It would thus be impossible in terms of this approach for a drawer to countermand payment of a cheque after the decision to honour it had been taken, even though the time allowed for the reversal of entries has not yet expired and the drawee bank had given no indication of its decision to honour to outsiders. 2 3 Volkskas Bank Bpk v Bankorp Bpk (t/a Trust Bank)29 In Bankorp the facts were briefly as follows: On 3 May 1990 MLS Bank (Pty) Ltd (MLS) drew a cheque for some R40 000 on Volkskas Bank in favour of ________________________

23 Pretorius “The law of negotiable instruments” 1991 Annual Survey 268. 24 It should be noted that the drawer’s account has already been debited by the ACB at a stage when the particular cheque has not yet been received by the drawee bank. 25 It may be that the drawee bank does not wish to pay a particular cheque because the drawer eg does not have sufficient funds available to meet the cheque. 26 Should the amount of the cheque exceed an amount as specified in the clearing rules, the drawee bank must, in terms of the clearing house rules, also send a so-called YUFIG message to the particular branch of the collecting bank by telegram or telex informing the collecting bank of its decision not to meet the cheque. 27 1984 3 SA 974 (W) 978G–I. Rosen has been subjected to severe and valid criticism (see Oelofse “Bankwese” 9–11; Visser 4–5 and Sinclair and Visser 1984 Annual Survey 380–383). 28 The majority of the court in Wavecrest applied the principle in Rosen. See also Penderis and Gutman NNO v Liquidators of the Short-term Business, AA Mutual Insurance Association Ltd 1991 3 SA 342 (C) 345, a matter dealing with payment by debit order. 29 1991 3 SA 605 (A).

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Infinite Marketing and Services CC, the second respondent. That same day the cheque was deposited in the payee’s account with the first respondent, Trust Bank. The payee’s account was provisionally credited with the amount of the cheque, which was sent to the ACB where it was processed the same evening. With the processing of the cheque MLS’s account was provisionally debited with the amount of the cheque. On 4 May the records and the cheques processed by the ACB the previous day were sent to the branch of Volkskas Bank at which MLS’s (the drawer’s) account was kept. It was customary for MLS to collect its cleared cheques every day from Volkskas Bank. In the founding statement which was filed on behalf of Volkskas Bank, it was admitted that Volkskas Bank had taken the decision to honour the relevant cheque before it was returned to MLS on 4 May. Later that day MLS decided to countermand payment of the cheque. On 5 May Volkskas Bank returned the cheque via the ACB to Trust Bank and also sent the prescribed message informing Trust Bank of the decision to return the cheque. It was common cause between the parties that there was full compliance with the requirements of the ACB agreement for the countermand of payment of the relevant cheque. Hefer JA, delivering the unanimous decision of the court, made three preliminary remarks: First, the fact that the automated clearing of cheques involves the application of modern sophisticated procedures does not mean that settled legal principles should be discarded.30 Secondly, the clearing agreement contains no indication that it intends to deprive participating banks or their clients of any rights. In particular, it does not deprive the drawer of a cheque the right to countermand payment – provided, of course, that the requisite procedures as prescribed in the clearing agreement are followed.31 Thirdly, payment is a bilateral act requiring the co-operation of both the payer and recipient.32 The court held that the drawer was entitled to countermand payment of the cheque since the decision to honour the cheque was never communicated to the payee. The decision to honour the cheque should be regarded as an internal affair which is of no concern to the commercial world.33 His lordship pointed out that the purpose of the stipulated time in the clearing agreement was to enable the drawee bank to make its decision to honour the cheque known,34 should it wish to do so.35 This explains why the provisional entries become final upon the expiry of the stipulated period in the absence of notification that a particular cheque will not be met. The fact that notice is not required of the intention to honour a cheque does not detract from this principle: The vast majority of cheques presented for payment are met and it would not make sense to require the drawee bank to indicate in every instance that it intends to pay a particular cheque.36 From this we can also deduce that the clearing agreement also does not ________________________

30 611–612. 31 12B–C. 32 612C and see Matador Buildings (Pty) Ltd v Harman 1971 2 SA 21 (C) 25H; SaambouNasionale Bouvereniging v Friedman 1979 3 SA 978 (A) 979A–B; Malan Collective securities depositories and the transfer of securities (1984) 190 fn 227. 33 612H–J and see Fonds Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 4 SA 883 (A) 892B. 34 As in the case of a special clearance, see Sinclair and Visser 383. 35 612F–H. 36 Malan para 201 points out that Volkskas did not decide “when payment takes place but merely when it does not occur”. Although this might indeed be true if one attempts to continued on next page


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deprive the drawee bank of the right to dishonour a cheque if the customer does not have the necessary funds available and no provision has been made for an overdraft – provided, again, that the requisite procedures as prescribed in the clearing agreement are followed.37 After all, it is the duty of a banker to honour his customer’s cheques when the account is in credit, or provision has been made for an overdraft.38 Where a particular cheque has been properly dishonoured, the collecting bank will be entitled to reverse the credit entry on its customer’s account or to reclaim the amount of the cheque from its customer either on the basis of the contract of mandate or on the basis of an enrichment action.39 In such a case the payee or customer will have to recover the amount of the cheque from the drawer. The principle that the payee must look to the drawer for payment of a dishonoured cheque is equitable, as it was the payee who had entered into the contractual relationship with the drawer and who had agreed to take the cheque in payment of the debt. The payee bears the risk of dishonour and will suffer a loss where the payee is unable to recover the amount of the cheque in the event of the drawer going insolvent or absconding. There is no “guarantee” that the collecting bank will always succeed in collecting the proceeds of a cheque that is deposited with it for collection, or, put differently, there is no guarantee that a cheque will be ________________________

pinpoint the exact moment in time when payment is supposed to take place or to have taken place, it is submitted that one could nevertheless argue that Volkskas held that where the collection takes place through the ACB (in the absence of a special clearing where the decision to honour a cheque is made known to the collecting bank), the moment of payment of a cheque is when the period provided for in the inter-bank agreement expires without the drawee bank having given notice of the dishonour of the cheque. See Pretorius 1998 SA Merc LJ 326 329 ff where this aspect is canvassed. 37 One further comment. In Volkskas, counsel for Trust Bank relied on Rosen for the contention that the drawer of the cheque was not entitled to countermand payment because payment was countermanded at a time when the cheque should already have been regarded as paid by reason of Volkskas Bank’s decision to honour the cheque. Hefer JA did not wish to express an opinion on the correctness of Rosen and sought to distinguish Rosen on the basis that the drawee and collecting bank in that case were branches of the same bank (611C–H). The consequence of this purported distinction is that the determination of the time of payment, and consequently the drawer’s right to countermand payment, will be influenced by such fortuitous circumstances as whether the collecting and the drawee bank are different banks, or whether the same bank or different branches of the same bank act as both payer and recipient: If the drawee and collecting bank are different banks the terms of the clearing agreement applies and the decision of the drawee bank to honour the cheque is, in the absence of notification, an internal affair; if, however, the same bank or different branches of the same bank act as both payer and recipient, Rosen might prevail, with the result that it would not be possible to countermand payment after the decision to honour the cheque had been taken, irrespective of the fact that no notification of such decision had taken place. It is submitted that this supposed distinction is most unfortunate and that the terms of the clearing agreement should also apply in the case where the drawee and collecting bank are different branches of the same bank (Oelofse “Onlangse ontwikkelings in die tjekreg” 1991 SA Merc LJ 364 379–380; Visser 7). It is not without any significance that the clearing agreement in fact provides that different branches of the same bank are treated as separate entities (Rosen 976G). 38 Cowen and Gering Cowen on the law of negotiable instruments in South Africa (1966) 368. 39 ABSA Bank Ltd v Standard Bank of SA Ltd 1998 1 SA 242 (SCA) 251; ABSA Bank v De Klerk 1998 CLR 337 340 and ABSA Bank Ltd v IW Blumberg and Wilkinson [1997] 2 All SA 307 (SCA); 1997 3 SA 669 (SCA)). See Malan and Pretorius “Warranties and the collecting bank” 1999 SA Merc LJ 541 for a full discussion of this principle.

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paid, since that will normally depend on whether or not the drawer has funds available to meet the cheque or had arranged credit facilities to provide for the payment of the cheque. The collecting bank merely has to perform its duties in terms of the contract of mandate. 2 4 ABSA Bank Ltd v Standard Bank of SA Ltd40 This decision may also be relevant in this regard. In this case Standard Bank claimed an amount from ABSA based on unjustified enrichment. ABSA had collected from Standard Bank the proceeds of a cheque purportedly drawn on Standard Bank by its customer, Unitrans (Pty) Ltd. In fact the cheque was stolen and the authorized signatories of Unitrans forged. Standard Bank thus had no mandate from Unitrans to pay the cheque.41 The court found that Standard Bank was entitled to recover the amount of the cheque on the basis of enrichment. There was evidence before the court that the drawee bank decided to dishonour the cheque before the expiration of the “clearing period of ten days”.42 Van Heerden DCJ said that this “period apparently stems from an inter-bank agreement, full details of which were not elicited” from the “expert” witness.43 The court pointed out that it was not concerned with the terms of the inter-bank agreement and that neither party sought to rely on it in the pleadings.44 The judge remarked that although the witness’s evidence was “by no means a model of clarity, it can be gathered that in terms of this agreement the proceeds of the cheque were only provisionally credited” and that the “condition attaching to the entry was that it would become final only if it did not transpire within the clearing period that payment had not been irregularly made”.45 The court did not refer to Bankorp46 at all. 2 5 Burg Trailers SA (Pty) Ltd v ABSA Bank Ltd47 The judgment in Burg Trailers is perhaps not a good example of the thoroughness and intellectual rigour one has come to expect from our highest court. The judgment itself is difficult to follow.48 The main question that the court had to decide was whether the drawer of a cheque was entitled to countermand payment in the particular circumstances of the case.49 The facts were as follows: One Redelinghuys instructed ABSA’s Tzaneen branch to transmit approximately R5,9 million to its Brooklyn branch for the credit of the trust account of Potgieter. Potgieter acted as Redelingshuys’s attorney. Potgieter was a client of ABSA’s Brooklyn branch and Redelinghuys of its Tzaneen branch. ________________________

40 41 42 43 44 45 46 47 48

1998 1 SA 242 (SCA). See Malan para 208 for a discussion of this principle. 52B. Ibid. 252C. 252C–D. Fn 29 supra. 2004 1 SA 284 (SCA). It is apparent from the meager list of authorities cited by counsel that the court did not get much help from that quarter (286–287). 49 The matter did not concern “the liability of a collecting banker towards a client and . . . a judgment creditor of the client” (287C). The potential liability of a collecting bank raises quite different issues. See Malan paras 237–250.


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Acting on the instructions of Redelinghuys, Potgieter then drew a cheque on its trust account for some R5,7 million in favour of Morgan Brothers CC (“Morgan”). Redelinghuys had some kind of dealings with Morgan.50 On 2 July 2001 this cheque was deposited for the credit of Morgan at an ABSA branch in Cape Town. Morgan was a client of ABSA at its Rosebank branch. On the same day Redelinghuys had second thoughts and as a consequence of some discussions with Potgieter, Potgieter decided to countermand payment of the cheque. The next day (3 July)51 and with the help and intervention of an ABSA employee, the Rosebank branch of ABSA accepted the instruction “not to release the amount provisionally credited to Morgan’s account in its books”. A computer note to the effect that the “hold” was not to be lifted was made against the Morgan account. Burg Trailers was a judgment creditor of Morgan. On 6 July 2001 Burg Trailers arranged for a writ of attachment for R1,65 million to be served by the sheriff on the Rosebank branch of ABSA. ABSA informed the sheriff that the provisional credit balance was not available for attachment because the effects had not been cleared.52 Both Morgan and Burg Trailers instituted action for an order to declare that the cheque had in fact been paid. They were unsuccessful. Harms JA delivered the judgment53 and referred to the “internal banking practice” that has “its origin in the inter-bank clearance system (the automatic [sic] clearing bureau (ACB))”.54 His lordship elaborated: “According to these so-called ACB rules, which apply only between banks and do not create rights for clients, a drawee bank may not stop payment of a cheque later than the close of business following the day upon which the cheque physically reached the organ [sic] of the drawee bank vested with the power to stop payment. In other words, once that period of time has elapsed, the collecting bank is entitled to insist that the cheque be paid; but that does not mean that the client can so insist.”55

The court maintained that ABSA bank applies the aforesaid “rule” internally in respect of the orders to stop payment between branches or within any particular branch.56 The court nevertheless pronounced that although the aforesaid “practice” was “confidential” and was “not intended to create enforceable rights for clients”,57 the stop payment instruction was given timeously and that since “the decision not to pay unconditionally had been taken before 5 July, the ACB rules . . . could not have taken effect because ABSA, acting on behalf of Morgan ________________________

50 The exact nature of these dealings was not disclosed to the court. The court merely remarked that “somewhat suspiciously, neither Redelinghuys nor Morgan was prepared to divulge” the nature of the dealings between them (287H–I). 51 On 2 July Potgieter was initially informed by an official of ABSA’s Cape Town branch that it was too late to countermand payment of the cheque (287I–J). 52 288B–D. 53 Mthiyane JA, Cloete JA, Lewis JA and Jones AJA concurred. 54 290C–D, para 10. 55 290D–E, para 10. 56 290E, para 10. There is no indication in the judgment how the court came to this conclusion. There is no intimation that an expert witness testified as to the existence of such arrangement or practice. It is submitted that this statement should be viewed with some circumspection especially in the light of the court’s mistaken view that there may indeed be two periods of time within which the drawee bank may decide to dishonour the cheque. See the discussion below. 57 90F.

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and Potgieter in different capacities, had already agreed with itself not to pay the cheque unconditionally”.58 It is submitted that the aforesaid outcome is probably correct and in accordance with the principles set out in Bankorp.59 There are, however, a few aspects that warrant further attention. The first problem that we have with the decision is the fact that the court seems to labour under the misconception that there are two60 relevant periods of time with regard to the clearing and payment of a cheque. The one time period is the time allowed in terms of (what the court labelled as) the “inter-bank clearance system” or the “ACB rules”,61 that is, the time mentioned in Bankorp, as discussed above. The second period is a so-called “hold period” of ten days. According to Harms JA, the origin of this period is “standard banking practice”.62 The court explained it thus in an obiter: ________________________

58 290H–I. The surprising aspect of the judgment in Burg Trailers is the fact that the court did not consider the decision in Rosen v Barclays National Bank Ltd, esp in view of the fact that the court in Volkskas did not wish to express an opinion on the correctness of Rosen. See fn 37 above. 59 Fn 29 supra. See, however, our reservations outlined below. 60 See, eg, the use of the word “another” banking practice in para 10. 61 290C–D. 62 It is submitted that the court failed to distinguish between a “term of the bank and customer contract” and a “banking practice”. Harms JA uses these terms interchangeably – cf 289H and 290B. Before something can be recognized as a “banking practice” there should at least be some evidence that it is a practice adopted by all or at least the majority of the commercial banks. A “banking practice” is certainly not a “standard banking practice” if it is adopted or followed by one commercial bank only. Such practice must in any event be proved by means of an expert witness. See in general Ball The role of custom and usage in the banker customer relationship (LLM dissertation Unisa (1990)) 4 ff. Most banks provide in their deposit slips that the funds will only be available once the item or document has been paid. No mention is made of a time period, let alone a ten-day timeperiod. This is simply a term in the bank and customer relationship. It would appear that the origin of these clauses emanate from the decision in Freeman v Standard Bank of South Africa Ltd 1905 TH 26. This decision involved an action by Freeman against the bank for refusing to honour cheques drawn by him. On the morning of 24 November 1903 there stood to the credit of his account with the bank ǧ5 9s 6d. About noon, he paid in cheques amounting to ǧ48 6s 5d. The bank ledger and Freemans pass-book contained an entry, made before the cheques were cleared, “November 24th: By cash ǧ48 6s 5d. On that day, Freeman drew cheques in favour of three creditors amounting to ǧ486 2s 3d. The creditors paid in their cheques that day to their banks but each cheque was returned marked “Effects not cleared”. The next day when they were again presented they were paid. The bank was held liable in damages. Bristowe J referred to the book entry in both the ledger and the passbook: “An entry of this kind is an admission. It is true that it is not conclusive, for it is open to the bank to prove if they can that it is inaccurate or that it is not in accordance with the contract between themselves and their customer. But it is nevertheless an admission prima facie that there is so much cash standing to the credit of the customer, against which he is entitled to draw” (30). Kahn, Zeffertt, Pretorius and Visser Contract and mercantile law through the cases Vol II (1985) 594 point out that the present day deposit slip tries to avoid the consequence of this decision and hence the clause that the customer is not entitled to draw against bills, cheques etc handed in for collection on his account until it has been ascertained that they have been duly paid, notwithstanding any entry that may have been made in the books of the bank in the meantime. The clause on the ABSA deposit slip reads: “Instruments delivered for collection by the Customer or on his continued on next page


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“According to standard banking practice, cheques are accepted subject to a hold period, in this case of ten days. It is common cause that the client may not during that period insist upon payment of the amount even if it otherwise had been ‘paid’. This means that the bank is not unconditionally liable for the amount standing to the credit of the client and that the credit may be reversed during that period.”

The only authority that the court quotes for the above proposition is ABSA Bank Ltd v Standard Bank of SA Ltd.63 We have already pointed out that the Supreme Court of Appeal in that case made reference to a ten day period but added that “[t]his period apparently stems from an inter-bank agreement, full details of which were not elicited from Theron”.64 Theron was the alleged “expert witness” in the case. The court furthermore remarked that Theron’s “evidence is by no means a model of clarity”. The problem is that this obiter remark in Absa Bank Ltd v Standard Bank is now used in Burg Trailers as authority for creating a second clearing period of ten days in conjunction with the clearing period of Bankorp, and that, to top it all, a bank is entitled to reverse a credit entry during this extended period despite the fact that the cheque had been “paid” within the meaning of Bankorp.65 It is submitted that the ten-day period is nothing but an antiquated urban legend that pre-dates the decision in Bankorp. The contract66 between the bank and its customer normally stipulates that the proceeds of a cheque that had been deposited for collection would be available once the cheque had been paid.67 No mention is made of a ten-day period. The question whether the drawer of a cheque would be entitled to countermand payment should in principle be determined by whether there has been compliance with the clearing rules, as outlined in Bankorp. The second difficulty we have with the decision in Burg Trailers is the obiter observation that the ACB rules were “not intended to create enforceable rights for clients”.68 On the face of it this statement may indeed be true because the clearing rules are an agreement between the participating banks and the ACB. The payee of a cheque is not party to the contract between the banks and the normal rule of res inter alios acta or privity of contract applies.69 While it may ________________________

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behalf shall be made available as cash only after payment thereof. Any payment against uncleared effects allowed by the Bank shall be at the Bank’s discretion and no claim arising from this practice shall be brought against the Bank and furthermore the Bank shall, at its discretion, be entitled to debit the Customer’s account with the amount of dishonoured instruments. The Bank shall not be held responsible for errors resulting from incorrect information furnished by the Customer or on his behalf. Furthermore, the Bank does not accept responsibility for ensuring that the Customer has lawful title to instruments handed in for collection.” 1998 1 SA 242 (SCA) 252CíD. Our emphasis. See Kerr “The persuasive force of obiter dicta” 1975 SALJ 136. As determined by the “terms and conditions” printed on the deposit slip. It is certainly not a case of any “standard banking practice”. See fn 62 above. It would indeed be imprudent for a bank to set out a pre-determined time limit because much would depend on the type of document that is deposited for collection. See eg ABSA Bank Ltd v De Klerk 1999 1 SA 860 (W). 290EíF. The clearing house rules have in fact been applied by the courts in the past. See fn 22 above. There is some authority (at least in Australia) in support of the contention that payment of a cheque is effected on non-compliance by the drawee of his obligations ito the clearing

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be true that the privity-of-contract principle may bar the payee of a cheque from claiming from the drawee bank in the event of the non-compliance of the clearing-house rules, one should remember that there is a contractual relationship between the payee and the collecting bank. In terms of this contract between the customer and the collecting bank, the collecting bank owes a duty to its customer to promptly and diligently collect payment of all items which are the lawful property of the customer, whether payable to the customer himself or to a third party who has indorsed it to the customer.70 It is furthermore a general principle of the contract of mandate that the mandatary must execute the mandate without negligence and that the mandatary will be liable if his failure to perform is due to his or her negligence.71 The mandatary must in addition perform his mandate in good faith, which entails that the mandatary must perform his mandate in the interests of the mandator. The mandatary must refrain from causing the mandator loss and must at all times act in good faith, which means that the mandatary must not select a cause of action that could in any way prejudice the mandator. It is submitted that a persuasive argument could be made out that a collecting bank could perhaps be in breach of its contract of mandate with its client if the collecting bank fails or refuses to enforce the terms of the contract (clearing agreement) between itself and the drawee bank to regard the cheques as being “paid” because of the non-compliance with the clearing rules. The failure to enforce the clearing agreement that exists between the collecting bank and the drawee bank may prejudice or cause loss to the collecting bank’s client, especially in cases where such client is unable to recover the amount of the cheque from a drawer who has absconded or has become insolvent. Such failure may constitute a breach of the contract of mandate between the collecting bank and its client.72 The third concern we have relates to the question of finality or certainty of payment. The underlying principle or aim of the decisions in both Bankorp and Burg Trailers is to accomplish certainty. It is in the interest of the banking system as a whole that a client has certainty regarding the amount standing to his or her credit or debit in a bank account. This is especially the case in the modern ________________________

rules. Thus in Riedell v Commercial Bank of Australia Limited 1931 VLR 382 385í386 it was said: “[The rules] have been approved by all the banks . . . They deal in detail with the whole process of clearing, and constitute, in my view, an agreement between the banks, some provisions of which lay down rules of imperfect obligation, while others may fairly be regarded as intended to define legal rights and duties in relation to the daily business of the parties concurring in them. Apart from the contractual aspect, the rules afford the best evidence of the established practice of bankers within the field of banking operations covered by them [389] . . . [P]ayment is complete, and the rights of the parties arising out of payment are determined, in Victoria at all events, at the expiration of the times prescribed for ‘returns’ under the rules of the local clearing house. All room for doubt might have been removed if [the rule] . . . had been a little more explicit as to the effect of a late return and as to the precise means of rejection.” However, Malan para 201 points out that there may be some doubt in South Africa whether a payee can rely on the clearinghouse rules for its own advantage. 70 Goode Commercial law (1995) 599. 71 Van Zyl and Joubert “Mandate and negotiorum gestio” 17 LAWSA para 10 and authorities quoted. 72 See Pretorius 1998 SA Merc LJ 326 334 ff where this aspect is canvassed.


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banking system where money is no longer represented by the actual gold or notes but rather the symbolic computer entry on a customer’s account.73 It would not be in the interest of legal certainty if the bank would be entitled to arbitrarily alter the entries on a customer’s account í hence the rule that the drawer of a cheque is only entitled to countermand payment within the time allowed by the clearing rules. After all, payment is a bilateral act that requires the co-operation of both parties.74 A specific problem we encounter in this regard is the question of forged cheques.75 Where the signature of the drawer on a cheque is forged, it is said that the drawee bank normally pays the cheque at its own risk and may not debit the account of the drawer or recover the amount so paid from the drawer.76 If the ________________________

73 See in general Mann The legal aspects of money (1992) 28ff. The present day bank statement originates from the old system of pass books. In England bank statements were not issued unless the customer was a person living abroad. In America banks usually issued to a customer a statement of his account every 25th of the month or whenever he asked for it. The customer of an English bank had a pass book which was written up from the vouchers and agreed independently as a check on the account as shown in the ledger (Minty English banking methods: The practical operation of an English bank (1925) 169). Pass books were issued in several sizes to suit the convenience of the customer. When the ledger-keepers had finished posting the accounts and the waste office had agreed its changes, the juniors used to sort the debits and credits together into alphabetical order of the names of customers. The pass books were then kept by the bank in trays in alphabetical order and the juniors sorted into the pass books the corresponding vouchers for the day, and these vouchers were written up in the pass books the next morning and the pass books independently agreed with the ledger. Customers frequently called for their pass books and instead of returning them immediately, kept them for a considerable time – hence the modern day practice for the bank to supply customers with loose-leaf statements at regular intervals (Holden The law and practice of banking Vol I Banker and customer (1991) para 2-132; Evans The law of bills of exchange promissory notes, cheques and banking in South Africa (1931) 327). A bank becomes the owner of the money that is paid into a bank account (Foley v Hill (1848) 2 HL Cas 28 (9 ER 1002)). The client has only a personal right to claim repayment of the amount standing to his or her credit. A bank statement records the extent of the client’s personal right. 74 Malan para 201. 75 The forgery of an indorsement on a cheque does not invalidate the cheque, even though the indorsement as such may be invalid (s 22 of the Bills of Exchange Act 34 of 1964; Malan paras 135 179). Both the drawee bank and the collecting bank are given certain protection in the event of a forgery: ss 58, 79 and 83. The reason why the banks are afforded the protection lies in the fact that it is not possible for a collecting bank to verify the validity of an indorsement as opposed to the signature of the drawer. 76 Pretorius “Altered cheques and the collecting bank” 1997 SA Merc LJ 365 para 3. In London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 (HL) 823 Lord Shaw observed: “[A] cheque with the signature of a customer forged is not the customer’s mandate or order to pay.” See also ABSA Bank Ltd v Standard Bank of SA Ltd 1998 1 SA 242 (SCA) 250; Tedco Management Services (Pvt) Ltd v Grain Marketing Board 1997 1 SA 196 (ZSC) 205í206; Standard Bank of SA Ltd v Kaplan 1922 CPD 214 222; Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 3 SA 267 (W) 283AíB; Holzman v Standard Bank Ltd 1985 1 SA 360 (W) 363HíI; Pretorius “The forgery of a drawer’s signature on a cheque: Proposals for the reform of the South African law” in Visser (ed) Essays in honour of Ellison Kahn (1989) 271 ff and 1985 Annual Survey 344). The ratio for this rule is the fact that the drawee bank is paying without a valid mandate from the client. Cowen 374 puts it thus: “If a banker pays a cheque to which the customer’s signature as drawer has been forged, he cannot debit the customer’s account with the amount so paid . . . The sole ground of decision is the fact that the banker has continued on next page

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drawee bank detects the forgery of its client’s signature there can be little doubt that the drawee bank would be entitled to return the cheque77 to the collecting bank as unpaid.78 In Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation)79 Zulman JA remarked: “Entries on bank accounts may reflect valid juristic acts, but that is not necessarily so. Whilst in general it may be said that entries in a bank’s books constitute prima facie evidence of the transactions so recorded, this does not mean that in a particular case one is precluded, unless say by estoppel, from looking behind such entries to discover what the true state of affairs is. So, for example, if a customer deposits a cheque into its bank account, the bank would upon receiving the deposit pass a credit entry to that customer’s account. If it is established that the drawer’s signature has been forged it cannot be suggested that the bank would be precluded from reversing the credit entry previously made. So, too, if a customer deposits bank notes into its account the bank would similarly pass a credit entry in respect thereof. If it subsequently transpires that the bank notes were forgeries it can again not be successfully contended that the bank would be precluded from reversing the credit entry.”80

The problem, however, is what is meant by “subsequently”. Is there a time limit within which the drawee bank is obliged to return the fraudulent cheque as unpaid? Here we have the policy consideration of the quest for finality of payment that must be weighed against the consideration of the fact that the drawer’s signature on the cheque had been forged. In Burg Trailers Harms JA said the following with regard to the terms and conditions81 of collection: “I understand the contract to mean no more than that it gives the right to ABSA to withhold payment until a cheque has been cleared; it does not detract from its right ________________________

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made payment without his customer’s authority.” See also Pretorius “Liability of drawee bank in respect of cheques altered without authority” 1999 11 Merc LJ 390. It is submitted that a cheque on which the signature of the drawer is forged is a cheque (Malan para 36). In ABSA Bank Ltd v Standard Bank of SA Ltd 247A–J counsel for the respondent argued that such a cheque was invalid. The court did not decide the matter and merely said that it was common cause in the court a quo that the cheque was a “nullity” (251C). It is interesting to note that the Clearing Rules do not specifically provide for forged cheques and merely require all unpaid documents to be returned within the same time limit as set out in Bankorp. 1998 1 SA 811 (SCA) 823AíD. A further difficulty relates to erroneous bank entries. It is not exactly clear when an entry will be “erroneous”. The generally accepted view is that a customer is able to dispute a debit entry on his bank statement at any time (Standard Bank of SA Ltd v Kaplan 1922 CPD 214). However, if the customer expressly or impliedly admits to the bank that the statement rendered is correct, such admission is prima facie proof of the correctness of the statement (Trull v Standard Bank of South Africa Ltd 1892 4 SAR 203). Where, however, an erroneous credit entry appears on a customer’s bank statement the possibility exists that the customer may be misled into believing that he or she has more funds at his or her disposal than in fact is the case. Although the bank is entitled to make the correction, it will be obliged to honour a cheque that had been drawn on the strength of such erroneous credit entry (Hollard v Manchester and Liverpool District Banking Co Ltd (1909) 25 TLR 386). See further Absa Bank Limited v IW Blumberg & Wilkinson 1997 3 SA 669 (A); Pretorius 1995 Annual Survey 441 for criticism of the decision of the court a quo and the decision in ABSA Bank Ltd v Swisa 1996 CLD 522 (W); ABSA Bank Ltd v De Klerk 1999 1 SA 860 (W). Cf Jonker v Boland Bank PKS Bpk 2000 1 SA 542 (O), discussed fully by Sonnekus 2000 De Jure 369. See fn 66 above.


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to make provisional payment and it does not oblige it to pay unconditionally upon clearance. One can test the submission by way of an example: if it should transpire that a cheque, after having been cleared, was forged would the banker nevertheless be obliged to pay according to the credit entry raised by it? That cannot be so. The bank would be entitled to reverse the entry.”82

Looking at the aforesaid in context, the court seems to suggest that the reversing of the credit entry in respect of a forged cheque can only be made within the clearing period of ten days and not thereafter.83 This would suggest that the drawee bank will probably suffer the loss of a forged cheque if the forgery is not discovered timeously – hence the two periods mentioned by the court. It is submitted that the final word on this matter has not yet been spoken. In a recent obiter Harms JA84 had the following to say with regard to finality of an electronic funds transfer: “[H]ow can a bank retransfer an amount transferred by A into the account of B back into the account of A without the concurrence of B? [Counsel] . . . could not suggest any ground on which this can be done; there simply is none. Once transferred, the money or credit belongs to B and the bank has to keep it at B’s disposal.”

This would suggest that the transfer becomes final once it is made. Finality of payment should also be important with regard to payments by means of a cheque, albeit a forged cheque. Whilst it is true that the aforesaid was only an obiter statement, experience has taught us that an obiter by the Supreme Court of Appeal can be very persuasive indeed. 3

CONCLUSION

In view of the above discussion the only thing that is certain about the automated cheque clearing system (and the moment upon which a cheque is paid and the concomitant question of countermanding of payment) is that the legal position is uncertain. It is therefore a pity that, rather than bringing clarity and certainty to this aspect of banking law, Burg Trailers has added further confusion, inter alia, by its introduction of two different time periods that impact on the payment of cheques and the countermand of such payment. ________________________

82 290B–C. See also IPF Nominees (Pty) Ltd v Nedcor Bank Ltd & Basfour 130 (Pty) Ltd 2002 5 SA 101 (W) 121G–J where it was said: “Based on the principle as set out in the Indac Electronics (Pty) Ltd case [1992 1 SA 570 (A)], it would seem to me that the law implies a term as relied upon by the defendant, ie that the bank is entitled to reverse all credits erroneously made against a customer’s account and that if the customer had withdrawn those funds the customer would be liable to repay it to the bank. This implied term is enhanced by the statement in the ABSA Bank v Standard Bank of SA Ltd and the First National Bank of Southern Africa Ltd v Perry NO [[2001] 3 All SA 331 (A)] cases . . . where the proposition was set out clearly to the effect that the bank does not become liable when crediting a customer’s account as such credit is liable to be reversed if wrongly made. It seems to me to be a matter of logic that these principles would apply all the more if the credit resulted from transfers into the account unlawfully or fraudulently made. As such it would seem to me that the implied term relied upon by the defendant is supported by authority.” 83 This is also the outcome of the decision in ABSA Bank Ltd v Standard Bank of SA Ltd. 84 In Take & Save Trading CC v Standard Bank of SA Limited [2004] 1 All SA 597 (SCA) para 17.