INPA6212 Lecture Notes PDF

lOMoARcPSD|29390659 INPA6212 - Lecture Notes Instruments of payment (Varsity College) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Tiaan Vorster ([email protected]) ...

lOMoARcPSD|29390659 INPA6212 - Lecture Notes Instruments of payment (Varsity College) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 INSTRUMENTS OF PAYMENT - INPA6212 LO1: Explain all the relevant terminology in terms of the Banks Act Bank Public companies incorporated under the Companies Act, and registered under the Banks Act, which takes deposits from the public; different statues have differing deÞnitions. Bills of Exchange Act deÞnes it as a body of persons, whether incorporated or not, that carries on the business of banking which is extended to banks, mutual banks, the Reserve Bank and Post Office Savings bank Business of a Bank It is deÞned as being any of Þve activities: 1. Where a person accepts deposits from the general public; 2. Soliciting or advertising for deposits 3. The utilisation of money, or interest or other income earned on money by way of a deposit, where money is used to grant loans, investment of Þnancing; 4. Obtaining money as a regular feature of the business through the sale of an asset to any person other than a bank; 5. Any other activity which the registrar has declared to be a business through consultation with the Governor of the Reserve Bank. Deposit An amount of money paid by one person to another person subject to an agreement in terms of which: a) An equal amount of any part thereof will be conditionally or unconditionally repaid, either to the person to whom the money has been paid by or by any other person. b) Interest will not be payable on the amount paid, or interest will be payable thereon at speciÞed intervals or otherwise. Close Relative 1. Spouse 2. Child 3. Stepchild 4. Parent 5. Step-parent 6. Spouse of child, step child parent or step-parent Co-operative Bank A bank in terms whose members are of similar occupation or profession or who are employed by a common employer or who are employed with the same business district, or have a common membership in an association or organisation, including a business, religious, social, co-operative, labour or education group, or reside within the same deÞned community or geographical area. 1 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Dedicated Bank A public company registered as a dedicated bank in terms of the Act and any reference in the Act to a dedicated bank shall be construed as a generic reference to both savings banks and savings and loans banks. LO2: Discuss all the exclusions from the Act The following six activities are excluded from the Banks Act: 1. Acceptance of a deposit by a person who does not accept deposits on a regular basis, and does not advertise of solicit deposits - to qualify, person must not at any time hold a deposit from more than 20 people or exceeding R500, 000 2. Borrowing money from its members by a co-operative, where no loan may be less than R1, 000or repayable within 12 months 3. An activity of the public sector, governmental or other institution, or of a person or category of persons designated by the registrar with the approval of the Minister, by notice of Gazette. Most notably issuing of commercial paper by accepting money from the general public is excluded. 4. An activity contemplated in the deÞnition of "the business of a bank" which is performed by any institution registered or established in terms of any Act of Parliament and designated by the Minister by notice in the Gazette or performed in terms of any scheme authorised by and conducted in accordance with the provisions of any Act of Parliament and so designated by the Minister. Activity concerned must be conducted in accordance with conditions set by the Minister in the relevant notice. 5. Subject to any other Act, regarding effecting or implementation, where conditions prescribed by the Registrar in regards to money-lending transactions between a lender and a bank as a borrower through a contract of agency representation that stipulates the Agent acts for the lender, and that the lender assumes all risks associated with money-lending. Applies where the Agent concludes a money-lending contract with the Bank and receives money from the lender for payment over to the Bank 6. The activities of mandatories. whether natural or juristic registered in terms of any Act of Parliament and have been designated by the Registrar by way of Gazette. The acceptance of money from the mandator in terms of a contract of mandate for purposes of money-lending transactions with a bank, and the depositing of such money into an account maintained by the mandatory with a bank, irrespective or not such money is deposited together with money so accepted by the mandatory from other mandators Following are exclusions from the concept of a deposit: 1. An amount paid as an advance, or part payment, in terms of a contract for the sale, letting and hiring or other provision in regards to movable or immovable 2 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 properties or servIces and which is repayable by either fulÞlment or a resolutive condition or non-fulÞlment or a suspensive condition. 2. An amount paid as security for the performance of a contract, or in respect of any loss that may result from the non-performance of a contract. 3. Providing money which is paid as security for the delivery up or return of an movable or immovable property. whether in a particular state or repair will not be regarded as deposit. 4. Amount paid by a holding company to its subsidiary, or by a subsidiary to its holding company, or a subsidiary to another subsidiary of the same holding company 5. Amount paid by a person who at the time of such payment is a close relative, director or executive officer or a close relative of the aforementioned positions to whom the money is paid. 6. Amount paid by any person to a registered long-term insurer as a premium in respect of any kind of policy deÞned in the Long-Term Insurance Act and which the policy of the insurer assumes an obligation. 7. Amount paid to a pension fund registered under the Pension Funds Act, as a contribution by or on behalf of a member of that Fund. 8. Amount paid to a beneÞt fund as deÞned in S1 of the Income Tax Act. as a contribution by or on behalf of a member of that fund. 9. Amount paid by any person to a registered short-term insurer as a premium in respect of any kind of policy deÞned in the Short-Term Insurance Act, and under which the policy of the insurer assumes an obligation LO3: Compare the different tiers of Banks available in South Africa First-Tier Banks Commercial Banks There is no drawn distinction between Commercial Banks and Retail Banks In some overseas jurisdictions, they are referred to as Equity or Public Company Banks. It is a Þnancial institution that provides banking services for its customers, both natural and juristic. This includes the offering of current, deposit and savings accounts as well as providing loans. Commercial banks usually also offer payment intermediary services to their customers, along with their role as depositories and/or lenders of funds, the most important function of commercial banks is to provide its customers with access to the banking systems as a means of making and receiving payments. There are four principal methods of payments with which Banks may become involved as a payment intermediary: 1. Money (Physical) 2. Payment Cards (Debit, Credit or E-Wallets) 3 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 3. Funds Transfer Instruction from Customer to transfer funds from one account to another) 4. Negotiable Instruments (Cheques, or letters of credit). Generally, can be deÞned as a bank whose main business is deposit-taking, making loans and providing payment intermediary services. ProÞts are made by taking small, short-term, relatively liquid deposits from their customers and converting these into larger and longer maturity loans -- such as a mortgage bonds. Absa First National Bank Nedbank and Standard Bank are examples of commercial banks Investment Banks A Þnancial institution that assists persons, both natural and juristic including the state, in raising capital by underwriting and or acting as the clients agent in the issuance of securities. May also assist in mergers and acquisitions. It may also provide secondary services such as the trading of derivatives, Þxed-income instruments, buying and selling of foreign exchanges, commodities and equity securities. They do not take deposits. They offer two broad categories of banking services: they trade securities for cash or other securities, or promote or sell securities; they also advise on or manage assets on behalf of pension funds or the investing public. Land and Agricultural Development Bank of South Africa Trading as the Land Bank, is a government-owned development bank. Its main objective is to promote and Þnance development in the agricultural sector of the economy of the country. It is governed by the Land and Agricultural Development Bank Act. The Development Bank of Southern Africa A Development Finance Institution is wholly owned by the South African Government. It is regulated by the Development Bank of South Africa Act. It focuses on large infrastructure projects within both the public and private sectors. Its main objectives are the promotion of economic development and growth. human resource development. institutional capacity building and the support of development projects in the region. It plays multiple roles of Þnancier, advisor, partner, implementer and integrator to mobilise Þnance and expertise for development projects. It aims to improve the quality of life in the region. Second-Tier Banks Mutual Banks A mutual bank is deÞned as a juristic person registered as a mutual bank, and whose members qualify as such by virtue of being shareholders and being entitled to participate in exercising control in a general meeting of the bank. Therefore, the clients (or members) are also shareholders in the bank. This allows them to participate in the day-to-day management of the affairs of the bank. Management of credit risks of a mutual bank is unique. in that the recoverability of loans made to 4 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 members depends on community pressure applied by members on those who have borrowed money from the mutual bank. It attempts to involve the communities in banking through local boards for branches of the mutual bank, this allows a mutual bank's Board of Directors to place any branch office under the management of a local board and determine the powers and duties of the local board, but under the control of the Board of Directors. Section 10(2)(a) of the Mutual Banks Act prescribes there must be at least seven members who have subscribed their names to the proposed articles of association agreed to by them for the government of the mutual bank. The Postbank of South Africa The Postbank is a savings Þnancial institution that operates as a division of the South African Post Office. The object of the creation of the Postbank was to encourage and attract savings from the general public, rendering services and lending facilities through the existing infrastructure of the Post Office -- expanding into areas with little or no access to commercial banking services or facilities, and promoting universal and affordable access to banking services. The Postbank performs a number of services traditionally offered by commercial banks and acts as a deposit-taking institution. Co-operative Banks The Co-operative Banks Act is one of the government's initiatives to promote access to Þnancial services, particularly to those of lower socio-economic categories. It seeks to promote and advance the socio-economic welfare of all South Africans by enhancing access to banking servIces under sustainable market conditions; furthermore it aims to promote the development of sustainable and responsible co-operative banks Cooperative Banks must be registered under the aforementioned Act. and take deposits and has two-hundred or more members and an aggregate value exceeding ZAR1,000,000.00; therefore these are the requirements to form a Co-operative Bank Additionally, a bank must meet and maintain certain minimum prudential requirements in terms of capital, liquidity, asset quality and surplus reserves. Should a co-operative bank be unable to meet or maintain any of the prudential requirements prescribed, the relevant supervisor may either deregister or suspend the registration of the co-operative bank. o permit it to continue operating subject to certain conditions that the supervisor deems appropriate A Co-operative Bank may also receive grants and donations, or act as a representative or intermediary between its members, as well as a formal banking institution or any other approved Scheme. Third-tier Banks Village Banks A village bank is organised and owned by its members; the objectives of which is to provide appropriate Þnancial services at a local level and to provide a link to a Þrst- tier bank. They typically encourage its members to save and the collective savings 5 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 are then deposited with an ordinary commercial bank. The usual model is a "savings-Þrst" approach, whereby a sufficient amount must Þrst be saved before credit-granting can be commenced by the bank Dedicated Banks The Dedicated Banks Bill, which as not yet been past, was drafted to improve access to basic banking services for low-income and traditionally disadvantaged persons. This is sought to be achieved by lowering the barriers for large companies such as retail outlets and cellular or telecommunication companies to provide banking services. There are certain minimum requirements. such as an expectation to maintain a minImum capita that the sum of its primary and secondary capital and its primary and secondary unimpaired reserve funds does not at any time exceed an amount prescribed by legislation. There are two categories of a Dedicated Bank: Savings and Savings and Loans. Both will be able to make and receive deposits and provide payment services. however, a saving and loans bank may also invest money deposited within it Stokvels Stokvel is a generic name for a wide range of credit and savings associations which one encounters in disadvantaged communities. They provide banking-type services. including savings and credit services. They are required to meet certain requirements and are excluded from the Banks Act. There is no speciÞc Act that deals with Stokvels. Mobile Banking Services A number of cellular companies have developed software for their clients to use their cellphones as paving devices; payments which take place through cellphones are generally referred to as mobile payments. There are different models dependent on the method used b the cellular company. customers who make use of this payment service do not require a conventional bank account, and funds are kept in an offshore account. Customers can deposit, withdraw, and send money to anyone with a cellphone within the boundaries of a certain country or countries; such as a credit card payment. There is no speciÞc statute that regulates mobile banking services, but multiple ones: 1. South African Reserve Bank Act 2. National Payment System Act 3. Banks Act 4. Exchange Control Regulations 5. Financial Intelligence Centre Act 6. South African Reserve Bank Position Paper on Electronic Money. LO4: Analyse the impact various phenomena on South African banking law The expansion of the pool of modern South African banking-law principles is the result of the following Þve fundamental phenomena, which run like a golden thread through modern banking law. 6 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Banking Law as part of the Law of Obligations Banking Law is not an autonomous branch of the law, but rather an application of concepts and techniques of the general law of obligations as well as the law of things. The majority of precedent comes from English case law, as repeatedly looked into by South African Courts. There has been a broadening of this concept, in particular, it has been applied to corporate control and accountability, or simply the accountability of the Directors of Banks under the general principles of company law. Corporate governance has been described as the system by which companies are directed and controlled; it is where there exists employee participation in the running of a public company. This phenomenon has allowed Directors of Banks to be held liable for negligent conduct that has caused loss to shareholders and creditors. Bank-customer Relationship Closely linked to the Þrst phenomenon is the fact that the banker-client relationship is a multi-faceted one. It involves various types of contracts; mandates, loans, depositum and deposit-taking. Depending on surrounding circumstances, the parties to the relationship may either be the debtor or the creditor. This second phenomenon gives the relationship its multi-faceted nature, which involves competing legal principles. Government policy for legislating to replace the Common Law There have been numerous new pieces of legislation, mostly aimed at replacing the existing common law with established precedent through Acts of Parliament. It is inevitable that the Courts will eventually turn to interpreting the legislation over the common law. Globalisation The banking industry has been globalised, meaning that there is international co- operation between the banking regulators, they must comply with international standards in order to participate on the world stage. The development of these international standards has given rise to new trade practices and guidelines. To facilitate this participation, the national banking law will have to be adapted and harmonised with international standards. Major Practical Changes in Banking Sector Banking, like many other sectors of commerce, has undergone signiÞcant practical changes - these are mostly as a result of technological development. They have had a profound impact on the banking practice and have resulted in a number of new legal issues and questions. LO5: Discuss the sources of banking law in South Africa Primary Sources (i) Legislation (ii) Judicial Precedent / Case Law 7 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 (iti) Custom or Trade Usage (iv) Roman Law (v) Roman-Dutch Law (vi) Indigenous Law (vi) Islamic Law Secondary Sources (i) International Law (I) Customary International Law (iii) Foreign Municipal Law See pages 28 - 53 for Discussion. LO6: Discuss the function of the South African Reserve Bank The South African Reserve Bank ('SARB') has multiple roles within South Africa and the law of banking. 1. It is the lead regulator (highest authority) for banks in the country and is responsible for supervising banks and ensuring compliance with the regulation. This is performed through issuing bank licenses to banking institutions and monitoring their activities in accordance with the Bank Act or Mutual Bank Act.21 2. Section 10(1)(c)(Á) of the SARB Act states that it may perform such functions related to the implementation of rules and procedures that establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems. The National Payment System Act enables it to perform these functions through its National Payment System Department.22 3. S10 of the SARB Act also gives it the power to exercise various functions and duties related to the Þnancial market. Examples from Section 10 of the SARB Act: 1. Issue banknotes or cause banknotes to be made. 2. Coin coins or cause coins to be made. 3. Issue banknotes and coins, or cause banknotes and coins to be issued, for use in the Republic of South Africa. 4. Destroy banknotes and coins or cause them to be destroyed. 5. Buy and sell securities. 6. Grant loans and advances. 7. Buy, sell or deal in precious metals and hold in safe custody for other persons gold, securities or other articles of value. LO7: Explain the Roles of Various Acts in Regulating Banking DeÞnitions Controlling Company: A company that owns enough shares of another company for it to control its management. 8 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Banks Act The most important statute regulating the South African banking sector. It aims to protect the public against any losses due to a lack of solvency, or possible malpractices on the parts of banks, and to safeguard the public against unfair competition by institutions that offer similar services to banks. Furthermore, it provides for the regulation and supervision of the business of public companies taking deposits from the public. The Act does not apply to the following: ◦ Reserve Bank ◦ Land Bank ◦ Development Bank of Southern Africa ◦ Corporation for Public Deposits ◦ Public Investment Corporation Limited ◦ Mutual Banks The National Payment System Act Crucial to the effective function of Þnancial systems in a country and globally, payment systems are critical. If a payment system is insufficiently protected against risks such as credit, liquidity and settlement risks, disruption within the system could trigger or transmit further disruptions among its participants or generate systemic disruptions in the Þnancial markets or more widely across the economy: this is referred to as systemic risk. Established in terms of the National Payment Systems Act. SA Reserve Bank Act also mandates the Reserve Bank to Òestablish operate, oversee and regulate payment, clearing and settlement systemsÓ. (See section 10 (1) (c) SARB is a neutral agent overseeing and supervising the National Payment System. In terms of the National Payment Systems Act, the SARB may recognise a payment system management body if it is satisÞed that: (i) the body fairly represents the interests of its members. (ii) the provisions of the deed of establishment or constitution relating to admission to membership of the payment system management body are fair, equitable and transparent; (iii) The payment system body consents to supervision by the SARB. National Credit Act The regulatory aspects pertaining to banks in accordance with the National Credit Act, where as far as registration of credit provides is concerned, the Act provides that a person must apply to be registered as a credit provider if the person, alone or in conjunction with any associated person, is the credit provider under at least a hundred credit agreements, other than incidental credit agreements, or the total principal debt owed to that credit provider under all outstanding credit agreements exceed the threshold published in the Gazette. Registration issued in terms of the Act is valid throughout the Republic of South Africa and authorises the registrant to conduct, engage in or make available the 9 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 registered activities at any place within the Republic. It is a condition that the registrant permits the National Credit Register or any person authorised by the National Credit Register to enter any premises and to comply with the provisions of the National Credit Act as well as the Financial Intelligence Centre Act and other applicable legislation. Upon registration, the National Credit Register must issue a prescribed certiÞcate of registration to the applicant and in the case of associated persons, a duplicate copy. They must also enter the registration in the register and assigned a unique registration number to the registrant. Registration takes effect on the date of the certiÞcate is issued. Focuses on the provision of credit facilities by the banks. Mandatory for banks to be registered as Credit Providers by the National Credit Regulator. Registration evidenced by a certiÞcate. Registration remains registrant is deregistered or the registration is cancelled in terms of the Act. Unregistered credit provider cannot enforce loan repayment! Consumer Protection Act Enacted to support and advance the economic welfare of consumers in South Africa, it does this by protecting the rights of consumers but also by encouraging a culture of consumer responsibility. It also applies to: 1. Every transaction within the Republic, except if exempted by the Act. 2. Promotion of goods, services or of the supplier of any goods and services within South Africa, unless the goods or services could not reasonably be the subject of a transaction under the Act, or unless the promotion of these goods or services are exempted. 3. Goods or services that are supplied or performed in terms of a transaction to which the Act applies. 4. Goods that are supplied in terms of a transaction that is exempt, but the goods are the importer, distributor and retailer of those goods are still subject to certain sections of the Act. It provides eight consumer rights which are: ◦ Right to Equality ◦ Right to Privacy ◦ Right to Choose ◦ Right to Disclosure of Information ◦ Right to Fair and Responsible Marketing ◦ Right to Fair, Just and Reasonable Terms and Conditions ◦ Right to Fair Value, Quality and Safety. Protects the rights of consumers and encourages a culture of consumer responsibility. ¥Applies to: - transactions in SA (s5(1)(a). - promotion and supply of goods unless the promotion of the goods is exempted. 10 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Financial Advisory and Intermediary Services Act The object of the Act is to regulate the rendering of certain Þnancial advisory and intermediary services to clients. This means any recommendations, guidances or proposals of a Þnancial nature furnished by any means or medium to any client or group of clients. It also regulates intermediary services, which are: buying, selling or otherwise dealing in, managing, administering, keeping safe custody, maintaining or servicing a Þnancial product purchased by a client from the product supplier or in which a client has invested. Also, collecting or accounting for premiums or other money payable by the client to a product supplier in respect of a Þnancial product, as well as receiving, submitting or processing the claims of a client against a product supplier. Act regulates the rendering of certain Þnancial advisory and intermediary services to clients. ¥ DeÞnition of ÒadviceÓ: recommendation, guidance or proposal of a Þnancial nature (s1(3) (a). ¥ Applies usually in respect of a Þnancial product, investment in a Þnancial product, incurring a loan aimed at securing right or beneÞt in relation to a Þnancial product. ¥ for deÞnition of ÒÞnancial productÓ, ÒÞnancial service providerÓ, ÒrepresentativeÓ and Òkey individualÓ. ¥ Service provider should be ÒÞt and properÓ. Prevention of Organised Crime Act and Financial Intelligence Centre Act The Prevention of Organised Crime Act, covers the transfer, concealment or disguise, possession and acquisition of property in a manner that is largely consistent with international agreements on contraband (Narcotics, Psychotropic Substances, Money Laundering). It, alongside the Financial Intelligence Centre Act regulate aspects of the banking transactions between Þnancial service providers, and customers. POCA criminalises money laundering. POCA provides for both criminal and civil forfeiture. - POCA although it outlines certain activities constituting money laundering does not outline any measures to detect such. - POCA is therefore supported by the FICA which outlines some measures. - Key measures available in terms of FICA to detect money laundering are: (i) Customer VeriÞcation and IdentiÞcation by banks. (ii) Provision and veriÞcation of residential address by banks Formation of the Bank-Customer relationship: The bank-customer relationship is formed when a bank agrees to open an account on behalf of a person and accept him as its customer. The contract is normally concluded by way of offer and acceptance. The prospective customer makes an offer by completing and submitting an application form to open an account and the bank may either accept or reject this offer. If the bank decides to accept the offer, the contract comes into existence when the bank communicates its acceptance to the customer. 11 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Apart from consensus, there are certain other requirements which must be satisÞed for a valid bank-customer contract to come into existence. ¥ The person purporting to represent the bank in concluding the contract must have authority to do so. Such authority may be given expressly or tacitly, or it may be implied by law. If the person purporting to be the bank's representative lacks the necessary authority, a contract will not come into existence between the bank and the prospective customer. However, the bank may be held bound to the agreement if it either ratiÞes it or is estopped from denying that the person purporting to act on its behalf had the necessary authority. ¥ The customer must have capacity to conclude the contract. This requirement may not be satisÞed, for instance, if the prospective customer was an unassisted minor with limited or no contractual capacity; or if he was mentally ill at the time of contracting to the extent that he was unable to understand and appreciate the transaction which he purported to enter. ¥ If a person purports to open a bank account on behalf of another, he must have authority to represent the prospective customer. ¥ The agreement must be certain and capable of performance. ¥ The agreement must be lawful: it must not be against public policy or prohibited and rendered void by legislative enactment. The requirement of lawfulness may also not be satisÞed if the agreement was entered into for an unlawful purpose. ¥ The parties must have intention to create a contract (animus contrahendi). ¥ Any formalities, where applicable, must be complied with. Duties of the bank: Keeping and accounting customers account with the bank. Repaying and collecting payments on behalf of the customer, Furnishing customer with statements of account. SPECIFIC DUTIES OF THE BANK - Keeping and accounting the customersÕ accounts with the bank. - Repaying on demand money standing to the credit of the customerÕs account by honouring his payment instructions (if itÕs a cheque payment; (a) it should be made within banking hours; (b) cheque should be properly drawn; (c) duly signed by customer or authorised representative; (d) cheque should not bear a condition arousing suspicion ; (e) there must be sufficient funds to meet the full amount on the cheque). - Receiving and collecting payments made to the customer. Bank can act as Òcollecting bankÓ presenting cheques to a ÒdraweeÓ bank. - Furnishing customer with statement of account. NB: Duty is not Þduciary but derived from trade usage. GENERAL DUTIES OF THE BANK - The duty to exercise reasonable care and skill. skill and diligence should be demonstrated by the bank in rendering its service. failure to exercise that results in breach on contract which leads to liability. the test is objective. the Consumer Protection Act entitles a customer to a refund in the event of breach of that duty. 12 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 - Duty of secrecy The bank owes a duty of secrecy. This duty is now strengthened by provisions of the POPIA. The duty is not absolute and can be relaxed, (a) when disclosure is compelled by law, (b) public interest related disclosure, (c) interest of the bank require disclosure (litigation), (d) disclosure at the consent of the customer - Duty of good faith There are instances where the bank assumes a duty of good faith, i.e a Þduciary duty. For example, whether the bank offers Þnancial advisory services to a customer or the bank administers a trust. Duties of the customer: To pay overdrawing's, interest and bank charges. To exercise reasonable care in drawing payment instructions To reimburse and indemnify the bank. DUTIES OF THE CUSTOMER - The duty to pay overdrawings, interest and bank charges. NB: bank charges are considered to be a levy that the bank is entitled to for its services. - Duty to exercise reasonable care and skill in drawing payment instructions Payment instructions, for eg. On a cheque have to be clear and unambiguous Customer shall not draw payment instructions in a manner that facilitates fraud or alteration Bank can be considered to be equally liable if it was negligent in handling payment instruction that was negligently issued. - The duty to notify the bank of known or suspected forgeries. Customer has a duty to warn the bank of any suspected forgeries of his signature. If he fails to do so, bank is justiÞed to debit his account in terms of the presented instrument. The bank can also raise the defence of estoppel if there is a clear duty by the customer to disclose such suspected activities. In the absence of such a duty, the principles of contract of mandate operate to the beneÞt of the customer. - The duty to reimburse and indemnify the bank for the expenses or losses the customer has to reimburse the bank of the losses it can incur in carrying out its mandate e.g the bank debiting its customer for a payment it made to a third party at the instruction of the customer. - Statutory duty to exercise care in custody of cheque forms and reconciliation of bank statements Certain customers are legally obliged to have their accounts audited and their bank statements reconciliated (municipalities) Registration in terms of the Public Accounts and Auditors Act. 13 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Circumstances in which the bank-customer relationship terminates: - Agreement: Parties tacitly agree - Notice of termination: Customer summarily terminates his contract with the bank. - Death or dissolution of the customer: if natural person - Sequestration of the customer: restricts banks' ability to perform mandate with customer. - Consequences of termination: The whole of the balance standing to the credit of the customers account becomes immediately repayable by the bank. Also ends certain duties that the bank owes to its customer In essence, the bank-customer relationship is a multi-faceted one that exhibits elements of different types of contract, most notably those of loan for consumption (mutuum) and mandate (mandatum). Pinto v First National Bank of Namibia 2012 (A98/2001) NAHCMD 43: explains how the naturalia of the contract of mandate does not exclude the imposition of statute. Statute thus overrides the common law contractual terms between the banker and the customer in the interests of justice. This is important when considering our unjust and unfair terms contained in section 48 of the Consumer Protection Act 68 of 2008 (CPA) the broad "interests of justice" yardstick. Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers 2001 (1) SA 256 (C): contractual terms are often entered into between individuals and often between poor and vulnerable people on one hand, and powerful, well-resourced companies on the other. This may very well assist in developing fair and relevant rules for this ever-changing contractual landscape between bank and customer. Relationship between principal and agent & mandator and mandatory: The relationship of the mandator and mandatory is governed by our common law naturalia principles and the bank owes a duty of reasonable care to the mandator in carrying out its instructions. Should the bank fail to carry out the instructions in a reasonable manner, then the Bank will be liable for breach of mandate (contract). This principle of Þduciary care is extended to an agent acting on behalf of a principal; in that the agent must act in the best interests of the principal and not in her/ his own interests. The mandator also has a duty to act with reasonable care when making payment instructions. Which law has inßuence in the management of bank-customer relations? Principles of law of contract. Provisions of speciÞc legislation, e.g Banks Act, National Credit Act, Consumer Protection Act, Financial Intelligence Act. Code of Banking Practice , often referred to as Òsoft lawÓ. Voluntary not mandatory code of business practice advancing four principles namely; fairness, transparency , accountability and reliability. Code launched in 2012. Financial Services Conduct Authority has developed a Conduct Standard for banks. Also Òsoft lawÓ. 14 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 What happens in the Bank becomes an FSP? Bank has to be issued with an FSP licence in terms of s8 of the FAIS Act after completion of application for such licence. Application for acceptance as an FSP made to the Registrar of Banks. Any transaction concluded by a non-licensed entity/person is unenforceable. Registrar grants licence if satisÞed that the applicant is compliant, including the ÒÞt and proper checkÓ. See section 11 (2) of Act for instances under which the licence expires (i.e incapacity, liquidation, dormant licence, voluntary surrender). LEARNING UNIT 2: PAYMENT THEME 1 What is payment? Payment is the rendering of what is owed under a monetary obligation by a person competent to render it to a person competent to accept it. It discharges the obligation and any obligation accessory to it. How is the rendering of what is owed achieved? The rendering of what is owed may be achieved by the delivery of cash or by an electronic payment. Harrismith Board of executors v Odendaal : Payment is the delivery of what is owed by a person competent to deliver to a person competent to receive What is solutio? Discharge of an obligation by performance. What does it mean that payment is a bilateral act? Requires the agreement or co-operation of both parties. What is the general rule for payment to have taken place? The debtor must, as a rule, give the creditor an unfettered right to immediate use of funds in question. Explain concepts relating to payment and their legal effect: 15 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 DeÞnition of money: Money in the sense of the currency has been judicially deÞned as Ôthat which passes freely from hand to hand throughout the community in Þnal discharge of debts. Does it include e-money & foreign currency? E-money and Foreign currency is not money for legal purposes. What is generally accepted to constitute money for commercial purposes? Notes and coins. Medium, amount, and time and place of payment What is legal tender? That is, in banknotes and coins that the creditor is obliged to accept in redemption of the debt. What constitutes as legal tender? Section 17 of the SARB Act - Banknotes Ð any amount - Gold coins Ð any amount - Other coins Ð any amount, per transaction, not exceeding: R50, where coins of denomination of R1, R2 or R5 are tendered. R5, where coins of denomination of 10, 20, 50 cents are tendered. 50c where coins of denomination of 1c,2c or 5c are tendered. What is the difference between Òmoney of accountÓ and Òmoney of paymentÓ? Money of account is the currency in which a debt is expressed or liability to pay damages is calculated. Money of payment is the currency in which such debt or liability is to be discharged Eden v Pienaar : Cloete J explained Ò A distinction exists between money of account and money of payment. Money of account is the currency in which a debt is expressed or liability to pay damages is calculated and money of payment is the currency in which such debt or liability is to be discharged. In SA, where the money of account is not South African Rands, the option to pay in either the money of account or rands is afforded to the debtor.Ó 16 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Which rate of exchange prevails when currency other than ZAR is converted into ZAR? If the debt is expressed in a foreign currency then, unless agreed otherwise, the debtor has the choice of paying in that currency or paying in South African currency converted at the rate of exchange prevailing at the time of payment. When is the tender of payment of valid? For a tender of payment to be valid it must be for the full amount owing. The creditor may insist on the exact sum being paid Ð he cannot be made to give change Ð and unless agreed otherwise, he is not compelled to accept payment in instalments. The amount owing and payable is generally that speciÞed in the contract What about currency ßuctuations? South African law applies the principle of currency nominalism, in terms of which the debtor must pay the sum stipulated as being due, irrespective of any interim ßuctuations in the purchasing power of the currency. When must payment be made? Payment must be made at the time or within the period expressly or tacitly agreed upon How are time periods computed? To determine precisely when an agreed period of days, weeks, months or years expires, the court must ascertain, if possible, what the parties themselves intended, by examining the wording of the contract in the light of any admissible evidence. If, through this process, the court can arrive at the common intention of the parties, it must give effect to that intention. Time of payment If parties agree (tacitly or expressly) on the debtor making payment on a speciÞc day, he has the last moment of the stipulated day to make payment. To determine when a speciÞc period expires, (i.e days, weeks, months or years), the court examines the wording of the contract to ascertain the intention of the parties in light admissible evidence. 17 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 In the event of the court failing to ascertain the intention of the parties, then tradition computation is adopted (i.e considering the Þrst day and disregarding the last day). NB: the calculation of prescription in terms of the Prescription Act. When there is no agreement on the date and time of payment, then debtor should perform immediately or within a reasonable time. Where must payment be made? The debtor must make payment at the place expressly or tacitly agreed upon The place of payment - Place of payment is usually tacitly or expressly stipulated in a contract. - In the absence of stipulation, place is determined by statute (e.g section 19 (2) of the Consumer Protection Act : Òunless expressed otherwise, the supplierÕs place of business or residence as the Òplace of paymentÓ). - In the absence of stipulation, trade usage or any common law rules can be invoked. - If the above sources do not indicate the place of payment then debtor must seek creditor for payment. - If payment was made at an incorrect place, creditor has choice to ether accept or reject payment. - Cash payments : where the cash is delivered. - EFT: place where the payee is upon receipt of the funds. What is the effect Reg 3(1)(c) of the Exchange Control Regulations? (1) Subject to any exemption which may be granted by the Treasury or a person authorised by the Treasury, no person shall, without permission granted by the Treasury or a person authorised by the Treasury and in accordance with such conditions as the Treasury or such authorised person may impose: (c) make any payment to, or in favour, or on behalf of a person resident outside the Republic, or place any sum to the credit of such person; Critically discuss the common law and statutory law in respect of payment of monetary debts 18 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 At common law, a party who owes a monetary debt may pay it before the date stipulated for payment, provided the time clause was inserted in the contract purely for his beneÞt. If the time clause was inserted solely for the beneÞt of the creditor, or for the beneÞt of both parties, the creditor is not obliged to accept early payment. Critically evaluate the guarantee of payment Payment guarantees are typically used in sales of land to ensure that payment takes place. In a sale of land for cash, the buyer is obliged, in principle, to pay the price against (pari passu with) registration of transfer of the land in the Deeds Registry. In practice, it is not possible to determine precisely when registration will take place and so it is accepted that the buyer need not pay at the exact moment of transfer, it being sufficient if he pays when the fact of transfer may be registered without the buyer making payment at all The following should be noted regarding the required payment guarantee: - There is no prescribed from for the guarantee. - Unless agreed otherwise, the guarantee need not be a bank guarantee and it not be irrevocable. - The buyer is bound to furnish the guarantee only once the seller indicates that he is willing and able to lodge the transfer documents. - If the buyer sues to enforce transfer, he may tender the required guarantee in his summons Payment by post For payment to discharge monetary debt debtor must place money or payment instrument at creditorÕs disposal. If debtor chooses to post cheque postal order or other payment instrument to creditor & it does not reach him debt is not paid &debt is not discharged. But courts have made exception to rule & hold that mere act of posting discharges debt if following requirements are satisÞed: - Creditor requests or authorises debtor to send his payment by post - In case of cheque debtor complies with any agreed terms regarding manner in which cheque is to be drawn. - Debtor posts instrument in correctly addressed & stamped envelope. 19 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 - Instrument is lost or stolen in transit & in case of cheque paid by bank in circumstances entitling it to debit account of drawer of instrument. - Above exception does not apply if parties have agreed that any payment made by debtor must be received by creditor in order to be effective. Payment by & to a 3rd person Payment of monetary debt may be made by: - DebtorÕs agent - surety for debtor - independent 3rd person Ð3rd person may make payment without debtorÕs knowledge or consent & even against his will. Creditor may not refuse tender of payment on basis that it comes from someone other than debtor or person appointed by debtor. For 3rd person to discharge obligation he must make it clear to creditor that he is paying for or in name of debtor &he must make payment unconditionally. Obligation is not discharged if: - 3rd person fails to indicate for whom he is paying, or - He tenders payment subject to condition that creditor is not obliged to accept, or - He pays what is owed not to discharge debt but to purchase & obtain cession of creditorÕs claim against debtor Having made payment on behalf of debtor - 3rd person has right of recovery against him in certain circumstances. Parties to contractual debt may agree that payment of debt will be made by an independent 3rd person Ðsomeone who is not party to their contract. In such a case payment by 3rd person discharges debtor's obligation. Such 3rd person not being party to contract cannot be compelled to render payment, but debtor may be held liable for breach of contract if 3rd party fails to pay. Receipt for payment 20 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 - A party who pays debt is entitled to receipt & may withhold payment until he is given one A bank that pays out on cheque to party purporting to be payee may demand that he indorse instrument as form of receipt. Apportionment of payment If parties have agreed in advance how money is to be applied : e.g. they have s8pulated that creditor must apply money to particular debt or that he may allocate money to whichever debt or debts he sees Þt court must give effect to that agreement. If parties have not concluded any prior agreement on how payment is to be apportioned among debts, then question depends on whether either debtor or creditor has allocated payment to any particular debt or debts. - Debtor who owes two or more monetary debts to one creditor may make payment to creditor which is insufficient to discharge all debts. - In such case it is necessary to determine HOW payment is to be appropriated between debts Debtor may before or at time of making payment indicate to which debt (or debts) payment is to be applied. If he does payment must be appropriated accordingly. He need not give an express indication if his intention is clear in circumstances DebtorÕs intention will generally be clear for example where: - He has consistently agreed to creditor appropriating his payments in manner adopted - Amount of payment corresponds with one particular debt - He admits one debt & disputes others - Creditor has demanded payment of one of debts & debtor without any explanation has forwarded amount demanded If debtor has not expressly indicated appropriation & circumstances do not suggest one creditor may choose debt(s) to which to apply payment. For creditorÕs appropriation to be effective he must make his intention known to debtor before or at time of payment so as to give debtor an opportunity of stipulating otherwise Creditor is required to act fairly in making his choice & he cannot appropriate payment to debt which is disputed or not yet due or not legally enforceable. 21 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Payment in full settlement: A debtor who denies owing full amount claimed by creditor may tender payment of lesser amount &accompany tender with words Ôin full settlementÕ. May creditor keep payment & sue for balance? Answer depends on whether par8es have concluded a compromise. In this regard following should be noted: - Compromise is essentially agreement between parties to disputed obligation or to lawsuit, settling matter in dispute each party receding from his previous position & conceding something. Typical reasons for a party agreeing to compromise are that he is: - Uncertain as to merits of his side of dispute or - Unsure whether he will be able to prove his version of events in court or - Not prepared to incur inconvenience (trauma) or expense of litigation Compromise is usually classiÞed as form of novation because it is intended to replace & has effect of replacing any obligation which exists between parties But it differs from novation in three respects: - It must be concluded to settle dispute between parties - Each party must depart from his prior position & concede something either by diminishing his claim or increasing his liability; & - Agreement does not require valid existing obligation as prerequisite for its formation. Parties often conclude compromise precisely because they are uncertain as to whether there is any obligation between them. If claim in respect of which they agree to compromise is invalid validity of compromise is not affected. 22 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 Set-off Set-off or compensation (compensatio) is method by which mutually owed debts (contractual or otherwise) are extinguished. Set-off has same extinguishing effect as payment & is regarded as its legal equivalent. It promotes economic efficiency in that it allows reciprocal debts to be discharged without expense & inconvenience of duplication of performance. Requirements for set-off to operate: - Parties to set-off must be separate legal entities - Parties must be mutually indebted to each other (each must be both creditor & debtor of other) & each must owe & be owed in same capacity. - Debts must be of same kind (eiusdemgeneris). - Debts must be due and enforceable. - Debts must be liquidated Effect of set-off - Set-off operates automatically (ex lege) as soon as requirements set out above are met - It need not be speciÞcally invoked - In this respect it differs from payment which involves voluntary act on part of debtor - Set-off must be pleaded & proved for court to be able to take cognisance of it. - Set-off discharges both of debts wholly or in part. - It has same effect as full or partial payment of each debt. - If debts are for same amount both are completely extinguished. - If debts are for different sums greater is reduced by amount of smaller which is extinguished. 23 Downloaded by Tiaan Vorster ([email protected])  lOMoARcPSD|29390659 When set-off is excluded? Parties may by agreement exclude applicability of set-off to their reciprocal debts e.g. either of debts will be paid Ôwithout deduction or set off. In some instances, set-off is excluded by statute or by common law. Granting of sequestration or liquidation order creates a concursus creditorum which prevents set-off from taking place Proof of payment - If debtor alleges that he has paid his debt onus is on him to prove it. - If he fails to establish his allegation on balance of probabilities, judgment must go against him (there is no question of court granting absolution from instance). - Receipt is prima facie proof of payment of a money debt - Party who makes payment of debt is entitled to receipt &may withhold payment until he receives one Prescription What does it mean when debt has ÒprescribedÓ? Prescription refers to the termination of a debt or obligation through the effluxion of time. The Prescription Act 68 of 1969 sets out the periods of prescription for different types of debt with the prescription period for a basic debt being three years. Once prescription period has passed debt is no longer legally enforceable & creditor may not bring claim against debtor. Cases Vereins and Westbank AG v Veren Investments: Cameron JA commented Ò subsequent approval by the creditor validates any method the debtor may unilaterally have chosen to effect the discharge, even if that method fails to place the performance at the immediate disposal of the creditor, and even if that method fails to sequester the performance effectively from the debtorÕs own assetsÓ. 24 Downloaded by Tiaan Vorster ([email protected])