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STUDY UNIT 1A NEGOTIABLE INSTRUMENTS & OTHER METHODS OF
PAYMENT
Negotiable instruments & other methods of payment
e.g. bills of exchange, cheques and promissory notes.
Sources of SA Law of negotiable instruments :
Legislation – Bills of Exchange Act 34 of 1964
SA Common Law – Roman-Dutch Law (anything not covering in the Bills of Exchange Act is subject to
common law)
Decisions of the SA courts
SA courts NOT bound by English case law BUT decisions in English courts can have persuasive value in
SA court
Canadian, Australian and New Zealand cases also have persuasive value in SA court BUT not binding
force
If no legislation or case law then relationship between parties governed by express or implied terms of
the agreement.
Trade usage can also be used – e.g. in operating a cheque account then that is trade usage (i.e. term
that is implied by law in a contract so therefore naturalia / naturale). Trade usage as a contractual term
must be :
term must be universally and uniformly used within that particular trade
must be notorious
must be reasonable
must be certain
must not conflict with positive law (i.e. legislation or case law)
must not conflict with clear provision of the parties' contract
NOT ALL negotiable instruments are instruments of payment – e.g. share warrants and certain bearer
debentures (long term bond with fixed interest and normally not secured) are NOT instruments of payment.
Not all instruments of payment are negotiable instruments – e.g. travelers' cheques NOT negotiable instrument.
Negotiable instruments which are instruments of payment = bill of exchange, cheques & promissory notes.
Only these governed by the Bills Of Exchange Act 34 of 1964 not other methods of payment (e.g. stop or debit
orders)
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To be viable alternatives to cash HAVE to :
be transferable without cumbersome formalities
minimum defenses that can be raised against the person claiming payment
only exceptional circumstances can the title of the holder (who has obtained them in good faith) be open
to dispute.
Bills of exchange, cheques & promissory notes all have :
- Simplicity of transfer (transferred either by simply handing it over or by signing the back before handing over
to recipient.)
- Possibility of transfer free from equities
NB normally cannot transfer a better title to someone then the title that you had or anyone with defense against
your claim will have the same defense against the person you transferred your claim to (i.e. person taking
transfer does so subject to equities) BUT law of negotiable instruments is exception to this basic principle so
therefore possible for someone to acquire a valid title to a negotiable instrument even if person he gets it from
has an invalid title to it or no title at all. Negotiable instrument is therefore free from equities.
Other Methods of Payment - credit cards, travelers' cheques, stop orders, debit orders, documentary letters
of credit, EFT's and e-money. These are not generally transferable from one person to another therefore NOT
negotiable instrument.
Credit card grants credit for certain period therefore NOT negotiable instrument. Not really suitable to pay
monthly debts such as rent and also advantage for supplier that normally will receive payment (bank
guarantees payment provided certain conditions are met) and suppler also gets business it might not have as
people are buying on credit. Bank can charge cardholders bank fees on all transactions
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