LAW 616 001 Negotiable Instruments - Polo Motor Vehicle

Introduction

Ben and Kate entered into an agreement for the purchase of VW Polo motor vehicle. In fulfilment of his obligation, Ben has a drawn a cheque for R 170 000.00 on ABSA Bank payable to Kate and delivered the said cheque to Kate. Kate has also delivered the motor vehicle to Ben. However, Kate has ceded her rights in the contract to Thandi but has retained the cheque. Ben is apprehensive that Thandi might also claim R 170 000.00.

Issues

The issue for determination is whether both Kate and Thandi can recover the R170 000.00 from Ben.

Law

Bill of Exchange Act 34 of 1964 governs cheque transactions. Cheque and the bill of exchange are both defined under section 1 of the Act. Under the Acta cheque is a bill of exchange. Section 2 of the Act provides definition of a bill of exchange and requirements for a valid of bill of exchange. Any alleged bill lacking requirements under section 2 (1) of the Act is not a bill of exchange . The bill must contain the name of the payee , sum payable  and must be payable to the bearer.

Section 15 of the Act provides for the definition and circumstances under which acceptance is deemed to have taken place. The drawee acknowledges acceptance by writing and signing the bill of exchange .Bill of exchange only becomes complete upon delivery . Upon delivery the contract is complete and the rights of the holder under section 36 and drawer’s liability under section 53 accrue.The delivery of the cheque does not extinguish the underlying obligations but holds any claim under the cheque is either paid or dishonoured and the obligation is discharged where is payment or dishonour.

Upon delivery, cheque also creates another contract between the parties enforceable on its own. Parties, thus, have co-existing underlying obligations under the main contract and a cambial obligation under the contract by the cheque with the underlying obligation being the thecausaof the contract on the instrument. In Adams v SA Motor Industry Employers Association the court explained the creation of the cambial obligation and the relationship between the cambial obligations and the underlying obligations. Cambial obligation was also discussed in Froman v Robertson and Harbinder Singh v Abalegani Supplies and Another.

Application

The cheque delivered to Kate qualifies as a bill of exchange in accordance with the Act. It complies with the requirements under section 2 of the Act. The Cheque has been delivered completing the contract and thus creating the cambial obligation. Kate has ceded her right under the sale contract extinguishing her underlying obligations under the said contract. Extinguishing the underlying obligations also extinguishes the obligations under the instrument . The contract cannot be enforced against Kate. As was held in Froman v Robertson the holder’s right to enforce a contract under the cheque will be defeated where the requisite justacausais found to have been broken .Ben also retained the right to countermand where the there is a breach of the contract . The countermanding stops any intended payment on the cheque.

Conclusion

Based on the Bill of Exchange Act 34 of 1964, Adams v SA Motor Industry Employers Association ,Froman v Robertson and Harbinder Singh v Abalegani Supplies and Another both Kate and Thandi cannot claim payment from Ben. Kate cannot choose to enforce her rights under the cheque without the existence of the contract of sale. Ben is liable to one of them under the contract and thus if may choose to countermand the cheque issued to Kate.

Bibliography

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2002. Unjustified Enrichment: Key Issues in Comparative Perspective. Cambridge University Press.

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Nagel CJ and Pretorius JT

2004. Countermanding payment of a cheque. Journal for Contemporary Roman Dutch Law HRHR67: 641-655

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2004. Introduction to the Law of South Africa. Kluwer Law International