B & H Engineering v First National Bank of SA Ltd

• Jurisdiction: South Africa
• Judge: Botha JA, E M Grosskopf JA, Smalberger JA, F H Grosskopf JA and Van den Heever JA
• Judgment Date: 11 October 1994
• Docket Number: 61/93
• Court: Appellate Division
• Hearing Date: 22 September 1994
• Citation: 1995 (2) SA 279 (A)

B E M Grosskopf JA:

This judgment concerns the rights of a banker who mistakenly pays a cheque after the drawer has countermanded payment. The matter comes to us on appeal from a judgment of Preiss J in the Transvaal Provincial Division, reported as First National Bank of SA Ltd v B & H C Engineering 1993 (2) SA 41 (T). For convenience I shall refer to the appellant as B & H or the payee, to the respondent as the Bank, and to Sapco (Pty) Ltd (the drawer of the cheque in issue) as Sapco or the drawer.

At this stage the facts are common cause. B & H and Sapco entered into a contract in terms of which B & H would manufacture certain goods for D Sapco. B & H duly complied with its obligations and delivered the goods to Sapco. Sapco drew a cheque for R16 048 in favour of B & H on the Bank, with which it had an account. This cheque was delivered to B & H, and accepted by the latter, in payment of the contract price. It is conceded that Sapco owed the amount of the cheque to B & H. Sapco countermanded E payment of the cheque before it was presented for payment. It is common cause that the countermand was unjustified. Unaware of the countermand B & H presented the cheque through a collecting bank. The Bank, overlooking the countermand, paid the cheque. In doing so it acted bona fide but negligently. In terms of the banker/customer relationship the Bank was F not entitled to debit the account of its customer, Sapco, because, as a result of the countermand, there was no proper authority from Sapco to make payment. The Bank accordingly suffered a loss of R16 048 which it sought to recover from B & H. Its action succeeded in the Court a quo. The appeal is now before us, leave having been granted by the trial Judge.

The Bank's claim is based on unjustified enrichment. In Natal Bank Ltd v G Roorda 1903 TH 298 the Court suggested, in a similar case, that the appropriate common-law remedy was the condictio indebiti (at 303). This was disapproved in Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (C) at 398D-E and 400C-D for the following reasons. A condictio indebiti lies to recover a payment made in the mistaken belief that there H is a debt owing. However, a bank paying a cheque knows that it owes no debt to the payee. Its mistake lies, not in a belief that it owes money to the payee, but in a belief that it has a mandate from the drawer to make payment. In these circumstances the appropriate remedy is not the condictio indebiti but the condictio sine causa. This analysis of the two I condictiones was followed in the Court a quo (at 44G-H). It also accords with views expressed by academic writers (see the articles quoted by the Court a quo, ubi sup) and was accepted as well founded (correctly, in my view) by both parties before us.

In Roman and Roman-Dutch law the expression condictio sine causa was apparently used in two senses. In the first place it connoted an action J which covered the same ground as three specialised condictiones, viz the

E M Grosskopf JA

condictio indebiti, the condictio ob turpem vel iniustam causam and the condictio causa data causa non secuta. Later commentators called this the condictio sine causa generalis. Then the term condictio sine causa was used also for an action which was available in certain circumstances where none of the other condictiones could be instituted. This is the condictio sine causa specialis. See, generally, De Vos Verrykingsaanspreeklikheid B in die Suid-Afrikaanse Reg 3rd ed at 29, 71; Joubert (ed) Law of South Africa vol 9 para 75. A

It is not necessary to attempt a definition of the ambit covered by the condictio sine causa specialis. On the basis that this condictio applied in the present case, both parties rightly agreed that the Bank's claim C against B & H was well founded if:

(1) B & H was enriched by receiving payment of the cheque; and,

(2) such enrichment was unjustified (ie sine causa).

The first question then is whether B & H was enriched. The factual situation was that Sapco owed B & H R16 048 and handed it a cheque for that amount. The cheque was paid by the Bank. If this payment served to D discharge Sapco's debt, B & H would have received payment of R16 048 but would have lost its claim for that amount against Sapco. B & H's net position would accordingly have remained the same. There would have been no enrichment. This was all common cause in argument. On the other hand, if the payment of the cheque did not serve to discharge the debt, B & H E would have received payment of R16 048 while still retaining its claim against Sapco. Prima facie (subject to an argument advanced on behalf of B & H) it would then have been enriched.

The main point for decision in regard to the payee's enrichment is accordingly whether the payment by the Bank discharged the drawer's debt. F To decide this question one must have regard to the effect which the giving of the cheque had on the contractual relationship between the drawer and the payee.

It is trite law that a creditor, to whom a money debt is owing, may insist on strict compliance with his contract and demand payment in cash. G However, payment by means of cheques and other negotiable instruments has become common in commercial practice and creditors normally agree to accept such payment. A number of legal rules have evolved to govern this development. In what follows I shall refer only to cheques, although most of the rules apply also to other instruments. In the first place a cheque may be intended to replace or novate the original debt. In such a case H 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 the 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 I 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. On the other hand, the creditor, having accepted a cheque, must normally defer action on his antecedent debt to allow the J cheque to be met. (See, generally, Gordon v Tarnow 1947 (3) SA 525 (A)

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A at 540-1, Adams v SA Motor Industry Employers' Association 1981 (3) SA 1189 (A) at 1199H-1200A.) If the cheque is dishonoured the creditor can take action against his debtor. In practice he would normally sue on the cheque, which would provide him with procedural and other advantages.

When a cheque is given, receipt of the money by the creditor is B accordingly deferred until the cheque is met. However, and again for practical reasons, it is not the payment of the cheque by the bank which is regarded as payment of the original debt, but the giving of the cheque, conditional on its being met in due course. This has the result that, when the cheque is met, payment of the original debt is regarded as having been made when the cheque was delivered. This is of course important C where payment has to be made at a certain time.

The acceptance of cheques in payment of money debts is a relatively recent practice and our Courts have followed the English law (see Wessels Law of Contract 2nd ed vol 2 para 2227; Adams v SA Motor Industry Employers' Association (ubi sup)). The basic rule was stated as follows in Cohen v D Hale (1878) 3 QB 371 at 373:

'It is very true that a man who takes a cheque may be estopped from proceeding to enforce payment of the debt until presentment of the cheque, and if the cheque is ultimately paid the debt is extinguished.'

Cohen v Hale was approved by Hathorn AJA in Gordon v Tarnow (ubi sup). See also Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton, and E Another 1973 (3) SA 685 (A) at 693G, where Holmes JA said:

'In general, payment by cheque is prima facie regarded as immediate payment subject to a condition. The condition is that the cheque be honoured on presentation.'

As will be noted from these two passages, the condition to which payment F is subject is stated as being that the cheque is 'paid' or 'honoured'. There was some argument before us on whether these expressions are, in the context, synonymous. In my view this is a barren enquiry. Nothing can be gained from a linguistic analysis of dicta in judgments which did not deal with a dispute in which a possible distinction between honouring a cheque G and paying one was relevant. In particular, none of these cases dealt with the effect of payment by a bank of a cheque in spite of a countermand. In my view this is a matter which falls to be decided on principle.

The fundamental point is that we are dealing with a contractual relationship between the debtor and the creditor. In law the creditor is H 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 I agreement to accept a cheque has been achieved. The creditor has been paid. Why should it matter, as between debtor and creditor, what the arrangements were between the bank and the debtor, and whether the bank has complied with these arrangements?

Mr Serrurier, who appeared before us for the Bank, accepted that the answer to this question must be found in the agreement between the J creditor and debtor when payment by cheque is agreed upon. This

E M Grosskopf JA

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