Theme 2, Study Unit 2 - The demise of cheques

Question 1

What is a cheque ?

Answer 1

• A cheque is essentially a bill of exchange drawn on a bank, payable on demand.
• The drawer (the person issuing the cheque) instructs the drawee (the bank) to pay a specific sum to the payee (the recipient) upon presentation of the cheque.

Question 2

What is the function of a check ?

Answer 2

The cheque serves as an instruction for payment to be made immediately when presented, though it is not considered legal tender.

Question 3

Distinguish between a main contract and an auxilary contract.

Answer 3

• Main Contract is the underlying obligation (e.g., a contract of sale) between the parties.
• Auxiliary Contract (Cambial Contract) is the cheque itself is part of this auxiliary contract, enabling the execution of the underlying obligation by instructing the bank to transfer funds to the payee.

Question 4

What are the bank’s responsibilities ?

Answer 4

• Execution of Instructions, the bank is required to pay the cheque upon the drawer’s instructions, as long as the account has sufficient funds.
• Collection of Cheques, the bank also acts as an agent to collect cheques on behalf of the customer, facilitating payment from the bank where the cheque is drawn..

Question 5

When is a bank’s duty to pay a cheque terminated ?

Answer 5

• Countermand, the drawer has instructed the bank to stop payment on the cheque.
• Drawer’s Death/Incapacity.
• Sequestration or Prodigality, drawer has been declared insolvent or a prodigal.

Question 6

What are the challenges in the use of cheques ?

Answer 6

• Not Legal Tender.
• User-Unfriendliness.
• Limited Customer Education.
• Time-Consuming.
• Fraud Risk.

Question 7

Discuss the legal position and the decline of cheques.

Answer 7

• As of 31 December 2020, the South African Reserve Bank (SARB), Financial Sector Conduct Authority (FSCA), Payments Association of South Africa (PASA), and the Banking Association of South Africa (BASA) officially announced that the issuing, acceptance, and collection of cheques would no longer be accepted in South Africa.
• While the practice of cheque use has been phased out, the provisions of the Bills of Exchange Act (BEA) that regulate cheques have not yet been repealed or amended.