Methods of Payment s1

:: methods of payment ::

1.  CREDIT CARDS

“provides credit to the cardholder because the card issuer, who compensates the supplier for purchases made by the cardholder, only receives payment from the cardholder at a later stage”

{advantages} - safe for both debtor and creditor

- provides credit for a certain period to the cardholder

- (if supplier agreed with card issuer to accept cc as method) cardholder can insist on cc being accepted by supplier as method of payment

{disadvantages} - not always a very safe method for paying when ordering over the phone

-  cc is not a negotiable instrument & cannot be transferred

- 

types of cc:

Two – Party CC: / Three – Party CC:
Parties / card issuer {also the supplier} and
cardholder {client} / card issuer {bank}
cardholder
supplier
General / -large dept stores (Woolworths, Edgars, Jet) client may make purchases on credit at various stores within the chain up to a max amount prev determined by ptys
-a wholesalers card is NOT a cc (just to identify customer and track purchases) / -used by cardholder to buy merchandise from different suppliers
-card issuer enters into a contract with different suppliers who agree to accept cc when presented by holder for payment
-issuer also undertakes to reimburse supplier, for purchases made by holder - subject to conditions and a certain %
-issuer also contracts with cardholder to effect that holder may make purchases on credit subject to a limit agreed on
-when a sale is completed, the slip is completed in duplicate – supplier send to issuer who compensates and debits holders account – holder given a period in which to make payment to issuer
Particulars / Name, account number & signature of holder
Supplier name / Card issuer name
Cardholder name and account number
Legal r'ship / once holder has informed issuer about loss/theft, it implies he informed supplier too → once card issuer is informed, issuer/supplier bears the risk of loss for unauthorised payments / {are contractual in nature – governed by specific contracts}
1. r'ship btwn card issuer and cardholder
cc account is an eg of a current account
debit account: cardholder borrows $ from bank when purchasing by cc, and is given specific time in which to repay debt/instalments
credit account:cardholder will attract interest for loan made to bank – purchases are made, cardholder's loan to the bank is repaid when bank repays supplier
std practice to provide that where the card issuer has made payment in g.f, holders account may be debited, irrespective of a forged signature
can obtain insurance to protect yourself
2.r'ship btwn card issuer and supplier
governeted by express terms of agreement
std terms: card issuer will only pay supplier if card used to make purchases was walid&amount doesn't exceed max stipulated
3.r'ship btwn cardholder and supplier
supplier will be obliged to accept cc if they concluded a contract with issuer (logo on premises)
intention of ptys is that supplier will receive payment from issuer, holder won't be liable unless issuer fails to pay → holder's liability is suspended, suspension ceases when issuer fails to pay, paym can be claimed from holder then
if issuer pays → liability of holder is extinguished
holder is owner when they gain possession
{presumption arises that supplier has parted with o'ship as soon as holder has possession}

Unauthorised use of cc:

-  when the cc is used wo permission of holder

-  who is responsible for paying when cc is used by thief?

-  Std contracts concluded btwn supplier, issuer and holder usually contain the following provisions iro losses:

{in the event of theft/loss of cc, std-terms ag btwn issuer and cardholder provides:}

1.  holder bears risk of loss UNTIL SICH TIME THAT HE HAS NOTIFIED THE ISSUER (can obtain insurance)

2.  issuer bears risk of loss from MOMENT it receives notification UNTIL SUCH TIME AS THE SUPPLIER IS NOTIFIED

3.  once supplier is notified, he is OBLIGED TO REFUSE TO ACCEPT CARD AS PAYMENT FOR PURCHASES MADE – if he does accept ISSUER CAN REFUSE TO COMPENSATE

-  National Credit Act confirms trade usage and std terms relating to ptys liability for unauthorised use of lost/stolen cc

-  Act provides statutory protection to holder where he has informed the issuer of loss of card of the PIN

-  this protection doesn't apply where issuer can prove holder has acted fraudulently

2.  TRAVELLERS' CHEQUES

-  accepted worldwide and are therefore a highly suited method of payment when travelling abroad

-  no legislation which applies specifically to them

-  the q whether a travellers cheque amounts to a bill of axchange is nb → if a document qualifies, then the provisions of such Act will regulate the r'ship (if it doesn't, ptys cannot rely on the provisions of the Act)

1.travellers cheque ito which payment by issuer is made conditional on countersignature by traveller / 2.travellers cheque ito which payment by the issuer is not conditional on countersignature by the traveller
- doesn't conform to essential element of unconditionality as required by Bills Exchange Act
- an essential element of a valid cheque is that the order to the drawee bank to pay must be unconditional
-if payment is subject to condition that it must be countersigned, it is not unconditional as envisaged in Act
- vast majority of travellers cheques belong here / - does conform to requirements to requirements of bill of exchange as envisaged in Act

Theft and Loss of Travellers Cheques?

-  in order to ascertain the obligations of the ptys, you have to look at the wording of the cheque and the content of the underlying agreement btwn buyer and issuer

-  usually the purchase agreement will determine their obligations in case of theft/loss

-  generally: if travellers cheque is countersigned before presentment for payment is paid by the issuer, the purchaser of such cheque will not be able to claim a refund in the event of it being lost/stolen

-  what if it is lost/stolen before it has been countersigned? Implies that the signature of original purchaser was forged to obtain payment → purchasers claim for refund will depend on the wording of contact btwn issuer and whether the purchaser complied with all his contractual obligations

3.  STOP ORDERS AND DEBIT ORDERS

{PAYMENT IS DEBITED DIRECTLY OFF THE CUSTOMERS ACCOUNT}

STOP ORDER: IS NOT AN INSTRUMENT OF PAYMENT → RATHER A METHOD OF PAYMENT NOT A NEGOTIABLE INSTRUMENT (CANNOT BE TRANSFERRED)

PAYMENT MECHANISM USED IN CONJUNCTION WITH ACCOUNT

CONTAINS A WRITTEN INSTRUCTION FROM HOLDER ACCOUNT TO BANK TO PAY A FIXED AMOUNT ON A REGULAR BASIS TO A SPECIFIC 3RD PTY AND TO DEBIT HIS ACCOUNT WITH SUCH AMOUNT

-  typically used to pay weekly/monthly debts of a fixed amount

-  legal r'ship btwn bank and holder is based on the contract of mandate where the account holder is the mandator and bank mandatory

-  banks obligation to perform is conditional on there being sufficient funds in the holders account vs which the paid amount may be set-off

payment instruction is handed directly to the bank by the debtor, therefore:

1.  the creditor doesn't derive any rights from stop order

- stop order is an instruction by debtor to his bank to pay a specified 3rd pty a fixed amount on a regular basis

-debtor signs stop order and hands it to his bank where he holds a current account

-creditor obtains no rights vs bank/debtor since stop order results only in an obligation btwn bank and account holder

-creditor receives payment at wil of debtor and bank, and is never ensured of payment at a specific date

-if debtor revokes payment wo notifying creditor, he cannot be sued on the stop order

{cheque: results in an obligation btwn drawer and creditor, not bank, and so the creditor can sue the drawer on the cheque if the drawer has countermanded payment of it – cheque is liquid so can be enforced bmo provisional sentence, unless debtor proves the original debt is unenforceable)

2.  underlying obligation is not terminated

- when debtor gives a stop order to his bank no collateral agreement comes into existence btwn debtor and creditor

-debt owed by holder is not pd until the bank actually pd the amount to the creditor

-if the bank fails to perform the instruction, the creditor is entitled to cancel contract (breach for non-payment)

-fact that bank did have a reason for non-payment will usually mean that bank did not fulfil its obligation to its customer → customer can claim damages on grounds of breach of contract

-usually excluded since stop order form which is signed, determines that the person giving the order will have no claim vs bank if bank inadvertently fails to effect payment ito instruction

DEBIT ORDERS: AUTHORISATION BY DEBTOR TO HIS CREDITOR TO REQUEST AN AMOUNT FROM DEBTORS BANK INCLUDES AN AUTHORISATION TO THE BANK TO PAY THE AMOUNT TO THE CREDITOR

GENERALLY, THE BANK WILL PAY THE AMOUNT REQUESTED BY THE CREDITOR

-  debtor should only hand over a debit order to a creditor who can be trusted

-  used to pay weekly/monthly debts

-  creditor is obliged to deliver the debit order slip to bank, there is consensus btwn creditor and debtor that the creditor will 1st request payment through debit order system

-  creditors right to payment is therefore suspended until he has made the necessary request

-  only if debt remains unpaid after the request is made, can creditor exercise rights flowing from non-payment

similarities btwn debit order and stop order:

1.  methods of payment

2.  contain an instruction to bank where debtor has an account to pay a certain sum to creditor

3.  neither creates a collateral agreement btwn debtor and creditor (creditor cannot sue debtor if he doesn't receive payment from bank)

4.  neither is a negotiable instrument

differences btwn debit order and stop order:

Debit order / Stop order
Is not only a mandate to the bank to pay but also an authorisation to the creditor to request payment from bank / Is a mandate from the account holder to his bank to pay from his account
Is handed over to the creditor and the duty to request punctual payment rests on the creditor / Never given to the creditor
May provide for a varying amount to be deducted from account of debtor / Only be used to provide for a deduction of a fixed amount from account of debtor
Use of it suspends the creditors right to claim payment directly from debtor, his right to payment is susepended until he makes the necessary request from debtors bank / Use of it doesn't suspended the creditors right to claim payment directly from debtor

4.  LETTERS OF CREDIT

-  the use of documentary letters of credit as a method of payment developed as a result of the requirements peculiar to international trade transactions → need existed to protect the interests of both vendor/exporter and purchaser/importer

-  either pty was exposed to the risk that the other may fail to perform

-  in the interests of the ptys to obtain some measure of certainty regarding the other contracting ptys capablity and serious intention to perform prior one of the contracting ptys carrying out his obligations

-  are often other banks involved (see page 192 sg!)

how does it operate?

step 1:

-  ptys to an international trade contract agree that payment will be effected bmo documentary letter of credit

-  trade contract is referred to as the underlying agreement of the exchange agreement

-  nb principle is that the credit agreement concluded btwn the issuing bank and the beneficiary when the letter of credit is issued, is entirely separate and independent from the underlying obligations

step 2:

-  purchaser/importer arranges with the domestic bank for the issuance of a letter in favour of the vendor/exporter

-  purchaser has to complete a std application form supplied by such bank, in which the various t&c of the letter of credit are stipulated

-  (it'll pay the vendor in cash of a specified amount/accept and pay bills of exchange up to a specified amount/manner and time of repayment of debt by purchaser included)

step 3:

-  bank issues the letter in favour of the vendor reflecting the t&c stipulated by the purchaser

-  letter is forwarded to the vendor/another bank in his country

step 4:

-  if another bank is employed, this bank may confirm the letter, assuming liability towards the beneficiary to pay/advise or notify the beneficiary of the issuance of the letter of credit wo itself giving an undertaking to pay

-  letter may indicate an advising bank as the bank to which the documents must be submitted and from which payment can be obtained

-  this doesn't create a personal duty on the advising bank towards the beneficiary

step 5:

-  once the vendor receives/notified about the letter and if he agrees to the t&c, he will proceed with shipment, certification, insurance etc of such merchandise and will eventually submit all necessary documents to issuing, confirming or advising bank in order to receive payment