posted on 2024-11-18, 14:57authored byInaugural addresses
Inaugural lecture--Faculty of Law, Rand Afrikaans University, 29 August 1974@@The principles of the modern law of negotiable instruments are the product of an evolution spanning many centuries. Originally the cambial obligation was based on the contract of exchange. an agreement in terms of which the one party undertook to pay a certain amount of money to the other party and the latter undertook to repay or cause to be repaid the same amount of money at a different time and place and in a different currency. This contract of exchange was executed by means of a bill of exchange, which can functionally be described
as an instrument for the transfer of money. The bill of exchange, or its delivery, had no independent obligatory force. The theory of the law of negotiable instruments, at that stage, centred on the contract of exchange and the medieval writers strove to analyse and classify it within the system of the Roman law of contract. From the 17th century, the bill of exchange evolved into an instrument of credit. It became a perfectly flexible paper currency adapted to the needs of commerce and the cambial obligation was accordingly founded on the bill itself. Predominant was the idea of a litterarum obligatio. The reaction against the old theory, however. went much too far and the law of bills of exchange was no longer explained in terms of the known concepts of the law of obligations. The Kreationstheorie became popular, resting the cambial obligation not on contract but on the unilateral and abstract promise of the drawer to pay. In the bill, according to this theory, the drawer objectifies his intention to be bound to every factual holder of the instrument. This view dominated judicial thought in Europe during the nineteenth century and found its expression in English decisions then current and still inspires authors of the present day. It is, however, based on a misconception. The Kreationstheorie led to the unavoidable consequence that even a thief or finder of a lost document could, in theory, be a creditor. A corrective was thus necessary and in the effort to find this corrective the modern principles of the law of negotiable instruments were born. Originally, in terms of the different
"theories of property" that developed as a reaction to the Kreationstheorie, the mere signature of the drawer or other party is insufficient to found the cambial obligation. To found this obligation it is necessary also for the holder to acquire ownership of the document. These "theories" were not far removed from the ideas underlying the continental rules that sanction the acquisition of property in movables a non domino. Their present importance is, however, not that they offer an explanation for the creation of the cambial obligation, but that they stress the nexus between holding a bill of exchange and exercising the personal right evidenced by it. The bill of exchange is a negotiable instrument, a Wertpapier. A negotiable instrument is a document in which a personal right is incorporated in such a manner that it can be exercised through possession of the document only. Exercise of the personal right presupposes possession. Hence the axiom of the modern law: das Recht aus dem Papier folgt dem Recht am Papier. But acceptance of this axiom still leaves unexplained the source of the cambial obligation. It is one thing to give the holder in due course, who acquired a non domino, a real right, but entirely another thing to hold the drawer, acceptor or indorser of a lost or stolen document contractually liable. The cardinal objection to the Kreationstheorie is that it elevates a mere signature on a bill of exchange to a declaration of an intention to be bound. The drawer of an instrument who locks it away, has no intention to be bound and makes no such declaration. Nothing can be simpler than this. Any proper theory has to proceed from the normal situation. It can accordingly
be stated that the source of the cambial obligation is contract, but a contract whose form is dictated by the character of the bill of exchange as a negotiable instrument. It is thus concluded by delivery, which is directed both at the transfer of a real right to the document and the founding of a personal right on it. Despite the rejection of the Kreationstheorie, with its idea of the direct and abstract promise to pay, it is accepted that the cambial obligation is an abstract obligation. Abstract in the sense that it is autonomous and not dependent on the validity of the causal obligation. Vis-a-vis third parties this abstraction entails the unavailability of defences arising from the causal obligation (material abstraction). The same abstraction is found in the figures of the delegation imparfaite, the credit card, the irrevocable credit and to a lesser extent in the contract of suretyship. Between immediate parties, on the other hand, the cambial obligation is only formally abstract. This implies a shifting of proof. The creditor is discharged of the onus other than that relating to the abstract promise to pay. Between immediate
parties the rule is the availability of defences. The cambial obligation is, however, not always founded on contract. The liability of the drawer of a lost or stolen instrument to a holder in due course is not based on contract but on the protection of the legitimate confidence, or estoppel. By drawing, accepting or indorsing, the debtor creates the appearance of being contractually bound. He is held responsible for this appearance when he knowingly or negligently signed the bill of exchange. Having created the appearance of contractual liability, he is deemed to be bound contractually. Estoppel, or the protection of the legimate confidence, not only explains the acquisition of the real and personal rights in and arising from the bill of exchange, but also the principle of the unavailability of defences. Negotiation is in principle the same as cession, but with the difference that the holder in due course obtains the personal right as it is incorporated in the document. The debtor has created the appearance of his being bound strictly according to the tenor of the bill and he is held liable accordingly. This is the sense of the medieval words quod non est in cambia non est in mundo.