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[2006] ZASCA 148
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A Melamed Finance (Pty) Ltd v Voc Investments Ltd (364/05) [2006] ZASCA 148; 2008 (6) SA 506 (SCA) (31 May 2006)
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REPUBLIC
OF SOUTH AFRICA
THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Reportable
Case Number : 364 / 05
In
the matter between
A
MELAMED FINANCE (PTY) LTD APPELLANT
and
VOC
INVESTMENTS LTD RESPONDENT
Coram
: SCOTT, ZULMAN, BRAND, CONRADIE et CLOETE JJA
Date of hearing
: 18
MAY 2006
Date of delivery
: 31
MAY 2006
SUMMARY
Bill
of Exchange - printed cheque with date thereon altered in manuscript
- instrument not regular on the face of it - holder thereof
not
qualifying as holder in due course.
Neutral
citation: This judgment may be referred to as:
Melamed
Finance v VOC Investments
[2006] SCA 75 (RSA)
___________________________________________________________________________
J
U D G M E N T
___________________________________________________________________________
CONRADIE JA
[1] Can the holder
of a cheque with a material alteration apparent on its face be a
holder in due course? In the court
a quo
Schwarzman J held
that, at any rate where the alteration is made after issue, he can
not. He refused leave to appeal which was granted
by this court.
[2] The plaintiff
was not a holder in due course, so the court
a quo
reasoned,
because, although it was a holder, it was not, in the words of s
27(1) of the Bills of Exchange Act 34 of 1964 (the Act),
'a holder
who has taken a bill complete and regular on the face of it'. A
change in the date on the face of each of two cheques sued
upon was
held to be a material irregularity.
[3] On 13 November
2000 the respondent's computer system generated four cheques in
favour of a payee, Damelin Textiles, all drawn
on the Standard Bank
of South Africa Ltd and bearing that date. They were intended to be
post-dated but the system used for the printing
of cheques could not
produce such cheques so the date on each was altered in manuscript to
reflect the intended date of payment and
the alteration signed by the
same two signatories who were authorized to draw the cheques on
behalf of the respondent.
[4] After the dates
had been changed, the cheques, the negotiability of which was
unrestricted, were issued to the payee who negotiated
three of them
to the appellant. One was met on presentation. The other two were
dishonoured by the bank because payment had been
stopped by the
respondent when it learnt that Damelin Textiles, contrary to its
undertaking not to negotiate them, had discounted
them with the
appellant.
[5] Section
27 of the Act provides:
'27 (1) A
holder in due course is a holder who has taken a bill, complete and
regular on the face of it, under the following circumstances,
namely—
(a) he
must have become the holder of it before it was overdue, and if it
had previously been dishonoured, without notice thereof;
and
(b) he
must have taken the bill in good faith and for value, and at the time
the bill was negotiated to him, he must have had no
notice of any
defect in the title of the person who negotiated it.
(2) In
particular the title of a person who negotiates a bill is defective
within the meaning of this Act if he obtained the bill,
or the
acceptance thereof, by fraud or other unlawful means, or for an
illegal consideration, and is deemed to have been so defective
if he
negotiates the bill in breach of faith, or under such circumstances
as amount to fraud.
(3) A
holder, whether for value or not, who derives his title to a bill
through a holder in due course, and who is not himself a
party to any
fraud or illegality affecting it, has all the rights of that holder
in due course as regards the acceptor and all parties
to the bill
prior to that holder.'
[6] The obligations
of a debtor liable on a bill to an immediate party arise also from
the transaction pursuant to which the bill
was delivered. All
disagreements arising from such a transaction may be aired when the
debtor is sued by the holder of the bill.
The holder in due course is
above and beyond all such disputes He may be met only by the
so-called absolute defences, those that
go to the root of the bill's
validity. But since an earlier party to the bill may be deprived of a
defence, the immunity of a holder
in due course comes at a price. For
one thing, the bill must be 'complete an regular on the face of it'.
The expression 'on the face
of it' means 'as far as one can tell by
looking at the front and back of it' The Afrikaans version of the
text conveys the concept
by using the words 'voltooi en oënskynlik
reëlmatig' which De Wet and Yeats
1
suggest would be better rendered by 'volledig en na sy uiterlike
reëlmatig.'
[7] The bill must
speak for itself, as Didcott J remarked,
2
' . . .unaccompanied by any external voice.' The well-established
principle that the history of the issue and negotiation of a bill
may
not be used to establish whether or not its appearance is regular was
not challenged before us.
3
It was common cause that the only permissible question was whether
each of the cheques displayed an alteration that could be said
to
make it irregular.
4
[8] Two types of
irregularity occur in bills: irregular endorsements and material
alterations. They are not treated by the law in
the same way. An
endorsement is considered to be irregular when its form is such as to
reasonably put the holder on enquiry. In
Estate
Ismail v Barclays Bank (DC & O)
1957 (4) SA 17
(T) Ramsbottom J explained that it was for assessing
the regularity of an endorsement (and not of a material alteration)
that Denning
LJ in
Arab
Bank Ltd v Ross
(1952) 1 All ER 709
(CA) at 716A -B put forward the following test:
'When is an indorsement
irregular? The answer is, I think, that it is irregular whenever it
is such as to give rise to doubt whether
it is the indorsement of the
named payee. A bill of exchange is like currency. It should be above
suspicion. But if it is asked:
When does an indorsement give rise to
doubt?, then I would say that that is a practical question which is,
as a rule, better answered
by a banker than a lawyer.'
[9] An alteration
need not give rise to suspicion before it leads to the irregularity
of a bill. It need only be apparent and material.
An apparent
alteration is one that appears from such an inspection of the bill as
might be expected from one who is accustomed to
handling bills
5
but that is not an issue in this case: The alterations to the cheques
were patent and were in fact immediately noticed by the person
who
took them on behalf of the appellant. The validity of the cheques was
unaffected by the alterations to the dates, but that is
irrelevant.
Validity and regularity are different concepts, as Denning LJ
explains in
Arab
Bank v Ross
6
A bill could be valid but irregular, or invalid but nevertheless
regular.
[10] The appellant
was driven to contending that
Estate
Ismail
had been wrongly decided or, if that were not so, that on a proper
reading of the
dicta
in the case they were meant to apply only to alterations made after
the issue of a bill. Counsel for the appellant suggested that
the
recent decision of this Court in
Sappi
Manufacturing (Pty) Ltd v Standard Bank of SA Ltd
[1996] ZASCA 123
;
1997 (1) SA 457
(SCA) effectively overruled
Estate
Ismail
by holding that the reasonable suspicion test for judging regularity
was a general one, applying to endorsements as well as material
alterations.
[11]
Sappi
Manufacturing
dealt with an inchoate endorsement. It was in this context that Hefer
JA adopted the test in
Arab
Bank
as being well established in this country. He refers without
criticism to
Mobeni
Supersave v Suleman
1992 (3) SA 660
(N) in which there are passages dealing with the
deletion of a crossing that confuse the test with regard to irregular
indorsements
and material alterations. But the passage he cites from
Mobeni
Supersave
at 671D-F deals mainly with an enquiry as to whether an alteration,
having regard to the time it was made, could be regarded as material.
He cannot thereby be understood to have approved the reasoning in
Mobeni
Supersave
generally.
This is particularly so in the light of his comment at 465B that the
reasonable suspicion test was considered inapposite
on the facts of
Estate
Ismail.
There
is accordingly no merit in the submission that the decision has been
overruled.
[12] When is an
alteration material? The answer proposed by Brett LJ in
Suffell
v The Bank of England
(1882) 9 QB 555
at 568 has been accepted ever since:
'Any alteration of any instrument
seems to me to be material which would alter the business effect of
the instrument if used for any
ordinary business purpose for which
such instrument or any part of it is used.'
7
The changes to the
dates on the two cheques altered the earliest date for their
presentment and thereby altered their business effect.
8
[13] The appellant's
second point was that the changes to the dates could in law not have
been material alterations because they were
made before the issue of
the cheques. The judge
a
quo
concluded from an examination of the cheques that the signatures to
each alteration appeared to be those of the two persons who signed
each of the cheques on behalf of the respondent drawer but held that
as far as one could tell from the cheques they might as well
have
been altered before as after issue. In my view this conclusion was
correct and suffices to dispose of the appeal. I nevertheless
think
that I should deal briefly with the legal position had the dates been
changed before the cheques were issued
[14] Section 62 of
the Act governs the liability of parties to a bill. It reads as
follows:
'
62. Effect
of alteration of bill or acceptance
.
—(1) If a bill or an acceptance is materially altered the
liability of all parties who were parties to the bill at the date
of
alteration and who did not assent to it, must be regarded as if the
alteration had not been made, but any party who has himself
made,
authorized or assented to the alteration, and all subsequent
indorsers are liable on the bill as altered.
(2) For the purposes of
subsection (1) material alterations include any alteration of the
date, the sum payable, the time of payment
and the place of payment,
and, if a bill has been accepted generally, the addition of a place
of payment without the acceptor's assent.'
[15] Realizing that
s 62 governs the liability of parties to a bill and not its
regularity, Ramsbottom J remarked in
Estate
Ismail
:
'It is true that sec 62(2) does
not give a general definition of the words "material
alteration", but it specifies certain
alterations which are
material, including "any alteration of the date", and I am
unable to understand how an alteration
which is material for the
purpose of sec 62(1) can be non-material for the purposes of sec 27
(1).'
9
[16] The 'material
alterations' contemplated by s 62 are obviously alterations after a
bill has been put into circulation;
10
those who assent to the alteration and all who become parties after
them are bound; those who do not assent are not bound. When
an
alteration is made before issue, a bill enters commercial life as
altered so the drawer and every other party to the bill is bound
by
its form: There can be no question of an alteration within the
context of s 62(1). That, however, does not mean that a material
alteration made before the issue of a bill does not affect the
position of a holder in due course.
[17] A change to the
date on a bill is, as we have seen, a material alteration because it
alters the liability of parties to a bill.
11
Disturbance of the liability of parties is also the reason that a
change of date is by s 62(2) declared to be invalid against all
non-assenting parties. But the field of application of s 62 is
different to that of s 27 and the fact that s 62 applies only to
alterations
made after issue does not mean that the ambit of s 27
should be similarly confined. As may be seen from the facts in
Estate
Ismail,
Ramsbottom J did not intend to convey that. The alteration to the
cheque in
Estate
Ismail
was made before issue. The court was fully aware of this when it
said at 26A-B:
'In the present case, the
alteration was made by the drawer of the cheque himself. That fact
affects his liability and the validity
of the cheque, but it must be
disregarded in considering whether the cheque, as a document, was
regular on the face of it when it
was delivered to the respondent as
a pledge. In my opinion it was not regular on the face of it, and the
respondent did not become
a holder in due course.'
[18] I conclude by
remarking that the appealability of the order dismissing the action
for provisional sentence was not challenged.
The appealability of an
order depends primarily on its effect.
12
An order dismissing an action for provisional sentence where the
plaintiff is given leave to enter into the principal case is
obviously
not a final order. The appellant was not given leave to
enter into the principal case and no purpose would have been served
by allowing
it to do so. The only issue between the parties had been
disposed of.
13
The order is final in effect and thus appealable.
[19] The appeal is
dismissed with costs.
J H CONRADIE
JUDGE OF APPEAL
CONCUR:
SCOTT
JA
ZULMAN
JA
BRAND
JA
CLOETE
JA
1
Kontraktereg en Handelsreg
4
ed 775 footnote 261.
2
Dependable Aluminium Windows and Doors CC v
Antoniades
1993
(2) SA 49
(N) at 52 E-F
3
The undisputed facts in the founding affidavit set out in paras 3
and 4 could therefore not be taken into account.
4
This approach imported from the English law was
accepted as correct in
Sappi
Manufacturing (Pty) Ltd v Standard Bank of SA Ltd
[1996] ZASCA 123
;
1997 (1) SA 457
(SCA) at 463C-E with approving references to
Silcan
Estate and Finance Co (Pty) Ltd v Astra Café
1973 (3) SA 7
(N) at 9A and
Dependable
Aluminium Windows and Doors CC v Antoniades
1993 (2) SA 49
(N) at 52E –F.
5
Dependable Aluminium Windows and Doors v
Antoniades
1993 (2) SA 49
(N) at
52F-G.
6
Arab Bank Ltd v Ross
[1952] 1 All ER 709
at 715F-716A
7
Quoted with approval in
Mobeni
Supersave v Suleman
1992 (3) SA 660
(N) at 677H and in
Cutfin (Pty) Ltd v
Sangio Pipe CC
2002 (5) SA 156
(D) at
160H-I; see also
Vance v Lowther
(
18
76)
(1) Exch Div 176
at 178
8
Electricity Printing Works (Pty) Ltd v
Kathlyns Cosmetics (Pty) Ltd
1964 (4)
SA 378
(N).
9
The learned judge was dealing with s 62(1) of the
Transvaal Proclamation 11 of 1902 but the wording differs only very
slightly from
that of s 62(1) of the Act.
10
Byles on Bills of Exchange
26 ed 272.
11
See footnote 4.
12
Avtjoglou v First National Bank of Southern
Africa Ltd
2004 (2) SA 453
(SCA) 458E.
13
Jones v Krok
[1994] ZASCA 177
;
1995 (1) SA 677
(A) at 686E-687H;
Scott-King
(Pty) Ltd v Cohen
1999 (1) SA 806
(W)
at 826H-827G;