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 Yeats1 suggest
would  be better rendered by 'volledig en na sy uiterlike reëlmatig.'

1 Kontraktereg en Handelsreg 4 ed 775 footnote 261.

[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  bills5 but that is not an issue
in this case: The alterations to the cheques were patent and were in fact

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 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.

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 Ross6. 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 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.

6 Arab Bank Ltd v Ross [1952] 1 All ER 709 at 715F-716A

[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.

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  (1876) (1) Exch
Div 176 at 178
8 Electricity Printing Works (Pty) Ltd v Kathlyns Cosmetics (Pty) Ltd 1964 (4) SA 378 (N).

(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

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.

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.

12 Avtjoglou v First National Bank of Southern Africa Ltd 2004 (2) SA 453 (SCA) 458E.
13 Jones v Krok 1995 (1) SA 677 (A) at 686E-687H; Scott-King (Pty) Ltd v Cohen 1999 (1) SA 806 (W)
at 826H-827G;

J H  CONRADIE
JUDGE OF APPEAL
CONCUR:
SCOTT  JA
ZULMAN  JA
BRAND  JA
CLOETE  JA