A Melamed Finance (Pty) Ltd v VOC Investments Ltd

On 13 November 2000, the respondent's computer system generated four cheques in favour of Damelin Textiles, all drawn on Standard Bank. The cheques were intended to be post-dated but the printing system could not produce post-dated cheques. The date on each cheque was therefore altered in manuscript to reflect the intended payment date, and the alterations were signed by the two authorized signatories of the respondent. After the dates were changed, the cheques were issued to the payee Damelin Textiles, who negotiated three of them to the appellant. One cheque was met on presentation. The other two were dishonoured by the bank because the respondent stopped payment after learning that Damelin Textiles had discounted them with the appellant, contrary to its undertaking not to negotiate them.

• Whether a holder of a cheque bearing a material alteration apparent on its face can be a holder in due course under section 27(1) of the Bills of Exchange Act 34 of 1964
• Whether a cheque with an altered date can be considered 'complete and regular on the face of it' as required by section 27(1)
• Whether the test for irregularity of endorsements applies equally to material alterations
• Whether an alteration made before the issue of a bill affects the status of a holder in due course
• Whether the order dismissing the action for provisional sentence was appealable

The appeal was dismissed with costs.

A holder of a bill of exchange cannot be a holder in due course under section 27(1) of the Bills of Exchange Act 34 of 1964 if the bill bears a material alteration that is apparent on its face, regardless of whether the alteration was made before or after the issue of the bill. An alteration is material if it alters the business effect of the instrument for ordinary business purposes. An alteration to the date on a cheque is a material alteration as it affects the earliest date for presentment. The test for irregularity of endorsements (whether it gives rise to reasonable suspicion) does not apply to material alterations; for material alterations, the bill need only bear an apparent material change to be irregular. The requirement in section 27(1) that a bill be 'complete and regular on the face of it' is assessed solely by examining the front and back of the instrument, without reference to external evidence about its history or the circumstances of issue and negotiation.

The Court noted that validity and regularity of a bill are different concepts - a bill could be valid but irregular, or invalid but nevertheless regular. The Court observed that an order dismissing an action for provisional sentence without leave to enter into the principal case, where the only issue between the parties has been disposed of, is final in effect and thus appealable, as no purpose would be served by allowing entry into the principal case. The Court remarked that the obligation of a debtor liable on a bill to an immediate party arises from the transaction pursuant to which the bill was delivered, and all disagreements from such transaction may be aired when sued by the holder. However, a holder in due course is above such disputes and may only be met by absolute defences that go to the root of the bill's validity, but this immunity comes at the price that the bill must be complete and regular on its face.

This case is significant in South African commercial law as it authoritatively clarifies the requirements for holder in due course status under the Bills of Exchange Act. It establishes that material alterations apparent on the face of a bill, whether made before or after issue, render the instrument irregular and prevent the holder from acquiring holder in due course status. The judgment distinguishes the treatment of irregular endorsements (which require reasonable suspicion) from material alterations (which need only be apparent and material). It confirms that the field of application of section 62 (liability of parties for alterations) differs from section 27 (holder in due course requirements). The decision protects drawers and other parties from having defences cut off by holders who take bills bearing apparent irregularities, maintaining the principle that bills of exchange should be 'above suspicion' and speak for themselves without requiring external explanation.