On 21 January 2000, a cheque dated 7 December 1999 for R325,000 was deposited at ABSA Bank into the account of Investcorp CC. The cheque was drawn by Standard Bank in favor of the respondent 'or order' and was crossed and marked 'not negotiable' and 'not transferable'. The respondent's signature and identity number appeared on the reverse of the cheque. ABSA accepted the cheque for collection, it was met by Standard Bank, and Investcorp's account was credited. The respondent had handed the cheque to Keith Scott at Scott Asset Management (Pty) Ltd with the intention that the proceeds be invested in his name on the South African Futures Exchange (Safex). Scott, Investcorp and Scott Asset Management were sequestrated and liquidated in April 2000. Scott Asset Management's registration to conduct business on Safex had been suspended on 5 October 1999. The respondent instituted action against ABSA claiming it acted unlawfully and negligently towards him as owner/payee/beneficiary of the cheque by collecting it for Investcorp's account.
The appeal was upheld with costs. The order of the court a quo was set aside and replaced with an order dismissing the plaintiff's claim with costs.
The binding legal principles are: (1) A cheque marked 'not transferable' under section 6(5) of the Bills of Exchange Act 34 of 1964 cannot be transferred in such manner that the transferee becomes the holder entitled to demand payment in his own name, but ownership in the physical cheque as a movable corporeal thing can still be transferred through delivery and real agreement. (2) Where ownership in movable property is transferred pursuant to false pretenses, ownership passes to the fraudulent party if the owner consented to the passing of ownership, even though that consent was obtained fraudulently - such transactions are voidable, not void ab initio. (3) A collecting bank cannot be held liable in delict for unlawfully collecting a cheque to a person who is no longer the owner of that cheque, as the bank's alleged unlawful conduct must be towards the owner of the cheque.
The court noted, without deciding, the question raised in Strydom NO v Absa Bank Bpk 2001 (3) SA 185 (T) regarding whether ownership of the cheque document (as opposed to whether the plaintiff suffered damage) is the correct approach to determining liability of banks in delict. The court observed this might be debated in future but did not need to address it as the case was not argued on any basis other than the appellant acting unlawfully towards the respondent as owner. The court also referenced the statement in First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 1995 (3) SA 556 (A) that a submission that a collecting bank's duty of care extends to the named payee whether or not he is the owner was 'manifestly without merit', but again did not need to decide this point.
This case is significant in South African banking and property law for clarifying the distinction between: (1) negotiability/transferability of a cheque as a negotiable instrument under the Bills of Exchange Act; and (2) ownership in the physical cheque document as a movable corporeal thing. It establishes that marking a cheque 'not transferable' prevents the transferee from becoming a holder entitled to demand payment, but does not prevent transfer of ownership in the physical document. The case also confirms the principle that where ownership is transferred by means of false pretenses, the transaction is voidable (not void ab initio) and ownership does pass if the owner consented to the transfer, even though that consent was obtained fraudulently. This has important implications for determining when a collecting bank can be held liable in delict for collecting cheques marked 'not transferable'.