F W A Lutzkie NO and Another v Zenith Concessions Limited

The respondent (Zenith Concessions Limited) drew a cheque for R2 million in favour of the appellants on 26 November 1997 in payment of part of the purchase price for shares sold under an agreement dated 25 September 1997. The total purchase price was R7,450,000 payable in tranches. The cheque was presented for payment two days later and was dishonoured. The appellants sued for provisional sentence on the cheque, with the summons served on 20 March 2001, more than three years after the underlying debt became due. The respondent raised various defences including that both the underlying debt and the debt arising from the cheque had prescribed.

• Whether a debt arising from a cheque prescribes simultaneously with the underlying debt upon which the cheque was issued
• Whether the six-year prescription period in section 11(c) of the Prescription Act 68 of 1969 for debts arising from bills of exchange applies independently of the three-year prescription period for the underlying debt under section 11(d)

1. The appeal was upheld with costs including costs of two counsel. 2. The order of the court a quo was set aside and substituted with an order dismissing the defence of prescription with costs. 3. The action was remitted to the court a quo for determination of the remaining issues.

A debt arising from a cheque (bill of exchange) does not prescribe simultaneously with the underlying debt upon which it is founded. The Prescription Act 68 of 1969 provides for different prescription periods for different types of debts. A debt arising from a bill of exchange prescribes after six years in terms of section 11(c), while the underlying debt may be subject to a different period (such as three years under section 11(d)). These prescription periods operate independently, and the legislature clearly intended this differentiation. A 'debt arising from a bill of exchange' means a debt which has its source or origin in a bill of exchange, and such debt is governed by its own prescription period regardless of whether the underlying debt has prescribed.

The court confirmed the principle from Froman v Robertson 1971 (1) SA 115 (A) that a cheque must be founded upon justa causa debendi to be valid and enforceable, and a claim for enforcement will be defeated if the requisite justa causa was lacking or has failed (for example, where the underlying contract was voidable, illegal, or there has been failure to perform). However, the court distinguished between defences based on lack of causa (which would defeat the claim on the cheque) and defences based on prescription of the underlying debt (which do not affect the independent prescription period applicable to the cheque itself).

This case is significant in South African commercial law as it clarifies the relationship between the prescription of an underlying debt and the prescription of a debt arising from a negotiable instrument (cheque). It establishes that despite the dependence of a cheque on the underlying causa, the two debts have independent prescription periods as specified in the Prescription Act. This prevents a party from avoiding liability on a cheque simply because the underlying debt has prescribed, provided the claim on the cheque is brought within the six-year period prescribed for bills of exchange.