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Case No 380/93 IN THE SUPREME COURT OF SOUTH AFRICA

(APPELLATE DIVISION)
In the matter between:

ESKOM Appellant

and

FIRST NATIONAL BANK OF SOUTHERN
AFRICA LIMITED Respondent

CORAM: CORBETT, CJ, E M GROSSKOPF, NESTADT

EKSTEEN, HARMS, JJA HEARD: 11 NOVEMBER 1994 DELIVERED: 30 NOVEMBER 1994

JUDGMENT E M GROSSKOPF. JA

2
This judgment concerns the protection granted to

bankers by sec 79 of the Bills of Exchange Act, no 34 of 1964 ("the Act").

The appellant is a juristic person created by

statute. It issued summons in the Witwatersrand Local

Division against the respondent ("the Bank"). The

appellant's main claim was one for breach of contract.

There was also an alternative claim based on delict
which, as will be seen, plays no part in the present

appeal. The allegations in the particulars of claim relating to the main claim may be summarised as follows.

The appellant was a long standing customer of the Bank at its North City Branch, Johannesburg. In terms of the contract between the parties, the Bank undertook to honour all cheques properly drawn on the appellant's account and to pay, and only to pay, such cheques according to their tenor.

In order to pay for services rendered to it by a
3 third party, the appellant drew a cheque dated 14

December 1990 on the Bank in the sum of R375 653,16.

This cheque is described as follows in the Particulars

of Claim:

"5.1 the payee was described as 'Construction

Equipment Services';
5.2 the cheque was expressed to be payable 'only to' Construction Equipment Services;
5.3 the words 'or order' did not appear after the name of the payee;
5.4 the cheque was crossed and marked 'not transferable'."

Construction Equipment Services was the name under

which a company called Rodan Machines (Proprietary) Limited conducted its business. The cheque was posted to Construction Equipment Services but was stolen. A certain Madalo opened an account at the Bank's Life Centre Branch, Johannesburg, in the name of a nonexistent close corporation called Construction Equipment Services CC. He then deposited the cheque at the Bank's Market Street Branch, Johannesburg. The Bank honoured the cheque, debited the appellant's account
4 and credited the account of the non-existent close

corporation. The appellant alleged that these actions
were in breach of the Bank's mandate in terms of the
banker-client relationship "to pay only the named

payee, Construction Equipment Services, and not to

transfer the cheque". Before the fraud was discovered

all but R176 561,07 had been withdrawn from the close

corporation's account. In March 1991 the Bank credited

the appellant's account with this amount. In the result

the appellant suffered a loss of R199 092,09, being the

difference between the amount of the cheque and the

amount recovered. The appellant claimed this amount,

with interest and costs, from the Bank.

The Bank excepted to the appellant's claims on a

number of grounds. The exception to the claim based on

delict was dismissed. As regards the main claim based

on breach of contract, the exception was that the claim

lacked averments necessary to sustain a cause of

action. This exception was based on two grounds. One

5

was dismissed by the court a quo. The other was the
only ground of exception which was upheld by the court
a quo. This ground of exception was that sec 79 of the
Act was an implied term of the mandate given by the
appellant to the Bank; that the appellant did not plead
averments to the effect that the Bank was not protected
from liability to the appellant by the provisions of
sec 79; and that without such averments, the
appellant's claim against the Bank could not be
sustained.

With the leave of the court a quo (Botha J) the

appellant now appeals against the order upholding the

exception.

To appreciate the parties' arguments it is

necessary to have regard to some of the provisions of

the Act dealing with crossed cheques. Sec 75 deals with

the manner in which a cheque is crossed, and

distinguishes between general crossings and special

crossings. In the present case the cheque was crossed

6

generally.

The effect of a crossing is set out in sec 78

which provides inter alia (in subsection (1)):

"If a cheque is crossed generally, the banker on whom it is drawn shall not pay it to any person other than a banker."

Sec 79, in so far as it is relevant, then reads as

follows:

"If the banker on whom a crossed cheque is drawn, in good faith and without negligence pays it, if crossed generally, to a banker

...the banker paying the cheque, and, if the cheque has come into the hands of the payee, the drawer shall respectively be entitled to the same rights and be placed in the same position as if payment of the cheque had been made to the true owner thereof."

As already stated this case concerns the interpretation of sec 79, and in this respect three questions were raised and argued before us, viz,

1. Who bears the onus in regard to sec 79? Must a person claiming from a bank show that the bank is not protected by the section, or must the bank invoke the
7 section and prove its applicability? The court a quo

found in favour of the Bank that the appellant was

burdened with the onus.

2. Does sec 79 apply where (as happened in the

present case) a cheque is drawn on one branch of a bank

which pays the cheque to another branch of the same

bank? The court a quo answered this question also in

favour of the Bank, holding that the section does apply

in such circumstances.

3. Does sec 79 apply to a crossed cheque which is
marked "not transferable"? This point was not dealt
with by the learned judge a quo and was apparently not
argued before him.

I propose dealing with these three questions in turn.

First question: Which party is burdened by the onus of proof?

Although this question was argued before us in general terms, it seems to me that there is a

8

possible ground of distinction between some of the

requirements of sec 79. The section operates where
payment was made in good faith and without negligence
to a banker. The requirement that payment be made to a
banker merely repeats, in effect, the general
obligation laid down by sec 78(1). Failure to comply
with it may give rise to a claim by the true owner of
the cheque in terms of sec 78(4). The further
requirements of sec 79, viz, that payment be made in
good faith and without negligence, are different. They
pertain specifically to the protection granted by sec
79. There may accordingly be a difference in the
incidence of the onus in respect of these different
issues. It is only in regard to the last mentioned
requirements that the incidence of the onus has to be
determined in the present matter. The facts bearing on
the question whether payment was made to a banker are
set out in the particulars of claim and must for
present purposes be accepted as correct. If the onus is

9

on the appellant it has made all the necessary

averments. The only issue which remains concerning
payment to a banker is the legal one which is reflected

in the second question to be answered in this judgment.

The pertinent point raised by the exception in respect

of onus is accordingly whether it was incumbent on the

appellant to allege and prove that payment was not made

in good faith and without negligence. What follows is

directed only at that question.

We are here dealing with onus in its "true and

original sense. . . namely, the duty which is cast on the

particular litigant, in order to be successful, of

finally satisfying the Court that he is entitled to

succeed on his claim, or defence, as the case may be

..." (Pillay v Krishna and Another 1946 AD 946 at 952-

3). Onus in this sense is a matter of substantive law.

See Pillay's case, supra, at 951; Neethling v Du Preez

and Others; Neethling v The Weekly Mail and Others 1994

(1) SA 708 (A) at 761C.

10 It will be recalled that the Bank contended in its

exception that sec 79 of the Act "is an implied term of
the mandate" given by the appellant to the Bank. In the
court a quo the appellant, according to the judgment,

"did not deny that the provisions of sec 79 formed part

of the contract between the parties" and the case was

decided on that basis. The court attached importance to

the agreed contractual nature of the section in finding

that it was the plaintiff (appellant) which bore the

onus of proof. The argument before us did not display

the same unanimity. Counsel for the appellant

questioned whether sec 79 was necessarily incorporated

in the contract between a bank and its customer, and

contended that, even if it were, the bank bore the onus

of proving that it was protected by the section. On

behalf of the Bank it was contended that the approach

of the court a quo was correct. The status of sec 79 as

a part of the contract, the contention proceeded, meant

that it was the customer who had to exclude the

11

application of sec 79 when suing a bank in connection with a crossed cheque.

In my view much of this debate was misconceived.
Sec 79 provides a statutory protection for bankers in
certain circumstances. It is true that sec 79 affects
the rights and obligations of parties to a crossed
cheque and thus, in a sense, modifies the parties'

contract. A banker who is, in terms of sec 79, "entitled to the same rights and . . . placed in the same position as if payment of the cheque had been made to the true owner thereof" may debit his customer's account with the amount of the cheque even although payment may have been made to somebody who was not the holder. This does not, however, arise from consensus between the parties. It arises from a legislative act. If the statutory origin of sec 79 were kept firmly in mind, no great harm would be done by regarding it as creating an implied term in the banker-customer relationship. Nothing is gained, however, by so
12 regarding it, and it may tend to mislead, as happened

in the present case. Whether or not sec 79 is deemed to
form a part of the contract between the parties, its nature and effect must be ascertained by the ordinary processes of statutory interpretation. The section cannot have a different effect depending on whether it is regarded, on the one hand, as a statute applying to the contract, or, on the other hand, as a contractual term imposed by statute.

I turn now to an interpretation of the section in order to determine where the onus lies. Before analysing the wording itself it is convenient to set out the broader context in which the section operates. It is common cause that the prime obligation of a banker towards a customer who operates a cheque account is to pay a cheque drawn on him according to its tenor (I assume that the customer's account is sufficiently in credit, or that sufficient overdraft facilities have been granted). Included in this general obligation is

13

a duty to pay to the correct person designated by the
cheque, ie, to the holder thereof (defined in sec 1 of

the Act as "the payee or indorsee of a bill who is in
possession of it, or the bearer thereof"). Where the

cheque is crossed there is an additional obligation on

the drawee banker to pay the amount of the cheque to a

banker. The drawee banker would accordingly be obliged

to pay to a banker (the collecting banker) acting on

behalf of the holder. Sec 79 disturbs this situation by

granting a drawee banker protection where he pays the

wrong collecting banker, i e, a collecting banker

acting for somebody other than the holder. In such a

case, if the drawee banker made payment in good faith

and without negligence, he is placed in the same

position as if he had made payment to the true owner of

the cheque.

It is against the above background that the

section must be read. Now, firstly, as emphasized by Mr

Thompson, who appeared for the appellant, the
14 requirements of the section are stated conjunctively -

the payment must have been made "in good faith and
without negligence". Good faith and absence of
negligence are different concepts, and the legislature

contemplated that both should be present before the

banker is relieved from liability. However, the

contemplation that both should be shown to be present

presupposes that it is the banker who bears the burden

of showing this. If the intention had been to burden

the customer (drawer) with the onus the requirements

would have been expressed disjunctively. The drawer

would not have been required to disprove both

requirements but only one. The drawee bank would not be

entitled to the protection of the section if its

payment had been either negligent or in bad faith. If

the onus had been intended to be on the drawer one

would therefore have expected the section to provide

that the drawee bank would be relieved from liability

unless it acted in bad faith or negligently. The
15
wording of the section therefore supports the view that

the onus is on the banker to invoke the section and to
prove its applicability.

A further feature which points in the same

direction is that the facts which show that a banker

did or did not act in good faith and without negligence

are peculiarly within his own knowledge. It is

consequently reasonable to suppose that the legislature

would more readily impose on the banker the onus in

this regard than on the customer, who would normally have no knowledge of the bank's internal workings. It has often been said that determining the incidence of the onus of proof "is merely a question of policy and fairness based on experience in the different situations". (Wigmore as quoted in Mabaso v Felix 1981 (3) SA 865 (A) at 873C and During N 0 v Boesak and Another [1990] ZASCA 51; 1990 (3) SA 661 (A) at 673A). As a matter of fairness and sound judicial policy it seems reasonable that, where one party has the means of establishing a
16 particular fact and his opponent not, the onus should

rather be on the former than on the latter. Although

this factor would not be conclusive it should, in my

view, be accorded some weight. It was taken into

consideration in Mabaso's case, supra, at 873E-F in

determining the onus in civil cases where a defendant

relies on self-defence as a justification for what

would otherwise be an assault.

In this regard we were referred to Gericke v Sack

1978 (1) SA 821 (A) which, it was contended, was in

conflict with what I have said above. This was a case

in which a defendant raised a plea of prescription to

a claim in delict. In terms of sec 12 (3) of the

Prescription Act, 68 of 1969, such a debt is not

deemed to be due, and prescription does not commence

running, "until the creditor has knowledge of the

identity of the debtor and of the facts from which the

debt arises...". The defendant accepted that the

general onus of establishing his defence of

17

prescription rested on him. He contended, however, that
the facts relating to the commencement of prescription
were peculiarly within the knowledge of the plaintiff,

and that the plaintiff should bear the onus of proving

those facts.

This court accepted (at 827 C-D) that it will at

times be difficult for a debtor who pleads prescription

to establish the date on which the creditor first

learned his identity, or, for that matter, when he

learned the date on which the delict had been

committed. The judgment then proceeded as follows (827

D-G):

"But that difficulty must not be exaggerated. It is a difficulty which faces litigants in a variety of cases and may cause hardship - but hard cases, notoriously, do not make good law. it is not a principle of our law that the onus of proof of a fact lies on the party who has peculiar or intimate knowledge or means of knowledge of that fact. The incidence of the burden of proof cannot be altered merely because the facts happen to be within the knowledge of the other party. See R v Cohen, 1933 T.P.D. 128. However, the Courts take cognizance of the handicap under which a litigant may labour where facts are within the exclusive

18

knowledge of his opponent and they have in consequence held, as was pointed out by INNES, J., in Union Government (Minister of Railways) v Sykes. 1913 A.D. 156 at p. 173, that

'less evidence will suffice to establish a
prima facie case where the matter is
peculiarly within the knowledge of the
opposite party than would under other
circumstances be required.'
But the fact that less evidence may suffice does
not alter the onus which rests on the respondent
in this case."

It will immediately be apparent that this was not a case where the court was called upon to determine de novo where the onus lay. All participants accepted that
as a matter of law the defendant had to prove his defence of prescription. The only question was whether this situation was changed in respect of certain elements in his defence where the facts were peculiarly within the knowledge of the plaintiff. That is why the court approached the question in issue as being whether the incidence of the onus could be altered where the facts happen to be within the knowledge of the other party, and it answered this question in the negative.

19

Cohen's case, to which the court referred, was similar.

There the court held that the onus in a criminal case
did not pass to the accused where the facts in a
particular case were peculiarly within his knowledge.
Clearly, as the court said in Gericke's case, it is not
a principle of our law that the onus of proof of a fact
lies on the party who has peculiar or intimate
knowledge or means of knowledge of that fact. The
incidence of the onus is determined by law. In many
cases the person burdened by the onus as laid down in
the sources of our law may be required to prove a fact
which is peculiarly within the knowledge of his
adversary. This does not, however, mean that a court,
where the incidence of the onus of proof in a
particular situation is uncertain and has to be
determined, may not have regard, inter alia, to matters
of practical convenience and fairness such as the

sources of knowledge available to the rival parties.
There is accordingly no conflict between the cases of
20

Mabaso v Felix and Gericke v Sack as suggested by
Hoffmann and Zeffertt in The South African Law of
Evidence 4 ed (1988) 511-2.

In argument before us counsel for the Bank,

relying mainly on Eagle Star Insurance Co Ltd v Willey

1956 (1) SA 330 (A) at 334D-H, contended that the

question of onus should be approached in the following

manner. The court should, he said, determine whether,

on the one hand, sec 79 created an exception to the

banker's liability, or, on the other, it formed a part

of the definition of his liability. In the former case

the onus would be on the Bank, in the latter on the

appellant. In determining this matter the important

consideration was

"... whether the exception is as wide as the promise, and thus qualifies the whole of the promise, or whether it merely excludes from the operation of the promise particular classes of cases which but for the exception would fall within it, leaving some part of the general scope of the promise unqualified." (Munro, Brice & Company v War Risks Association Ltd and Others (1918) 2 KB 78 at 88-9, followed in the Eagle Star

21 Insurance case at 334E.

In the present case, the contention proceeded, the
exception is as wide as the promise. The banker's
obligations are modified by sec 79. His duty is to pay
a crossed cheque in good faith and without negligence,
to a banker. We are accordingly not dealing with a true

exception but with a part of the definition of the
banker's liability, and the onus should be on the

appellant.

I do not agree. First, the Eagle Star case dealt

with the interpretation of a written contract of

insurance. I do not think the same considerations

necessarily apply to a statute which engrafts

qualifications onto a common law contract. Second, and

in any event, as is emphasized in the Eagle Star case

at 334H (para 5), a promise with exceptions can

generally be turned by an alteration of phraseology

into a qualified promise. One must consequently look at

the form in which the contract is expressed. In the
22 present case sec 79 provides relief to a banker from

his normal obligations if certain features are present.

Prima facie this seems to me to create an exception.

This conclusion is fortified by the wording of the

section and the considerations of fairness discussed

above. The present is in my view eminently the type of

case to which the following passage from Pillay's case,

supra at 952, refers:

"Where the person against whom the claim is made

is not content with a mere denial of that claim, but sets up a special defence, then he is regarded quoad that defence, as being the claimant: for his defence to be upheld he must satisfy the Court that he is entitled to succeed on it."

I come to the conclusion therefore that the onus

of proving, for purposes of sec 79 of the Act, that

payment was made in good faith and without negligence,

lay upon the Bank.

Second question: Does sec 79 apply where the collecting

bank and the drawee bank are branches of the same

institution?

23

Sec 79 applies only where "the banker on whom a
crossed cheque is drawn ... pays it ... to a banker." This language is apposite to the situation where two banks are involved. In such a case the holder of the cheque hands it for collection to the collecting bank; the collecting bank presents it for payment to the drawee bank; the drawee bank pays it to the collecting bank and debits the drawer's account; and the collecting bank receives the money and credits the holder's account.

The language of the section does not, however, cover with equal felicity the situation where one bank, whether in one or several branches, acts both as collecting banker and as paying banker. In such a case the procedure would, in practice, simply be that the holder hands the cheque for collection to his bank, which is also the drawee bank; and that the bank then debits the drawer and credits the holder. Only with some difficulty can this be regarded as payment by a

24

banker to a banker.
Our legislation on bills of exchange was modelled on that of England, and, in particular, on the Bills of Exchange Act, 1882. For present purposes there is no material difference between our statute and the English one. Nevertheless, and despite the linguistic difficulties, there is strong authority in England for the proposition that a bank may at the same time be both collecting banker and paying banker. See Gordon v London, City and Midland Bank Ltd (1902) 1 KB 242 at 274-5 and 281 and Carpenters' Co v British Mutual Banking Co Ltd (1938) 1 KB 511 at 537-539. English text-books have followed these cases without criticism. See Ryder and Bueno, Byles on Bills of Exchange 26 ed (1988) 311-2; Guest, Chalmers & Guest on Bills of Exchange 14 ed (1991) 647 and 651; Hapgood, Paget's Law of Banking 10 ed (1989) 427, 452-453; and Halsbury's Laws of England, 4 ed Reissue vol 3(1) para 167 footnote 3, and 214. The reason is a practical one. If

25

the drawer of a crossed cheque and the holder are both

customers of the same bank, what is the bank to do? In
terms of sec 78 (1) of our Act (corresponding to sec 79
(2) of the English Act) the drawee banker "shall not
pay it to any person other than a banker". If he cannot
in effect act both as collecting banker and as paying
banker he would have to insist that his customer, the
holder, open an account with another bank to enable
that bank to act as collecting banker (see the
Carpenters' case, supra, at 538). Since banking
business in England, as in this country, is
concentrated in the hands of relatively few
institutions, and it frequently occurs that the drawer
and the holder are customers of the same bank, a
literal interpretation of sec 78 (1) and its English
counterpart would render the use of crossed cheques
impractical. And the purpose of the rules concerning
crossed cheques is served as well where the collecting
bank and the paying bank constitute one entity as where

26 they are separate ones. In both cases the holder

collects the payment through a bank, which can be

expected to ensure that payment is made to the right

person.

The English cases have been accepted as good law

in South Africa by Cowen and Gering, Cowen on the Law

of Negotiable Instruments in South Africa 4 ed (1966)

424 where the following is stated:

"If a customer draws a cheque payable to another customer of the same bank, and crosses it generally or specially to that bank, the bank is both the paying and the receiving bank, and pays to a banker within the meaning of the Act by debiting the drawer and crediting the payee. Similarly, where a crossed cheque is drawn on one branch, and handed to another branch of the same bank for collection, payment to the collecting branch complies with the Act."

This question has also been considered in two cases in

South African courts, but for convenience I deal with

them later.

In argument before us Mr Thompson accepted on the

strength of the above authorities that, for purposes of

27

sec 78 (1) of the Act, it would be possible for a
single bank to be both the collecting banker and the paying banker. He contended however that in such a case the banker would not, qua paying bank, be entitled to the protection of sec 79.

The first point made in this regard was that there is a difference in the wording between the two sections. Sec 78 (1) is expressed in negative terms: a banker is not entitled to pay a crossed cheque "to any person other than a banker". Sec 79, on the other hand, is expressed positively: protection is granted if the banker "pays it to a banker". In my view nothing turns on this difference. Every person to whom payment may be made for purposes of sec 78 (1) is either a banker or a person other than a banker (for brevity called a non-banker) . This classification is, by its very nature, exclusive. There cannot in logic be a third category of persons who are neither bankers nor non-bankers. Accordingly, since a paying banker may not pay to a
28 non-banker, he must, if he pays anybody, pay to a

banker. It further follows that, if a banker acting
both as collecting banker and as paying banker pays the
holder of a crossed cheque, this can only comply with

sec 78 (1) if he is regarded as having paid a banker.

This is exactly the same enquiry as in section 79.

There also what must be ascertained is whether payment

was made to a banker. There is accordingly nothing in

the language to suggest that there is any difference in

this enquiry depending on which section is in issue.

Moreover it is clear that the sections of the Act

dealing with crossed cheques form a coherent whole.

Section 78 prescribes the duty of a banker regarding

the payment of crossed cheques. Section 79 grants

protection to a banker who complies with this duty in

good faith and without negligence. It would be a

strange anomaly if the two sections dealt with

different types of payment. At the very least such a

distinction would have required clear language, which,

29

as I have indicated, is not present here.
In further support of his distinction between sec 78(1) and 79 Mr Thompson submitted that only Gordon's case, supra, dealt specifically with the English counterpart to sec 79 (sec 80 of the English Act) and that there is also authority to the contrary in Lacave & Co v Credit Lyonnais [1897] 1 QB 148. I do not agree that the latter case supports the appellant's contention. The facts there were as follows. The defendant bank in that case had two branches, one in London and one in Paris. A cheque was drawn on the branch in London in favour of the plaintiffs. After various vicissitudes the cheque came into the hands of a certain Ponce, who handed it to the Paris branch of the bank for collection. The London branch paid the Paris branch which in turn paid Ponce. The plaintiffs, who admittedly were the true owners of the cheque, then sued the bank for conversion, i e, for dealing unlawfully with their property (for a discussion of the

30

principles of conversion in English Law and a

comparison with our law, see Leal & Co v Williams 1906 TS 554; John Bell & Co Ltd v Esselen 1954 (1) SA 147 (A) at 152C-154H). The bank defended the action and contended "that, so far as their conduct is impugned by reason of their having cashed or paid in London a cheque, crossed, and so drawn on them, and coming to them from another bank, they are within the protection of the 80th section of the Bills of Exchange Act. . ." (p 153). This defence was upheld (p 153-4) and the court proceeded to consider (at p 154) "whether there is any other part of the conduct of the defendants which can be made the subject matter of an action in England". This obviously entailed problems of conflict of laws with which we are not concerned. The final conclusion was that the actions of the Paris branch amounted to conversion for which the defendant bank could be held liable in England. Thus, to sum up, qua paying bank the defendant was protected by sec 80 of the English Act,

31

but qua collecting bank it was unprotected and had to
pay. This is a clear recognition that a bank can properly act in both capacities without losing its protection under sec 80 of the English Act.
I turn now to the two South African cases on this point. The first was Allied Bank Limited v Standard Bank Limited, an unreported judgment delivered by Stegmann J in the Witwatersrand Local Division on 8 October 1992. In this case it was held that where a bank acts both as collecting banker and as paying banker it is not protected by sec 79 of the Act. Stegmann J came to this conclusion without reference to authority. In Hollandia Reinsurance Co Ltd v Nedcor Bank Ltd 1993 (3) SA 574 (W) Goldblatt J expressed doubts about the correctness of the judgment in the Allied Bank case but found it unnecessary to come to a definite decision on the point.

The position may be summed up as follows. The language of sections 78 and 79 suggests that the

32

sections require payment of a crossed cheque to be made

by one bank to another. On the other hand, it would not place an intolerable strain on the language to permit one bank to be both collecting banker and paying banker and the exigencies of commerce would be best served by such a construction. The English courts have consistently over a long period followed the practical course by recognising such a dual capacity, and this has been approved without question by the authors and editors of standard text-books, in England as well as here. The only authority to the contrary is the judgment in the Allied Bank case, in which, as I have said, no previous authority on this point was considered. Not only is our Act for present purposes the same as that in England, but our commercial and banking systems also do not differ materially. In these circumstances I consider that we should follow the English authorities, which in my view provide a reasonable and practical answer to this problem.

33
My view is accordingly that the Bank, which acted

both as collecting banker and as paying banker in the
present case, did not thereby forfeit the protection of

sec 79 of the Act.

Third question: Does sec 79 apply to a crossed cheque ,

which is marked "not transferable"?

The effect of marking a cheque "not transferable"

derives from sec 6(5) of the Act, which reads:

"If a bill contains words prohibiting transfer, or indicating an intention that it should not be transferable, it is valid as between the parties to the bill, but is not negotiable."

The word "negotiable" is used in different senses in

the Act. See Cowen & Gering, op cit, 5 ed Vol 1 3-4,

Standard Bank of S A Ltd v Sham Magazine Centre 1977

(1) SA 484 (A) at 493E-H . In sec 6(5) it means

"transferable" (Sham Magazine case, loc cit).

Consequently, "... if the drawer wishes to render a

cheque completely non-transferable ... he could boldly

write or print across the face of the cheque the words

34

'not transferable', so that he who runs may read."
(Ibid 504H-505A). Since the cheque is not transferable, the drawee bank would act contrary to its customer's instructions if it were to pay the cheque to any person other than the named payee, see Volkskas Bpk v Johnson 1979 (4) SA 775 (C).
If a cheque is crossed generally, the drawee bank may not pay it to any person other than a banker, as has been discussed above. Therefore, if a cheque is crossed generally, and in addition bears the words "not transferable", the drawee bank is instructed:

(a)	to pay the cheque only to the named payee; and
(b)	to pay the cheque to a banker.

The drawee bank can comply with both these instructions by paying to a banker acting on behalf of the payee (Volkskas Bpk v Johnson, supra, at 779G, Sinclair, 'Liability of a Drawee Banker on a Non-transferable Cheque', 1979 Annual Survey 324 at 326, Pretorius, 'A Transferable 'Non-transferable' Cheque?' 1984 SAW 250
35 at 251-2). For present purposes I need not consider

whether a bank may also properly (or, at any rate, with

impunity) pay such a cheque to the true owner or his

agent personally, as suggested by Malan (assisted by De

Beer) in Bills of Exchange, Cheques and Promissory

Notes in South African Law (1983) para 349.

What then is the position if the payee bank pays such a cheque to a banker who does not act on behalf of the payee? Is the drawee bank then protected by sec 79?

This question arose for decision in Gishen v

Nedbank Ltd 1984 (2) SA 378 (W). In that case Goldstone

J held (at 382 F-G):

"In my opinion there is nothing in s 79 which renders its provisions inapplicable to a nontransferable cheque and no reason occurs to me for giving the words thereof a restrictive meaning."

He added (at 382G)

"... the customer using the device of crossing a cheque can hardly complain if the provisions of the Act in relation to such a crossing are applied according to their tenor."

Although the correctness of this decision has been
36 questioned (see e g Cowen & Gering, op cit, 5 ed Vol 1

210) nobody has disputed that it does give effect to
the clear language of the section (cf Pretorius, op

cit, at 253 and, in a publication prior to the decision

in Gishen's case, Oelofse, 1982 Modern Business Law vol

4 52). In Bonitas Medical Aid Fund v Volkskas Bank Ltd

and Another 1992 (2) SA 42 (W) at 47 D-F, the court,

although doubting whether sec 79 was intended to cover

the situation where a cheque is marked "not

transferable", nevertheless held that the plain wording

of the section served to protect a bank in such a

situation. The doubts about the applicability of sec 79

in such cases are consequently based, not on the

language of the section, but on the anomalous results

that are said to flow from its application.

The main authority quoted by counsel for the

appellant as support for his contention that Gishen's

case was wrongly decided, was Oelofse, op cit.

Oelofse's contribution was a review of the text-book
37 Wisselreg en Tjekreg by Malan and De Beer (a version in

Afrikaans of the work quoted above). At p 52 Oelofse

writes:

"Die skrywers is van oordeel ... dat a 79 ook op die nie-oordraagbare tjek van toepassing is. Die skrywers staan nie alleen in hierdie opvatting nie en indien a 79 letterliik beskou word, kan 'n mens ook tot geen ander gevolgtrekking kom nie."

The learned reviewer then considers some of the

anomalies flowing from the application of sec 79 to

non-transferable cheques (to which I return shortly)

and concludes (ubi sup):

"Dit lyk of die wetgewer nooit die nie-oordraagbare tjek in gedagte gehad het met die verordening van art 79 nie. Hierdie aspek is een

van die wat die hersiening van die wisselwetgewing nodig maak."

Oelofse's view, expressed before the decision in

Gishen's case, consequently does not seem to be that

sec 79 is inapplicable to non-transferable cheques, but

rather that de lege ferenda it should be rendered

inapplicable. This does not provide any real support

for the contentions advanced on behalf of the

38

appellant.

A fuller critical discussion of Gishen's case is

to be found in the article by Pretorius (op cit at

253). He commences by saying

"The finding that s 79 of the [Act] is applicable to a 'non-transferable' cheque is probably correct on a strict interpretation of the section."

As authority for this proposition he quotes the above

mentioned English version of Malan and De Beer's work

at para 334 where it is stated

"Section 79 governs the payment of all crossed cheques, including those that are 'non-transferable'."

From this point of departure Pretorius then considers

various issues that arise from the application of sec

79 to non-transferable cheques. For present purposes I

propose concentrating on the anomalies pointed out by

the learned author.

The main anomaly is that, if sec 79 is applicable

to non-transferable cheques, a drawer would be better

39

protected by an uncrossed non-transferable cheque than

by a crossed one. The drawee bank is obliged to pay an uncrossed non-transferable cheque to the named payee and only to him. On the other hand, if the cheque is crossed, the bank is protected by sec 79 if it pays to a bank which is not acting for the payee, provided the paying bank acts in good faith and without negligence. This same anomaly was mentioned by Oelofse (loc cit). I do not think this anomaly is as serious as is suggested. A drawer who marks his cheque "not transferable" has the advantage that the drawee bank should pay only to the named payee. If the cheque is not crossed such payment may be made over the counter. Indeed, there is a school of thought that such a cheque may not be paid to a collecting bank, but must be paid to the payee personally (Sinclair, op cit, 326, Pretorius, op cit, 254)). A drawer may therefore cross his non-transferable cheque to ensure that it is paid only through a bank, thus providing some assurance that

40

payment will be made to the correct payee. If sec 79 is
applicable he will lose his absolute right to insist on payment to the correct payee, but he may consider that he is compensated for this loss by the practical consideration that in the ordinary course his cheque will be paid properly and that he may be saved disputes with his bank over whether an uncrossed cheque was paid to the right person.

In this regard Goldstone J commented in the passage quoted above that it is the customer who chooses to cross his cheque and thereby to accept the advantages and disadvantages of such a crossing. This proposition was criticized by Pretorius (op cit, p 255) who points out that, in terms of sec 76(2) of the Act, the holder of an uncrossed cheque may cross it. The payee of a non-transferable cheque may therefore cross it and thereby (through the operation of sec 79) erode the intention of the drawer that only the named payee should be paid.

41 I do not think this criticism is valid. Although

it would be competent for a payee of a non-transferable
cheque to cross it, this would happen so seldom in
practice as to be hardly worthy of consideration. And

if it were to happen, I do not think the drawer would
be concerned about any erosion of his intention. The
payee cannot cross the cheque unless it has come into

his hands. If he then crosses it, and if sec 79 were to

be applied, "... the drawer shall ... be entitled to

the same rights and be placed in the same position as

if payment of the cheque had been made to the true

owner thereof." The payee would accordingly have

received the cheque and in law he would be deemed to

have been paid in accordance with the wishes of the

drawer. If the payee was not in fact paid, e g because

the cheque was stolen after he had crossed it, he would

only have himself to blame if the drawer and the paying

banker are protected by sec 79.

Finally, in assessing the weight of the anomaly
42 which I have been discussing (viz, that if sec 79 were

applied also to a non-transferable cheque a drawer
would be better served by leaving it uncrossed), it

must be emphasized that the banker is not protected if

he acts negligently. And in determining whether the
paying bank was negligent one cannot leave out of

account, I consider, that the paying bank was dealing

with a non-transferable cheque. See Cowen and Gering,

op cit 5 ed Vol 1 213, Malan and De Beer, op cit, para

349, Pretorius, ubi sup, p 254.

A further point made by Pretorius (at p 256-7 -

see also Sinclair,op cit, 325) is that sec 79 was

intended primarily to protect the drawee bank against

forged endorsements. Since there is no real possibility

of a forged endorsement on a non-transferable cheque,

there is, it would seem, not the same reason to protect

the paying bank from the consequences of payment to the

wrong person. This may well be correct, but it does not

follow that a bank would never need protection against

43

paying a person falsely pretending to be the payee of

a non-transferable cheque, as the facts of the present case illustrate.
To sum up, the language of section 79 is clear and unambiguous. The only reason suggested from departing for it is the existence of certain anomalies. The main anomaly lies in the difference in the rights of the drawer depending on whether the non-transferable cheque is crossed or not. However, the remedy is in his own hands - he need not cross the cheque if he wants to exclude the protection of sec 79. And, in any event, for the reasons set out above, I do not consider that the anomalies mentioned are so serious as to amount to an absurdity or as to indicate with sufficient certainty that the language of the section does not reflect the intention of the legislature (see e g Summit Industrial Corporation v Claimants against the Fund Comprising the Proceeds of the Sale of the MV Jade Transporter 1987 (2) SA 583 (A) at 596G-597B; S v
44 Tieties [1990] ZASCA 4; 1990 (2) SA 461 (A) at 463C-464F).

I consider therefore that sec 79 does apply to crossed cheques marked "not transferable".

In the result the first question has been answered in favour of the appellant but the other two in favour of the Bank. Nevertheless it is clear that the appellant has achieved substantial success before us, since the question on which he has succeeded (relating to the incidence of the onus of proof) is fundamental to the fate of this appeal. It follows that the exception should have been dismissed in the court a quo.

The following order is made:

(a)	The appeal is upheld with costs.
(b)	The order of the court a quo is set aside and the following substituted:

45 "The exceptions are dismissed with costs."

E M GROSSKOPF, JA

CORBETT, CJ NESTADT,JA EKSTEEN, JA HARMS, JA Concur

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