Constantaras v BCE Foodservice Equipment (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Farlam JA, Brand JA, Heher JA, Jafta JA and Hancke AJA
• Judgment Date: 01 June 2007
• Docket Number: 208/06
• Hearing Date: 23 May 2007
• Counsel: C E Watt-Pringle SC (with L Friedman) for the appellant A A Bester for the respondent
• Court: Supreme Court of Appeal

Heher JA:

[1] This judgment concerns the personal liability of the representative of a close corporation who signed and issued a cheque on its behalf at a time when the correct particulars of the corporation did not appear on the cheque. Such liability arises by reason of the provisions of s 23(2) [1] of the Close Corporations C Act 69 of 1984 (the Act).

[2] The plaintiff sued the defendant for payment of two amounts of R65 229,25 being the face value of two cheques dated 3 October 2004 and 3 November 2004 respectively drawn in its favour and dishonoured by non-payment. Each cheque reflected the printed description of the drawer as 'Cater-Mart (Pty) Ltd 2000/001852/07' D and was signed by the defendant without an indication that he did so in a representative capacity.

[3] The plaintiff alleged that the defendant was personally liable because he failed to indicate that he was signing for and on behalf of the E

Heher JA

corporation. In the alternative, and in the event that the Court should find that he did act in a representative capacity on A behalf of the corporation, the plaintiff averred that he was nevertheless personally liable in terms of s 23(2) for the amount of the cheque because in signing the cheque the defendant did so without ensuring that the registered full name and registration number of Cater-Mart appeared on the face of the cheque. B

[4] The defendant pleaded that he signed the cheque in his capacity as the authorised signatory of Cater-Mart CC registration number 2002/020821/23 and therefore did not incur personal liability on the cheque. Alternatively the defendant pleaded rectification in the following terms: C

'[I]t was the common continuing intention of the parties to the cheque, that, by signing the cheque as the duly authorised signatory of the corporation, the defendant was merely completing the signature of the corporation and was not binding himself to be personally liable thereon, and that, accordingly, should it be held by reason of his signature of the cheque that the defendant thereby D incurred personal liability, this was a mistake common to the parties which justifies rectification of the cheque:

8.3.1

to reflect the words ''for and on behalf of'' before the words ''Cater-Mart'' and/or

8.3.2

to substitute the words ''CC 2002/020821/23'' for the words ''(Pty) Ltd 2000/001852/07''.' E

[5] The defendant also pleaded an estoppel which plea was set aside on exception and with which it is unnecessary to deal further.

[6] The plaintiff excepted to the defendant's plea on the grounds that s 23(2) is peremptory in its terms and that rectification would circumvent the statutory provision and defeat the legislative intention and was therefore not a remedy upon which the defendant F was entitled to rely. The Court a quo (Tshiqi J) agreed. Following Epstein v Bell and Another [2] the learned Judge held the defendant's liability arose from the punitive provisions of the statute and was not contractual in origin and that rectification could therefore not assist the defendant. She accordingly upheld the exception and granted judgment in favour of G the plaintiff. With her leave the defendant appealed to this Court.

[7] Counsel for the defendant submitted in support of the appeal that once rectified to reflect a signature in a representative capacity, the close corporation would stand alone as the drawer. Rectification, he contended, would not defeat the purpose of s 23(2). H Therefore it furnished a permissible remedy. Epstein v Bell was, he submitted, wrongly decided insofar as Magid J had followed distinguishable English authority.

[8] Alternatively, so counsel argued, the description of the drawer on the cheque was merely outdated. The company bearing that name and number had been converted to a close corporation. That was an I alteration in legal status without the creation of a new or separate corporate identity and was, in his submission, irrelevant to s 23(2) of the

Heher JA

Act (or to s 50(3) of the Companies Act 61 of 1973 which contains equivalent provisions in relation to officers and agents of A companies). Counsel referred to the terms of s 27(5) [3] of the Act to emphasise his submission that s 23(2) was complied with in substance if not strictly in form. He maintained that 'a simple search' in the office of the Registrar of Companies would have revealed (if the respondent did not already know of the fact) that the company had converted to a close corporation. B

[9] The plaintiff's claim arose ex lege as a remedy created by s 23(2) of the Act. The defendant relied on the defence of rectification to provide himself with an answer to the statute: the cheque duly rectified would ex tunc be regarded as complying with its terms. If the statute does not permit of reliance on C such a defence rectification will serve no purpose. The question is accordingly one of interpretation.

[10] The whole of s 23 of the Act is relevant. According to its plain wording the principal purpose of ss (1) is to ensure that in its contact and dealings with the public a close corporation discloses in unmistakable terms: D

(i)

its corporate status;

(ii)

the fact of its registration as a close corporation;

(iii)

the full name under which it is registered; and

(iv)

the number allotted to it on registration.

The purpose is achieved, in the first instance, by requiring such disclosure by the corporation E

(a)

on the outside of its registered office and every office in which the business of the corporation is carried on; and

(b)

on all notices and official publications of the corporation and in all bills of exchange, promissory notes, F endorsements, cheques and orders for money, goods or services purporting to be signed by or on behalf of the corporation, and on all letters, delivery notes, invoices, receipts and letters of credit of the corporation.

[11] The language is peremptory. A failure to comply constitutes an offence. It is clear that the offence is committed irrespective of G whether any member of the public has actually seen a relevant document or

Heher JA

whether such a person has been misled by any such document or been A aware of the absence of the required particulars or their inaccuracy. The section protects the public by ensuring that it is not exposed to the risk of being misinformed or misled by requiring objective compliance in the documents themselves. It follows that where a member of the public is involved it is irrelevant that he does or does not know the true facts relating to the company. B

[12] Section 23(2) reinforces ss (1) by imposing criminal and civil sanctions on members of the corporation and its representatives who issue or authorise the issue of the said documents and who sign on its behalf the bills, notes, endorsements, cheques and orders specified C therein. The purpose is achieved by requiring compliance before or at the time the document in question is issued or signed. Here also it is apparent that the criminal offence which ss (2) creates is committed by the objective failure to comply without the need for communication to a third party. D

[13] The personal liability to holders which ss (2) imposes on members and representatives of the corporation who contravene its terms depends upon the same default as does the offence. The only additional factum probandum is that the corporation has not duly paid the amount of the bill, note, cheque or order. The state of mind of the holder, his knowledge or intention, does not suddenly become relevant; E the mere fact of authorising or issuing a defective document in a specified category creates the liability. [4] In these circumstances, according to its terms the section creates a statutory civil penalty for non-compliance which arises independently of any contractual relationship which may exist between the holder of any document in the specified categories, the authoriser or signatory and the company. F

[14] Counsel for the appellant conceded that s 23(2) does not expressly render the state of mind of the holder of the instruments to which it relates relevant to the imposition of personal liability on the person who issues, authorises or signs the document. But, he submitted, there must be read into the section the qualification that G in order for personal liability to arise the holder must be unaware of the true facts relating to the status, registration, name and number of the corporation at the time of receiving the defective...