But the Bank Said …. Forged Cheque Problems
Posted on October 6th, 2010 by Centennial Law in Banking
As strange as it may sound, some people still use cheques. In fact, many of us find cheques highly convenient. After all, cheques are a very easy way to transfer large (or small) sums of money from one person or business to another.
Notwithstanding their convenience, cheques can be very dangerous to your financial well-being – and to the financial well-being of your bank. Traditionally, Canadian law has said that it’s up to the bank to verify your signature when a cheque is presented to the bank for payment. Traditionally, if a bank honoured a forged cheque, then it was the bank which bore the loss. Keep in mind that the Bills of Exchange Act provides that a forged cheque is “wholly inoperative.”
Not surprisingly, the banks have tried to find ways to reduce their own exposure to losses due to forged cheques. Some would be surprised to learn that the Courts have not been as cooperative in reducing that exposure as the banks would like. The recent case of SNS Industrial Products Limited v. Bank of Montreal [2010 ONCA 500] provides an example.
In the SNS case, an employee of SNS forged cheques amounting to almost $250,000 drawn on the company’s bank account. When SNS discovered the problem, it asked the bank to reimburse to it the full value of the forged cheques. In its own defence, the bank relied on a “verification clause” in the account agreement requiring SNS to notify the bank within 30 days of “any errors, irregularities or omissions.” The Ontario Court of Appeal decided that the words “errors, irregularities or omissions” did not include forged cheques. In the result, the Court required the bank to reimburse SNS for most of the monies taken from its account. The lesson: if the bank tells you that a forged cheque drawn on your account is your problem, they may be wrong.
Article provided by Centennial Law Corp.