Table of contents 0 introduction 2 0 payment by instrument 3

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2.1 History and types of payment instruments 3

2.2 Collection of instruments 3


3.1 Systemic Risk: the Payment Clearing and Settlement Act 5

3.2 Settlement Risk: the Canadian Payments Act 7

3.3 CPA Rule A1: instruments acceptable for clearing in ACSS 7

3.4 CPA Rule A4: the Right to return instruments through clearing 9


4.1 Legal nature of bank deposits 11

4.2 Obligations in banker-customer contract 12

4.3 Paying instruments drawn on customer’s account 20

4.4 Collection of instruments deposited into customer’s account 23


5.1 The Concept of Negotiability 25

5.2 Formal requirements for bills, cheques or notes 26

5.3 The Requirement of Delivery 30

5.4 The liability of parties to holders 32

5.5 Certified Cheques 36

5.6 Fraudulent Instruments 40


6.2 The principle of autonomy & exception of fraud 46

6.3 Effect on underlying obligation 48


7.1 Point of sale 49

7.2 LVTS 50

8.0 Index 51


  • Marc Lemieux’s coordinates: Tel: 514. 598. 3664. Email:

  • Books held for us on reserve: 2002 ed. Bradley Crawford, “Payment, clearing & Settlement in Canada,” 2007 ed.; Professor M.H. Ogilvy, “Bank and Customer Law in Canada.” Useful books : Bradley Crawford, “Payment, Clearing and Settlement in Canada” (2002); Professor L’Heureux, “Droit Bancaire.” Me: both are in our library, and Crawford 2002 ed. is not on reserve.

  • Banks are among the most regulated businesses in the developed countries. Typically, the government allows the market to determine which businesses survive, and which don’t. Not so with banks – without government intervention, the economy would come into disrepute.

  • The banking system of the U.S.A., Canada and continental Europe are very different. In the U.S.A., banks can offer insurance – this not allowed in Canada.
  • We’ll focus on cheques – a form of negotiable paper. We’ll also look at letters of credit. Letters of credit are fundamental to international businesses. That’s what international companies and countries use to pay each other.

  • The second part of the course is on electronic instruments. Debit, credit cards, wire transfers. For very large sums, the Canadian system forces business parties to use wire transfers (cf. cheques).

1.1.1When is payment made?

  • The types of payment mechanisms we’ll study: cheques, letters of credit, electronic transfers.

  • Big questions: when is payment made – i.e. when is the obligation is discharged? Does the mere giving of the cheque release you from the obligation to pay the rent, for example? How does the instrument achieve payment?

  • The case of Collings v. City of Calgary: the Δ had a debt, repayable with the condition that the Δ’s cheque be certified by a bank. The Δ drew an instrument on Dominion Trust Co., which was not a bank but a trust company. He had the cheque certified by the Dominion Trust, and gave the cheque to the creditor (City of Calgary). By the time Calgary received the physical cheque, the Dominion Trust Co. was bankrupt. Calgary sued the Δ.. Jgmt: the obligation is not discharged by the mere handing of a cheque, since Dominion is not a bank.
  • How would this be decided in Québec? 1564 C.c.Q. : Where the debt consists of a sum of money, the debtor is released by paying the nominal amount due in money which is legal tender at the time of payment. (2) He is also released by remitting the amount due by money order, by cheque made to the order of the Cr and certified by a financial institution carrying on business in Québec, or by any other instrument of payment offering the same guarantees to the Cr, or, if the creditor is in a position to accept it, by means of a credit card or a transfer of funds to an account of the creditor in a financial institution.”

    • 1994 modernization of the C.c.Q.: 1564 C.c.Q. is weird in some respects: e.g. a cheque certified by a financial institution in Québec (why not in other provinces?)

  • There is no equivalent of 1564 C.c.Q. in CmL. Two rules: an obligation to pay money is satisfied at the delivery of legal tender. Although there is no written statute, it’s also the rule in Canadian CmL. The effect is the same as delivering money. CLARIFY THIS.

  • CRAWFORD (1243): when it is the drawer (debtor) who requests his cheque to be certified (and not the Cr who asks for certification), the drawer is not discharged from his debt (129 BEA). “The ordinary rule is that, prima facie, the delivery of a negotiable instrument as payment suspends the debt conditionally only, and the liability of the drawer revives if the instrument is not honoured upon due presentment (Holden Financial Corp. v. 411545 Ontario Ltd) It would be extraordinary if the drawer could obtain a discharge simply by procuring certification before delivering the cheque to the creditor. There is nothing to prevent the parties bargaining for the release of the drawer upon delivery of a certified cheque, however…”
  • 3-310 UCC (text 1-145): the effect of delivering a certified cheque or bank draft is equal to delivering currency: it extinguishes the debt. Unless there is an agreement otherwise btw Cr & D. If a non-certified cheque is presented, the obligation is “suspended” – during this time, you cannot be sued. If everything goes well, the cheque will go through, the money paid, and the obligation extinguished. If the cheque is not paid (bankruptcy, insufficient funds, etc..), the obligation will not be extinguished.

  • Terminology note: legal tender = money.

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