Bank Account Operation

AuthorM.H. Ogilvie
ProfessionChancellor's Professor and Professor of Law, Carleton University
The account governed by contract is the central depository in relat ion
to which the bank and customer agreement operate s. Historically, the
common law recognized this in the implied terms of th at agreement,
which def‌ined their legal relationship pr ior to the use of express ac-
count agreements in the late twentieth cent ury. Those four implied
terms are: (i) the implied duty of the bank to honour cheques and re-
pay deposits;1 (ii) the implied duty of the bank to collect cheques and
other payment instr uments;2 (iii) the implied duty of the bank to ren-
der statements of account periodically or on demand to inform the cus-
tomer of the historical perform ance of the f‌irst two duties;3 and (iv) the
implied duty of secrecy in relation to the customer’s affairs which the
bank came to know as a re sult of transactions in the account.4 These
four terms continue to be appropriate organizing principles for the dis-
cussion of the legal rules relating to account operation that will be
examined in this c hapter.
These rules and the legal st andards of care governing account oper-
ation were originally formulated when customer in structions to a bank
1 See Section C, b elow in this chapter.
2 See Section D, below in t his chapter.
3 See Section E, below i n this chapter.
4 See Section F, below in thi s chapter.
were given orally, often in person, or in writing and us ually by cheque.
Today such instructions are more likely to be given elect ronically. Some
comparative statistics published by the Canadian Payments Associa-
tion (CPA) demonstrate the transition from paper to electronic trans-
actions.5 Measured by volume, in 1985, 97.6 percent of transactions
were by paper; in 1995, 61.8 percent were by paper; in 2005, 22.5 per-
cent were by paper; and in 2011, 14.1 percent were by paper. Measured
by value, the transition is also evident but not so dramatic: in 1985,
99.6 percent of value was transmitted by paper; in 1995, 98.3 percent
was by paper; in 2005, 68.2 percent of value was by paper; and in 2011,
22.3 percent of value was transm itted by paper. Cheques continue to be
used for larger transact ions, transactions at a distance and in person-
to-person payments, so t he transition in relation to the amount of value
f‌lowing through the clear ing system is slower than the transition in
relation to paper payment instructions.
Despite the signif‌icant movement to electronic banking in the past
twenty years, the legal r ules developed in the era of paper banking re-
main fundament al to the legal relationship between bank and customer.
Whether given electronically, orally, or by paper, a customer’s instruc-
tions require the bank to execute them on the customer’s behalf; these
are simply different communication methods t hat a customer may use to
convey instructions about account operation to a bank. The legal stan-
dards of care relating to bank and customer remain the same in law
notwithstand ing the method of communication employed. There are, of
course, specif‌ic legal rules t hat are applicable to specif‌ic methods of com-
munication, but the fundamental pr inciples of the common law continue
to undergird the legal relationship bet ween bank and customer.
The legal principles discuss ed in this chapter relate to paper-based
banking and remain relevant for all such transactions; cheques con-
tinue to be used in vast numbers today and customers still bank i n per-
son at their branches. The legal principles discussed in the succeeding
chapters relate to electronic banking, yet they were formulated in rela-
tion to and built upon the principles discussed here. To date, there is
very little casel aw on electronic banking and even less legislation, so
the courts must begin w ith the historic common law relating to paper
transactions when dealing with the very few di sputes to date regarding
electronic banking that have come before them.
5 Canadian Pay ments Association, An nual Review 2011 (Ottawa: Canadian Pay-
ments Asso ciation, 2012) at 23. These statistics are for the Autom ated Clearing
Settlement System (ACSS). The Large Value Transfer System (LVTS) began i n
1999 and is restr icted to electronic tran sactions, so historica l statistics for LVTS
are neither avai lable nor relevant.
Bank Account Ope ration 269
In addition to being character ized in law as a debtor and creditor rela-
tionship, in account operation, the bank and customer relationship i s
also character ized as one of principal and agent. The bank as agent is
obliged by contract to carry out the instructions to pay money into and
out of the account of the customer as principal. The standard of care
required by the bank in performing the mandate is reasonable care.6
Since this is a common law sta ndard, it may be var ied by express agree-
ment. The duty to execute the customer’s instructions is owed only to
the customer as the other part y to the account contract; it is not owed
to the payee in the absence of other circum stances because the payee is
a third part y to the contract.7
Those circumstances, a s found by the courts, include the following
situations, in which the courts have found an express or implied con-
tract with the third party, as well as the account contract with the cus-
tomer: (i) acceptance of a cheque for certif‌ication becaus e the funds to
pay have been removed from the customer’s account on certif‌ication;8
(ii) a promise by the bank to the payee that the cheque will be paid
once cert ain condit ions are met; 9 (iii) where an unendorsed cheque is
deposited and cleared;10 and (iv) where a branch approves payment of a
cheque drawn on it in a telephone conversation with another branch at
which the cheque is presented for payment.11 As noted earl ier,12 there is
a difference of opinion among courts as to whether or not a duty may
be owed to a third part y at the time of opening an account where the
third part y claims an interest in the funds deposited.13 The circu m-
stances in which a bank may become liable to the payee may be vari-
6 Joachimson v. Swiss Bank Corp., [1921] 3 K.B. 110 (C.A.); Selangor United Rubber
Estates Ltd. v. Cradock (No. 3), [1968] 2 All E.R. 1073 (Ch. D.); Barclays Bank plc
v. Quincecare Ltd., [1992] 4 All E.R. 363 (Q.B.D.); Good Mechanical, A Division
of 524556 Ontario Inc. v. Canadian Imperial Ba nk of Commerce (2005), 49 C.L.R.
(3d) 183 (Ont. S.C.J.).
7 Schimnowski v. Schimnowski, [1996] 6 W.W.R. 194 (Man. C.A.).
8 See Section C(3), below in this c hapter.
9 Simpson v. Dolan (1908), 16 O.L.R. 459 (Div. Ct.); Adams v. Craig (1911), 24
O.L.R. 490 (C.A.).
10 Slovchenko v. Toronto-Dominion Bank, [1964] 1 O.R. 410 (H.C.J.).
11 William Ciurluini Ltd. v. Royal Bank of Canad a (1972), 26 D.L.R. (3d) 552 (Ont.
H.C .J.) [Ciurluini]. See also Duma s v. Boivin (1936), 75 Que. S.C. 1; Steinbach
Credit Union Ltd. v. Seitz (1988), 50 D.L.R. (4th) 436 (Man. C.A.); Edmonton Mo-
tors Ltd. v. Edmonton Savings & Credit Union Ltd. (1988), 85 A.R. 29 (Q.B.).
12 Chapter 6, Section I.
13 See Chapter 6, note 210 for the case s.

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