Bank Account Operation

AuthorM.H. Ogilvie
ProfessionProfessor of Law, Carleton University
The account governed by contract is the central depository i n relation
to which the bank and customer agreement operates. Historically, the
common law recognized this in the implied terms of t hat agreement,
which def‌ined their legal relationsh ip prior to the use of express account
agreements in the late twentieth cent ury. Those four implied terms are:
(i) the implied duty of the bank to honour cheques and repay deposits;1
(ii) the implied duty of the bank to collect cheques and other payment
instruments;2 (iii) the implied duty of the bank to render st atements of
account periodically or on dema nd to inform the customer of the hi s-
torical performance 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 result of tra nsactions in the account.4 These four term s
continue to be appropriate organizing principle s for the dis cussion of
the legal rules relating to account operation that will be examined in
this chapter.
These rules and the legal st andards of care governing account oper-
ation were originally formulated when customer instructions to a b ank
1 See Section C, b elow in this chapter.
2 See Section D, below in t his chapter.
3 See Section E, be low in this chapter.
4 See Section F, below in thi s chapter.
were given orally, often in person, or in writing a nd usually by cheque.
Today such instructions are more likely to be g iven electronically. 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; and in 2005, 22.5
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; and in 2005, 68.2 percent of
value was transmitted by paper. Cheques continue to be used for larger
transactions and transactions at a distance, so the transition in relation
to the amount of value f‌lowing through the clea ring system is slower in
relation to transition in rel ation to paper payment instr uctions.
Despite the signif‌icant movement to electronic banking in the pa st
twenty years, the legal rules developed in the era of paper banking re-
main fundamental to the legal relationship between ban k and customer.
Whether given electronically, orally, or by paper, a customer’s instruc-
tions require the bank to e xecute them on the customer’s behalf; these
are simply different communication methods that a customer may use
to convey instructions about account operation to a bank. The legal
standards of ca re relating to bank and c ustomer remain the same in l aw
notwithstanding the method of communication employed. There are, of
course, specif‌ic legal r ules that are applicable to specif‌ic methods of com-
munication , but the fundament al principles of th e common law continue
to undergird the legal relationship between bank and customer.
The legal principle s discussed in t his chapter relate to pape r-based
banking and rema in relevant for all such transactions; cheques con-
tinue to be used in vast numbers today and customers sti ll bank in
person at their branche s. The legal pr inciples discussed in the s uc-
ceeding chapters relate to electronic banking, yet they were formulated
in relation to and built upon the pri nciples di scuss ed here. To date,
there is very litt le case law on electronic bank ing and no legislation, so
the courts must begi n with the histor ic common law relating to paper
transactions when dealing with the very few disputes to date regarding
electronic banking th at have come before them.
5 Canadi an Payments Associ ation, Annual Review 2005 (Ottawa: Canad ian Pay-
ments Asso ciation, 2005) at 23. These statist ics are for the Automated Clear-
ing Settlement Syste m (ACSS). The Large Value Transfer System began in 1999
and is restr icted to electronic tran sactions, so historic al statistics for LVTS are
neither avail able nor relevant.
Bank Account Op eration 255
In addition to being character ized in law as a debtor and creditor rela-
tionship, in account operation, the bank and customer relationship is
also character ized as one of principal a nd 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 sta ndard of care
required by the bank i n performing the mandate is reasonable ca re.6
Since this is a common l aw standard, it may be varied by ex press agree-
ment. The duty to execute the customer’s instructions is owed only to
the customer as the other pa rty to the account contract; it is not owed
to the payee in the absence of other c ircumstances because the payee is
a third part y to the contract.7
Those circumstances as found by the courts i nclude the following
situations, in which the cour ts 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 because the funds to
pay have been removed from the customer’s account on certif‌icat ion;8
(ii) a promise by the bank to the payee that the cheque will be paid
once certain conditions 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 The circumst ances in
which a bank may become li able to the payee may be var ious, but the
legal requirement in each is the same, t hat is, the bank has given a con-
tractual undertaking to the payee.
Whether a customer issues instructions electronically or by some
other means, the basic elements of pay ment are similar, that is, th ree
processes must be engaged to secure the transm ission of funds into
the customer’s account or from the customer’s account to a third part y
payee: (i) the payment message; (ii) the movements in accounts; and
6 Joachimson v. Swiss Bank Corp., [1921] 3 K.B. 110 (C.A.); Barclays Bank plc v.
Quincecare Ltd., [1992] 4 All E.R. 363 (Q.B.D.).
7 Schimnowski v. Schimnowski, [1996] 6 W.W.R. 194 (Man. C.A.).
8 See Section C(3), below in this chapte r.
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 Dumas 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.).

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