E. Contract Modification

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 188-190

Page 188

The bank and customer contract may be of considerable duration; therefore, the question of whether it may be modified by the bank over time arises. In the first case to consider this question, Burnett v. Westminster Bank,⁶⁶the bank gave notice of a change to the original terms on a chequebook cover; the change related to the restriction in the use of those cheques for the account for which they were MICR⁶⁷encoded. The customer attempted to draw the cheque on another account at another branch of the same bank and then countermanded that cheque. The cheque cleared despite the countermand because it was machine-sorted using the MICR code. The customer brought an action for breach of contract and for restoration of the amount of the cheque to the account. The issue was whether the bank had effectively modified the original contract, which permitted cheques to be hand-drawn for any account, by giving notice in this way.⁶⁸

Mocatta J. found that a bank can unilaterally change contractual terms by giving reasonable notice but that there was no reasonable notice here because it had never done so before on chequebook covers. The court did not state what would have been reasonable, so it is difficult to assess what would have amounted to reasonable notice. The court did apply the notice cases from the law of contract generally,⁶⁹so it must be assumed that these provide the appropriate rules for assessing the reasonableness of any notice.

Notice is required pursuant to the Bank Act for changes in borrowing rates, interest, and service charges,⁷⁰and the statutory require-

Page 189

ments include notice by brochures, by post, by posters at a branch, and online, so it must be assumed that these would constitute reasonable notice by operation of the legislation. Moreover, banks now typically include an express term in account agreements backdating the terms of the most recently executed agreement into previous account agreements, and the question becomes whether this amounts to reasonable notice of modification of those previous agreements. Typically, such clauses are not highlighted in any way, nor is it usual practice for bank employees to give express notice of the clauses when the most recent contract is executed.

In Armstrong, Baum Plumbing & Heating v. Toronto-Dominion Bank,⁷¹ the customer had over a dozen accounts with the bank prior to opening the account at issue. In relation to the earlier accounts, the agreement permitted the...