Banks Owe No Duty to Cheque Payees: Supreme Court of Canada

What is a cheque? What obligations arise for a bank presented with a cheque or collecting on one? Does the bank answer to the drawer, the payee, or both?

These questions were recently put before the Supreme Court of Canada in the context of a demand by the Canada Revenue Agency for remittance of funds during their transfer from the trust account of a tax debtor to a joint account held in part by the same tax debtor.

The tax debtor, McLeod, a lawyer, had a trust account at a Canada Trust branch in Surrey, B.C. McLeod also had a joint account with another lawyer at the same branch. Cheques payable to McLeod were being drawn on the trust account and deposited into the joint account. The Minister of National Revenue issued to Canada Trust requirements to pay the money owed by McLeod.

Though the Minister conceded that it had no right to access funds in the either the trust account or the joint account, the Tax Court of Canada and the Federal Court of Appeal found that Canada Trust was in fact liable for the tax debt. They concluded that when McLeod presented cheques payable to him, Canada Trust became liable to McLeod, and in turn to the Minister. Though the cheques came with an instruction to deposit them directly to the joint account, the liability to McLeod and in turn to the Minister arose in the interim period before the cheques were actually deposited into the joint account.


A 4-3 majority of the Supreme Court of Canada reversed. It held that a cheque is a request to pay by its customer and not an assignment of funds. The drawee bank, Canada Trust, was answerable to the drawer, Mr. McLeod through his trust account, and was bound to follow the instruction to deposit the cheques into the joint account. Once Canada Trust received the cheques and deposited them to the joint account, it had an obligation to the joint account holders as the collecting bank. The majority noted that the funds were credited to the joint account before being sent for clearing and that at no time was a payment actually made to McLeod.

The minority judgment divided the transaction into two steps: the first involved crediting the payee, in this case McLeod, while in the second the payee returned these funds to the bank for deposit. In transit, the bank became indebted to McLeod, and in turn, the Minister.


The decision in Canada Trustco makes clear that a bank owes no obligations to the payee of a cheque drawn by one of its customers. If a drawer of a cheque stops payment before the payee's account is credited through the clearing process, the bank will have no obligation to the payee. Moreover, a bank is under no obligation to determine the liabilities of payees, even in the face of demands by the tax man.

Case Information

Canada Trustco Mortgage Co. v. Canada, 2011 SCC 36

Date of Decision: July 15, 2011

assignment of funds bank cheque CRA customer joint account liabilities payees Supreme Court of Canada tax debtor trust account



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