summaryofcontents - thomson reuters · 1:30.50(2)(e) remittance instrument . . . . . . . . . . . ....

SUMMARYOFCONTENTS

VOLUME1

Part 1 Money and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PT-1Chapter 1 The Law of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1Chapter 2 Currency and Legal Tender. . . . . . . . . . . . . . . . . . . . . . . . 2-1Chapter 3 The Law of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1Chapter 5 New Methods of Payment and New Forms of Money . . . . . . 4-1

Part 2 Institutions and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . PT-2Chapter 5 Bank of Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1Chapter 6 The Canadian Payments Association . . . . . . . . . . . . . . . . . 6-1Chapter 7 Regulation of Payment Systems . . . . . . . . . . . . . . . . . . . . . 7-1

Part 3 The Banker-Customer Relation . . . . . . . . . . . . . . . . . . . . . . . . PT-3Chapter 8 Banks and the Business of Banking . . . . . . . . . . . . . . . . . . 8-1Chapter 9 The Banking Relationship . . . . . . . . . . . . . . . . . . . . . . . . 9-1

VOLUME 2

Part 3 The Banker-Customer Relation (Cont’d) . . . . . . . . . . . . . . . . . . PT-3Chapter 10 Payment and Collection of Cheques . . . . . . . . . . . . . . . . 10-1

Part 4 General-Purpose Payment Systems. . . . . . . . . . . . . . . . . . . . . . PT-4Chapter 11 The National Debit Exchange, Clearing

and Settlement Systems . . . . . . . . . . . . . . . . . . . . . . . 11-1Chapter 12 The Large Value Transfer System. . . . . . . . . . . . . . . . . . 12-1Chapter 13 Payment by Credit Cards and Under Letters of Credit . . . . 13-1Chapter 14 Payment by Debit Card and Other Devices

at the Point of Service . . . . . . . . . . . . . . . . . . . . . . . . 14-1Chaptr 14.5 Mobile Phone Payments and Transfers . . . . . . . . . . . . . 14.5-1Chapter 15 Recurring Debit and Credit Transfers . . . . . . . . . . . . . . . 15-1Chapter 16 Single Instance Debits and Credits . . . . . . . . . . . . . . . . . 16-1

Part 5 Payment for Investment Securities . . . . . . . . . . . . . . . . . . . . . . . PT-5Chapter 17 Payment in CDSX for Investment Securities. . . . . . . . . . . 17-1Chapter 18 Payment Under Options and Derivatives Contracts . . . . . . 18-1

Part 6 Clearing and Settlement of Foreign Exchange Transactions . . . . . . PT-6Chapter 19 Clearing and Settlement of Foreign Exchange

Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-1

VOLUME 3

Part 7 Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PT-7Chapter 20 Introduction to Negotiable Instruments. . . . . . . . . . . . . . 20-1Chapter 21 Interpretation of the Bills of Exchange Act. . . . . . . . . . . . 21-1Chapter 22 Formal Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-1Chapter 23 Transactional Validity . . . . . . . . . . . . . . . . . . . . . . . . . 23-1

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Chapter 24 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1Chapter 25 Transfer and Negotiation . . . . . . . . . . . . . . . . . . . . . . . 25-1Chapter 26 Rights of Holder and Defences . . . . . . . . . . . . . . . . . . . 26-1Chapter 27 General Duties of Holder . . . . . . . . . . . . . . . . . . . . . . . 27-1Chapter 28 Liabilities of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-1Chapter 29 Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1Chapter 30 Acceptance and Payment for Honour and

Reference in Case of Need . . . . . . . . . . . . . . . . . . . . . 30-1Chapter 31 Lost and Destroyed Instruments . . . . . . . . . . . . . . . . . . 31-1Chapter 32 Bills in Sets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-1Chapter 33 Conflicts of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-1Chapter 34 Cheques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-1Chapter 35 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1Chapter 36 Consumer Bills and Notes Act . . . . . . . . . . . . . . . . . . . . 36-1Chapter 37 Depository Bills and Notes Act . . . . . . . . . . . . . . . . . . . 37-1

SC1-2

THE LAWOF BANKINGANDPAYMENT INCANADA

TABLEOFCONTENTSPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1User’s Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UG-1Summary of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SC-1Contents Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CL-1Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TC-1Supplementary Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . STC-1

VOLUME 1

PART 1 MONEYANDPAYMENT

CHAPTER 1 THE LAWOF PAYMENT1:10 INTRODUCTION AND PAYMENT STATISTICS . . . . . . . . . . . 1-1

1:10.10 ACSS Items Exchanged in 2016 . . . . . . . . . . . . . . . . . . . . . . 1-31:10.20 LVTS Payments in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-41:10.30 USBES Payments in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . 1-41:10.40 International Developments . . . . . . . . . . . . . . . . . . . . . . . 1-4.1

1:20 THE CONCEPT OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . 1-4.21:20.10 Payment of Money or Discharge by Other Means . . . . . . . . 1-4.31:20.20 Payment a Bilateral Relation; Tender Unilateral . . . . . . . . . . . 1-61:20.30 Payment by Credit to an Account; Netting . . . . . . . . . . . . . . . 1-71:20.40 Payment by Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-101:20.40(1) Legal or Procedural Set-Off . . . . . . . . . . . . . . . . . . . . . . 1-111:20.40(2) Equitable Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-121:20.40(3) Contractual Set-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . 1-20.11:20.40(4) Effect of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-22.11:20.40(5) Loss of Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . . 1-22.2

1:20.50 Late Return of Cheque as Payment . . . . . . . . . . . . . . . . . . 1-22.31:25 CONSTITUTIONAL JURISDICTION OVER PAYMENT

SYSTEMS AND PAYMENTMETHODS . . . . . . . . . . . . . . 1-22.41:30 PRINCIPLES OF THE LAW OF PAYMENT . . . . . . . . . . . . 1-22.6a

1:30.10 Onus on Debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-22.6a1:30.20 Person Making/Receiving Payment . . . . . . . . . . . . . . . . . 1-22.6b1:30.30 Time Payment Required . . . . . . . . . . . . . . . . . . . . . . . . . 1-22.71:30.40 When Payment Finally ‘‘Made’’ . . . . . . . . . . . . . . . . . . . 1-22.101:30.45 Policy of Finality of Payments . . . . . . . . . . . . . . . . . . . . 1-22.121:30.50 A Negotiable Instrument or Credit Card as ‘‘Payment’’. . . . 1-22.131:30.50(1) General Rule: Conditional Only; Debt Suspended . . . . . 1-22.141:30.50(2) Special Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-231:30.50(2)(a) Secured Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 1-231:30.50(2)(b) Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . . 1-241:30.50(2)(c) Renewal Instrument . . . . . . . . . . . . . . . . . . . . . . . . 1-241:30.50(2)(d) Barter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-24

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1:30.50(2)(e) Remittance Instrument . . . . . . . . . . . . . . . . . . . . . . 1-241:30.55 Payment by Electronic Advice and Transfer of Bank Credit . . 1-24.11:30.55(1) Large Value Transfer System . . . . . . . . . . . . . . . . . . . . 1-24.21:30.55(2) Payment by Debit Card . . . . . . . . . . . . . . . . . . . . . . . . 1-24.41:30.55(3) Payment by Credit Card . . . . . . . . . . . . . . . . . . . . . . . 1-24.5

1:30.60 Cheque or Note for Lesser Sum as Payment . . . . . . . . . . . . 1-24.71:30.60(1) Accord and Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . 1-24.71:30.60(2) Accord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-24.91:30.60(2)(a) Types of Accord . . . . . . . . . . . . . . . . . . . . . . . . . . 1-251:30.60(2)(b) Interpretation of Offers. . . . . . . . . . . . . . . . . . . . . . 1-261:30.60(2)(c) Terms of Accord . . . . . . . . . . . . . . . . . . . . . . . . . . 1-281:30.60(2)(c)(i) Sophisticated parties’ offers. . . . . . . . . . . . . . . . . 1-291:30.60(2)(c)(ii) Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-29

1:30.60(2)(d) Conduct of Creditor Not Evidencing Accord . . . . . . . 1-301:30.60(2)(e) Conduct of Creditor as Evidence of Accord . . . . . . . . 1-31

1:30.60(3) Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-321:30.60(3)(a) Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-321:30.60(3)(b) Equitable Estoppel. . . . . . . . . . . . . . . . . . . . . . . . . 1-351:30.60(3)(c) Statutory Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-37

1:30.65 Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-401:30.70 Appropriation of Payments . . . . . . . . . . . . . . . . . . . . . . . . 1-421:30.70(1) Multiple Obligations Outstanding . . . . . . . . . . . . . . . . . . 1-421:30.70(1)(a) Allocation By the Debtor . . . . . . . . . . . . . . . . . . . . 1-421:30.70(1)(b) Allocation By the Creditor . . . . . . . . . . . . . . . . . . . 1-431:30.70(1)(c) Presumptions in Lieu of Allocation by Either . . . . . . . 1-44

1:30.70(2) Allocation Between Principal and Interest . . . . . . . . . . . . . 1-461:30.70(2)(a) Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-461:30.70(2)(b) Allocation on Credit Card Debt . . . . . . . . . . . . . . . . 1-46

1:30.70(3) Payments on Judgment Debts . . . . . . . . . . . . . . . . . . . . . 1-461:30.80 Currency of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-471:30.80(1) Private Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-471:30.80(2) Public Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-481:30.80(3) Judgments and Awards . . . . . . . . . . . . . . . . . . . . . . . . . 1-48

1:30.90 Cost of Late Payment (Interest) . . . . . . . . . . . . . . . . . . . . . 1-491:30.90(1) Contractual Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-501:30.90(2) Interest as Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-521:30.90(3) Statutory Pre-Judgment Interest . . . . . . . . . . . . . . . . . . . 1-531:30.90(4) Statutory Post-Judgment Interest . . . . . . . . . . . . . . . . . 1-54.11:30.90(5) Selecting the Applicable Rate . . . . . . . . . . . . . . . . . . . . 1-54.11:30.90(5)(a) Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-54.21:30.90(5)(b) Common Law and Equity - Compound Interest . . . . . 1-561:30.90(5)(c) Rate Fixed by Statute . . . . . . . . . . . . . . . . . . . . . . . 1-591:30.90(5)(c)(i) Federal law . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-591:30.90(5)(c)(ii) Provincial law . . . . . . . . . . . . . . . . . . . . . . . . . 1-60

1:30.90(6) International Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-631:30.90(7) Conforming Canadian System Rules . . . . . . . . . . . . . . . . 1-641:30.90(8) Criminal Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . 1-641:30.90(8)(a) History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-641:30.90(8)(b) Offences by Lenders . . . . . . . . . . . . . . . . . . . . . . . . 1-671:30.90(8)(c) Application to Goods and Services Contracts . . . . . . . 1-721:30.90(8)(d) Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . 1-761:30.90(8)(d)(i) Payday loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1-761:30.90(8)(d)(ii) Tax rebate discounts. . . . . . . . . . . . . . . . . . . . . 1-78

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1:30.100 Compelling Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-791:30.100(1) The Ordinary Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-791:30.100(2) Complicating Factors . . . . . . . . . . . . . . . . . . . . . . . . . 1-801:30.100(3) Penalty Clauses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-80.11:30.100(4) Distinguishing Enforceable Damages Estimates . . . . . . . . 1-811:30.100(4)(a) Unconscionability as a Test . . . . . . . . . . . . . . . . . . 1-821:30.100(4)(b) The ‘‘Commercially Reasonable’’ Test . . . . . . . . . . . 1-841:30.100(4)(c) The ‘‘Reasonable and Proper’’ Test . . . . . . . . . . . . . 1-851:30.100(4)(d) Fines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-86

1:30.110 Proof of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-901:30.110(1) Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-901:30.110(2) Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-921:30.110(3) Payment by Cheque. . . . . . . . . . . . . . . . . . . . . . . . . . . 1-931:30.110(3)(a) Criminal Proceedings . . . . . . . . . . . . . . . . . . . . . . 1-941:30.110(3)(b) Civil Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 1-96

1:30.110(4) Official Image of Eligible Bill . . . . . . . . . . . . . . . . . . . . 1-991:30.110(5) Electronic Payments . . . . . . . . . . . . . . . . . . . . . . . . . 1-1011:30.110(6) Other Media of Payment . . . . . . . . . . . . . . . . . . . . . . 1-1011:30.110(7) Presumption of Payment . . . . . . . . . . . . . . . . . . . . . . 1-103

1:40 NEW PRINCIPLES OF PAYMENT SYSTEM LAW . . . . . . . . 1-1031:40.10 Principles of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-10511:40.10(1) Meaning of; Rules Distinguised . . . . . . . . . . . . . . . . . . 1-10511:40.10(2) Extablishment or Recognition of New Principles. . . . . . . 1-106

1:40.20 International Texts on Payments System Law . . . . . . . . . . . 1-1091:40.20(1) Established Texts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1091:40.20(1)(a) EU Payment Services Directive. . . . . . . . . . . . . . . . 1-1091:40.20(1)(b) Model Law on International Credit Transfers . . . . . . 1-1101:40.20(1)(c) Principles of American Modernization Initiatives . . . . 1-1101:40.20(1)(c)(i) Uniform Law Commission Position Paper . . . . . . 1-1101:40.20(1)(c)(ii) Federal Reserve System Strategies for Improving

the U.S. Payment System . . . . . . . . . . . . . . . . . 1-1111:40.20(1)(d) Interac’s ‘‘Principles of a Modernized Payments

System’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1121:40.20(2) Shared ‘‘Principles’’. . . . . . . . . . . . . . . . . . . . . . . . . . . 1-116

CHAPTER 2 CURRENCYANDLEGALTENDER2:10 LEGISLATIVE BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 2-1

2:10.10 Constitutional Foundation . . . . . . . . . . . . . . . . . . . . . . . . . 2-12:10.20 Provincial Foreign Money Conversion Statutes . . . . . . . . . . . . 2-4

2:20 THE CURRENCY OF CANADA . . . . . . . . . . . . . . . . . . . . . . . 2-52:20.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-52:20.10(1) Meaning of ‘‘Currency’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 2-52:20.10(2) Value of Outstanding Currency . . . . . . . . . . . . . . . . . . . . . 2-72:20.10(3) US Dollarization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7

2:20.20 Bank of Canada Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-82:20.20(1) Notes Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-92:20.20(2) Notes Not BEA Instruments. . . . . . . . . . . . . . . . . . . . . . 2-102:20.20(3) Bank Note Distribution System (‘‘BNDS’’) . . . . . . . . . . . 2-10.1

2:20.30 Current Coin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10.12:20.30(1) Circulation Coins . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10.22:20.30(1.5) Redemption of One-Cent Coin . . . . . . . . . . . . . . . . . . 2-10.22:20.30(2) Non-Circulation Coins . . . . . . . . . . . . . . . . . . . . . . . . 2-10.3

2:20.40 Currency of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10.4

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2:20.40(1) References in Statutes . . . . . . . . . . . . . . . . . . . . . . . . . 2-10.42:20.40(1)(a) Federal Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . 2-10.42:20.40(1)(b) Provincial Statutes . . . . . . . . . . . . . . . . . . . . . . . . . 2-11

2:20.40(2) Public Accounts and Legal Proceedings . . . . . . . . . . . . . . 2-112:20.40(2)(a) Public Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 2-112:20.40(2)(b) References in Legal Proceedings . . . . . . . . . . . . . . . . 2-12

2:20.40(3) References in Contracts and Instruments for thePayment or Security of Money . . . . . . . . . . . . . . . . . . 2-14

2:20.40(3)(a) Modern References . . . . . . . . . . . . . . . . . . . . . . . . 2-142:20.40(3)(b) Antique References . . . . . . . . . . . . . . . . . . . . . . . . 2-16

2:20.40(4) Significance of $ Symbol . . . . . . . . . . . . . . . . . . . . . . . 2-16.12:20.40(5) Rounding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-172:20.40(5)(a) Sums Expressed to More than Two Points

of Decimals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-172:20.40(5)(b) Rounding of Payments in Currency. . . . . . . . . . . . . . 2-18

2:20.50 Conversion of Foreign Currency Obligations . . . . . . . . . . . . 2-192:20.50(1) The Common Law Background . . . . . . . . . . . . . . . . . . . 2-192:20.50(2) The Canadian Case Law . . . . . . . . . . . . . . . . . . . . . . . . 2-222:20.50(3) Legislative Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-232:20.50(3)(a) Breach Date Provisions . . . . . . . . . . . . . . . . . . . . . . 2-242:20.50(3)(b) Foreign Court Judgment Date Provisions. . . . . . . . . . 2-242:20.50(3)(c) Payment Date Provisions. . . . . . . . . . . . . . . . . . . . . 2-252:20.50(3)(d) Discretionary Provisions . . . . . . . . . . . . . . . . . . . . . 2-27

2:30 LEGAL TENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-282:30.10 Technical Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-282:30.10(1) Bank Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-302:30.10(2) Current Coins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-302:30.10(3) Value of Non-Circulating Coins . . . . . . . . . . . . . . . . . . 2-30.1

2:30.20 Informal ‘‘Tenders’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-312:40 REFUSAL TO ACCEPT LEGAL TENDER . . . . . . . . . . . . . . . 2-31

2:40.10 Pre-Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 2-312:40.20 Prior Notice of Refusal of Large Bank of Canada Notes . . . . . 2-33

2:50 FOREIGN CURRENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-342:60 DIGITAL, VIRTUAL AND CRYPTO-CURRENCIES . . . . . . . 2-35

2:60.10 Not Digital; Not Currencies . . . . . . . . . . . . . . . . . . . . . . . . 2-352:60.20 Virtual Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-362:60.30 Encryption Not a Distinguishing Feature . . . . . . . . . . . . . . . 2-382:60.40 Medium of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-38

CHAPTER 3 THE LAWOFMONEY3:05 MONEY IN CONSTITUTIONAL LAW. . . . . . . . . . . . . . . . . . . 3-1

3:05.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-13:05.20 Federal Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-23:05.30 Provincial Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-53:05.40 Examples of Federal Laws of Money . . . . . . . . . . . . . . . . . . . 3-63:05.50 Provincial Laws of Money (‘‘Debtor-Initiated Payments’’). . . . . 3-83:05.50(1) Holder of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-83:05.50(2) Creditors and Purchasers of Instruments. . . . . . . . . . . . . . 3-113:05.50(3) Debtor-Initiated EFTs. . . . . . . . . . . . . . . . . . . . . . . . . . 3-163:05.50(4) Other Forms of Debtor-Initiated Transfers . . . . . . . . . . . 3-16.23:05.50(4.5) Cancellation of Promissory Notes . . . . . . . . . . . . . . . . 3-16.33:05.50(5) Money-Services Businesses Regulation . . . . . . . . . . . . . . 3-16.4

3:10 THEMEANING OFMONEY . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.4

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3:10.05 Private Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.63:10.10 Statutory Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.83:10.20 Judicial Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.93:10.30 Specific Forms of Money. . . . . . . . . . . . . . . . . . . . . . . . 3-16.113:10.30(1) Bank Deposits and Bank Credit as Money . . . . . . . . . . 3-16.123:10.30(1)(a) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.123:10.30(1)(b) Bank Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.123:10.30(1)(c) Conventional Credit Transfer Cases . . . . . . . . . . . 3-16.143:10.30(1)(d) Proposed Legal Basis of Credit Transfer as Payment 3-16.20

3:10.30(2) Cheques as Money . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.22f3:10.30(2)(a) In Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-16.22f3:10.30(2)(b) Cases Denying Cheques are Money . . . . . . . . . . . 3-16.22h3:10.30(2)(c) Cases Asserting that Cheques are Money . . . . . . . 3-16.22i

3:10.30(3) Funds Transfers as Money (Debtor-Initiated Payments) . 3-16.253:10.30(4) Account Entries as Money . . . . . . . . . . . . . . . . . . . . . 3-16.293:10.30(4.5) Loyalty Points as Money . . . . . . . . . . . . . . . . . . . . . 3-16.303:10.30(5) Interpretation of ‘‘Money’’ in Wills . . . . . . . . . . . . . . . . . 3-17

3:10.40 Other Terms Distinguished . . . . . . . . . . . . . . . . . . . . . . . . 3-183:10.40(1) Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-183:10.40(2) Immediately Available Funds . . . . . . . . . . . . . . . . . . . . . 3-193:10.40(3) Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-193:10.40(4) Lawful Money of Canada . . . . . . . . . . . . . . . . . . . . . . . 3-21

3:20 THE LEGAL CHARACTERISTICS OF MONEY . . . . . . . . . . . 3-223:20.10 The Legal Effect of Transfer. . . . . . . . . . . . . . . . . . . . . . . . 3-223:20.10(1) Physical Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-223:20.10(2) Transfers of Bank Credit . . . . . . . . . . . . . . . . . . . . . . . 3-24.23:20.10(3) Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . . . . 3-24.7

3:20.20 The Time Value of Money . . . . . . . . . . . . . . . . . . . . . . . . 3-24.83:20.30 The Location of Money. . . . . . . . . . . . . . . . . . . . . . . . . . . 3-293:20.30(1) Legal Tender and Negotiable Instruments . . . . . . . . . . . . . 3-293:20.30(2) Location of Bank Deposits and Other Contract Debts. . . . . 3-293:20.30(3) Funds Held as Financial Assets . . . . . . . . . . . . . . . . . . . . 3-31

3:20.40 Fungibility - General Principle . . . . . . . . . . . . . . . . . . . . . . 3-323:20.50 Fungibility - Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 3-343:20.50(1) Segregated Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-343:20.50(2) Tracing Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-403:20.50(2)(a) Scope of this Commentary. . . . . . . . . . . . . . . . . . . . 3-403:20.50(2)(b) Types of Tracing . . . . . . . . . . . . . . . . . . . . . . . . . . 3-42

3:30 COMMON LAW TRACING . . . . . . . . . . . . . . . . . . . . . . . . . 3-433:30.10 Identification of Traced Money . . . . . . . . . . . . . . . . . . . . . 3-463:30.20 Juristic Reasons for Retention (Defences) . . . . . . . . . . . . . . . 3-503:30.20(1) Bona fide Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50.13:30.20(1)(a) Policy Foundation . . . . . . . . . . . . . . . . . . . . . . . . 3-50.13:30.20(1)(b) Elements of Defence. . . . . . . . . . . . . . . . . . . . . 3-50.2b13:30.20(1)(b)(i) Bona Fides . . . . . . . . . . . . . . . . . . . . . . . . 3-50.2b13:30.20(1)(b)(ii) Consideration . . . . . . . . . . . . . . . . . . . . . . 3-50.2b2

3:30.20(1)(c) Proceeds Paid to Holder in Due Course . . . . . . . . . 3-50.2h3:30.20(2) Change of Position . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50.2h3:30.20(3) Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50.2k

3:30.30 Advantages of Common Law Tracing . . . . . . . . . . . . . . 3-50.2m3:30.40 Canadian Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50.2n3:30.40(1) Proceeds of Crime or Fraud . . . . . . . . . . . . . . . . . . . . 3-50.2n3:30.40(2) Ad Hoc Fiduciary Relationships . . . . . . . . . . . . . . . . . . 3-50.5

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3:30.40(3) Confusion of Concepts . . . . . . . . . . . . . . . . . . . . . . . . 3-50.73:30.40(4) Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-53

3:40 EQUITABLE TRACING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-533:40.10 Prerequisites of Equitable Tracing . . . . . . . . . . . . . . . . . . . . 3-533:40.10(1) Pre-Existing Trust or Fiduciary Relationship . . . . . . . . . . . 3-543:40.10(2) Invented Ad Hoc Fiduciary Relationships . . . . . . . . . . . . . 3-563:40.10(3) Equitable Property Right . . . . . . . . . . . . . . . . . . . . . . . . 3-573:40.10(3)(a) Pre-Existing Property Right . . . . . . . . . . . . . . . . . . . 3-573:40.10(3)(b) Mistaken Payments . . . . . . . . . . . . . . . . . . . . . . . . 3-583:40.10(3)(c) Voidable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-593:40.10(3)(d) Proceeds of Theft. . . . . . . . . . . . . . . . . . . . . . . . . . 3-613:40.10(3)(e) Other Equitable Proprietary Interests. . . . . . . . . . . . . 3-623:40.10(3)(f) Reasonable Expectation of Property Interest . . . . . . . . 3-633:40.10(3)(f)(i) Origins in family law . . . . . . . . . . . . . . . . . . . . . 3-633:40.10(3)(f)(ii) Application to commercial and financial

transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 3-643:40.10(3)(f)(iii) Problem cases . . . . . . . . . . . . . . . . . . . . . . . . . 3-683:40.10(3)(f)(iv) Conclusion and summary . . . . . . . . . . . . . . . . . 3-70

3:40.10(3)(g) Identification of Property in Possession orControl of Defendant . . . . . . . . . . . . . . . . . . . . . 3-71

3:40.10(3)(g)(i) Question of fact . . . . . . . . . . . . . . . . . . . . . . . . 3-723:40.10(3)(g)(ii) Tracing ‘‘value’’ . . . . . . . . . . . . . . . . . . . . . . . . 3-733:40.10(3)(g)(iii) Presumptions and fictions . . . . . . . . . . . . . . . . . 3-76

3:40.10(4) Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-76.33:40.10(4)(a) Adequacy of Common Law Remedy . . . . . . . . . . . . 3-76.33:40.10(4)(b) Effect of Defendant’s Insolvency . . . . . . . . . . . . . . . 3-773:40.10(4)(c) No Inequitable Result . . . . . . . . . . . . . . . . . . . . . . . 3-793:40.10(4)(d) Content of Defences . . . . . . . . . . . . . . . . . . . . . . . 3-803:40.10(4)(d)(i) Bona fide purchase . . . . . . . . . . . . . . . . . . . . . . 3-813:40.10(4)(d)(ii) Change of position . . . . . . . . . . . . . . . . . . . . . . 3-853:40.10(4)(d)(iii) Absence of juristic reason . . . . . . . . . . . . . . . . . 3-863:40.10(4)(d)(iv) Limitation and other equitable defences . . . . . . . 3-86

3:50 STATUTORY TRACING . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-883:50.10 Tracing of Proceeds Under Personal Property

Security Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-893:50.10(1) Meaning of ‘‘Identifiable or Traceable’’ . . . . . . . . . . . . . . 3-903:50.10(2) Applicability of the Common Law and Equitable

Tracing Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1033:50.10(3) Modification of General Tracing Rules. . . . . . . . . . . . . . 3-1053:50.10(4) Applicability of the Common Law and

Equitable Defences . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1073:50.10(5) Statutory Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-109

3:50.20 Tracing Value under Income Tax Act . . . . . . . . . . . . . . . . 3-1103:50.20(1) Structured Transactions. . . . . . . . . . . . . . . . . . . . . . . . 3-1103:50.20(2) Deemed Trusts Under Federal Tax Laws . . . . . . . . . . . 3-112.13:50.20(2)(a) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-112.13:50.20(2)(b) The Deemed Trust Provisions . . . . . . . . . . . . . . . 3-112.23:50.20(2)(c) The Policy Rationale (1) . . . . . . . . . . . . . . . . . . . 3-112.33:50.20(2)(d) The Scope for Equitable and Common Law Defences 3-112.63:50.20(2)(e) The Policy Rationale (2) . . . . . . . . . . . . . . . . . . . 3-112.83:50.20(2)(f) Secured vs. Unsecured Creditors . . . . . . . . . . . . . . 3-112.93:50.20(2)(g) Secured Creditors of Sole Proprietorship Debtors . 3-112.103:50.20(2)(h) Priority of the Law of Money. . . . . . . . . . . . . . . 3-112.12

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3:60 FOREIGN EXCHANGE CONTROLS. . . . . . . . . . . . . . . . 3-112.133:70 ECONOMIC SANCTIONS. . . . . . . . . . . . . . . . . . . . . . . . 3-112.13

3:70.10 United Nations Act Sanctions . . . . . . . . . . . . . . . . . . . 3-112.133:70.10(1) Restrictions on Financial Transactions and Services . . . . . 3-1133:70.10(2) Restrictions on Payments and Reports of Holdings. . . . . . 3-1143:70.10(3) Restriction on Attachment, Garnishment or Execution . . . 3-115

3:70.20 Special Economic Measures Act Sanctions . . . . . . . . . . . . . 3-1153:70.25 Removal of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 3-1163:70.30 Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-118

3:80 MONEY LAUNDERING . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1193:80.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1193:80.20 Analysis of the PCTF Act . . . . . . . . . . . . . . . . . . . . . . . . 3-1203:80.30 PCTF Reporting Regulations . . . . . . . . . . . . . . . . . . . . . . 3-1213:85.35 International Assessment. . . . . . . . . . . . . . . . . . . . . . . . . 3-1223:80.40 Proposed Regulation of Virtual Currencies . . . . . . . . . . . . . 3-1223:80.50 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-122.13:80.60 Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-123

3:90 COUNTERFEIT MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1253:100 LOCAL CURRENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-127

CHAPTER 4 NEWMETHODSOF PAYMENTANDNEW FORMSOFMONEY

4:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-14:10.10 Prepaid Cards and Tokens . . . . . . . . . . . . . . . . . . . . . . . . . . 4-24:10.20 Patronage Reward Schemes . . . . . . . . . . . . . . . . . . . . . . . . . 4-54:10.20(1) Tokens of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-54:10.20(2) Trading Stamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-64:10.20(2)(a) Air Miles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-64:10.20(2)(b) Aeroplan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6.5

4:20 SCOPE OF APPLICATION OF CRIMINAL CODE . . . . . . . . . . 4-74:20.10 History and Application of Trading Stamp Provisions . . . . . . . 4-74:20.20 Possible Application to New Methods of Payment . . . . . . . . . . 4-9

4:30 NEW FORMS OFMONEY?. . . . . . . . . . . . . . . . . . . . . . . . . . 4-104:30.10 Satisfy Legal Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . 4-104:30.20 Become Medium of Exchange . . . . . . . . . . . . . . . . . . . . . . 4-114:30.30 Advantages and Disadvantages of Recognition . . . . . . . . . . . 4-13

4:40 ELECTRONICMONEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-154:40.05 MintChip and Bank of Canada. . . . . . . . . . . . . . . . . . . . . 4-16.14:40.10 System Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16.34:40.20 Policy Issues of Electronic Money . . . . . . . . . . . . . . . . . . . . 4-194:40.20(0.5) Economic Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-194:40.20(1) Commercial Law Issues . . . . . . . . . . . . . . . . . . . . . . . . . 4-204:40.20(2) Monetary Law Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 4-204:40.20(3) Regulatory Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-214:40.20(4) Consumer Protection Issues . . . . . . . . . . . . . . . . . . . . . . 4-234:40.20(5) Criminal Law Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-254:40.20(5)(a) Money Laundering. . . . . . . . . . . . . . . . . . . . . . . . . 4-254:40.20(5)(b) Counterfeiting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-26

4:50 VIRTUAL CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-264:50.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-264:50.20 Bitcoins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-274:50.20(1) System Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-274:50.20(2) Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-32

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4:50.20(2)(a) In principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-324:50.20(2)(b) Money in Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . 4-32

4:50.22 Ethereum and Ether . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-32.14:50.23 Distributed Ledger Technology: Ripple and Interledger;

R3 and Corda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-32.34:50.25 nanoPay MintChip. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-32.64:50.30 Proposed Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-334:50.30(1) No Federal Competence . . . . . . . . . . . . . . . . . . . . . . . . 4-334:50.30(2) Senate Digital Currency (Bitcoin) Report 2015. . . . . . . . . 4-34.34:50.30(2)(a) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-34.34:50.30(2)(b) Legal Characterization of Digital Currency . . . . . . . . 4-364:50.30(2)(b)(i) Not a Commodity. . . . . . . . . . . . . . . . . . . . . . 4-38.14:50.30(2)(b)(ii) Not a Payment System . . . . . . . . . . . . . . . . . . 4-38.14:50.30(2)(b)(iii) Not a Federal Competence . . . . . . . . . . . . . . . . 4-404:50.30(2)(b)(iv) Not a Security . . . . . . . . . . . . . . . . . . . . . . . . 4-40

4:50.30(2)(c) Risk of Criminality. . . . . . . . . . . . . . . . . . . . . . . . . 4-424:50.30(2)(d) Policy Consideration . . . . . . . . . . . . . . . . . . . . . . . 4-434:50.30(2)(d)(i) Reporting Obligations for Digital Currency

Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-434:50.30(2)(d)(ii) Fostering Blockchain Technology . . . . . . . . . . . . 4-454:50.30(2)(d)(iii) Bitcoins Not Money; Transfers not Final. . . . . . . 4-46

4:50.30(2)(e) Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-474:50.40 Income Tax Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-48

4:60 DIGITAL CURRENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-494:60.10 Central Bank Digital Currency (‘‘CBDC’’) . . . . . . . . . . . . . . 4-494:60.10(1) Attributes of the Benchmark CBDC. . . . . . . . . . . . . . . . . 4-504:60.10(2) Potential Benefits of CBDC . . . . . . . . . . . . . . . . . . . . . . 4-514:60.10(3) Interest-Bearing CBDC(‘‘I-CBDC’’) . . . . . . . . . . . . . . . . 4-524:60.10(4) Critique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-53

PART 2 INSTITUTIONSANDREGULATION

CHAPTER 5 BANKOF CANADA5:10 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-15:20 SETTLEMENT BANK FUNCTIONS . . . . . . . . . . . . . . . . . . . . 5-2

5:20.10 Settlement Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-25:20.20 Liquidity Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-55:20.20(1) Standing Liquidity Facilities . . . . . . . . . . . . . . . . . . . . . . . 5-65:20.20(1.5) High-Availability Banking System. . . . . . . . . . . . . . . . . . 5-75:20.20(2) Emergency Lending Assistance . . . . . . . . . . . . . . . . . . . . . 5-85:20.20(3) Forced LVTS Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-95:20.20(4) Systemic Risk Intervention . . . . . . . . . . . . . . . . . . . . . . . 5-115:20.20(5) Clearing House Liquidity . . . . . . . . . . . . . . . . . . . . . . . . 5-11

5:20.30 Other Settlement-Related Services . . . . . . . . . . . . . . . . . . . . 5-115:20.30(1) Collateral Agent Services . . . . . . . . . . . . . . . . . . . . . . . . 5-115:20.30(2) Settlement Agent Services. . . . . . . . . . . . . . . . . . . . . . . . 5-135:20.30(3) Central Counter-Party Functions . . . . . . . . . . . . . . . . . . 5-145:20.30(4) Miscellaneous Additional Settlement-Related Powers . . . . . 5-14

5:30 OTHERMATERIAL FUNCTIONS . . . . . . . . . . . . . . . . . . . . 5-155:30.10 Bank Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-155:30.20 Daily Balance Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . 5-16.15:30.30 Systemic Risk Intervention . . . . . . . . . . . . . . . . . . . . . . . 5-16.2

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5:30.35 Clearing and Settlement System Functions . . . . . . . . . . . . . . 5-185:30.40 Regulatory Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-195:30.40(1) Oversight Mandates of Bank . . . . . . . . . . . . . . . . . . . . . 5-195:30.40(2) BIS Principles of Oversight . . . . . . . . . . . . . . . . . . . . . . . 5-195:30.40(3) Bank of Canada’s Regulatory Strategy . . . . . . . . . . . . . . . 5-205:30.40(4) Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-21

CHAPTER 6 THE CANADIAN PAYMENTSASSOCIATION(Payments Canada)

6:10 CORPORATE STATUS AND REGULATORY OVERSIGHT . . . 6-16:10.10 Corporate Name and Brand Name . . . . . . . . . . . . . . . . . . . . 6-16:10.20 Corporate Law and Capital . . . . . . . . . . . . . . . . . . . . . . . . . 6-26:10.20(1) Corporate Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-26:10.20(2) Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-26:10.20(3) Quasi-Public Institution . . . . . . . . . . . . . . . . . . . . . . . . . . 6-36:10.20(4) Regulatory Regime; Ministerial Control . . . . . . . . . . . . . . . 6-46:10.20(4)(a) Regulatory Regime . . . . . . . . . . . . . . . . . . . . . . . . . 6-46: 10.20(4)(b) Ministerial Control . . . . . . . . . . . . . . . . . . . . . . . . . 6-46:10.20(4)(b)(i) Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-56:10.20(4)(b)(ii) Review and Approval/Disapproval . . . . . . . . . . . . 6-56:10.20(4)(b)(iii) Ministerial Directives. . . . . . . . . . . . . . . . . . . . . 6-5

6:20 OBJECTS, POWERS AND DUTIES . . . . . . . . . . . . . . . . . . . . . 6-56:20.10 Objects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-56:20.10(1) Establish and Operate National Systems . . . . . . . . . . . . . . . 6-76:20.10(1)(a) National Clearing and Settlement . . . . . . . . . . . . . . . . 6-76:20.10(1)(b) Making and Exchanging Payments . . . . . . . . . . . . . . . 6-8

6:20.10(2) Facilitate the Interaction of Systems. . . . . . . . . . . . . . . . . . 6-96:20.10(3) Facilitate Development of New Methods . . . . . . . . . . . . . 6-106:20.10(4) Duties of Association . . . . . . . . . . . . . . . . . . . . . . . . . . 6-11

6:20.20 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-146:20.30 Insolvency: Statutory Immunity . . . . . . . . . . . . . . . . . . . . . 6-14

6:30 MEMBERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-156:30.10 Evolution of Membership Rights. . . . . . . . . . . . . . . . . . . . . . 6-156:30.20 Significance of Membership . . . . . . . . . . . . . . . . . . . . . . . . . 6-176:30.30 Classes of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-216:30.30(1) Obligatory Membership . . . . . . . . . . . . . . . . . . . . . . . . . 6-226:30.30(1)(a) Bank of Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . 6-236:30.30(1)(b) Banks and Authorized Foreign Banks . . . . . . . . . . . . 6-246:30.30(1)(c) Bridge Institutions . . . . . . . . . . . . . . . . . . . . . . . . . 6-24

6:30.30(2) Entities Eligible for Membership . . . . . . . . . . . . . . . . . . . 6-256:30.30(3) Fintechs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-25

6:30.40 Meetings and Functions of Members . . . . . . . . . . . . . . . . . . . 6-316:30.50 Commencement, Suspension and Termination of Membership . . 6-326:30.50(1) Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-326:30.50(2) Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-326:30.50(3) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-33

6:40 BY-LAWS, RULES, STANDARDS, PRINCIPLES ANDGUIDELINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-34

6:40.10 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-346:40.20 Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-386:40.30 Standards and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . 6-396:40.40 Statements of Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-406:40.50 Guidelines and Best Practices . . . . . . . . . . . . . . . . . . . . . . . 6-44

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6:40.60 Ministerial Oversight and Directives . . . . . . . . . . . . . . . . . . 6-456:50 BOARD OF DIRECTORS, PRESIDENT AND EXECUTIVE. . . 6-45

6:50.10 Board History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-456:50.20 Composition of Board . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-466:50.20(1) Class of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-466:50.20(2) Eligibility and Election . . . . . . . . . . . . . . . . . . . . . . . . . 6-476:50.20(2)(a) Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-476:30.20(2)(b) Ineligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-476:50.20(2)(c) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-48

6:50.20(3) Duties and Powers of the Board . . . . . . . . . . . . . . . . . . . 6-496:50.20(4) President and Executive . . . . . . . . . . . . . . . . . . . . . . . . . 6-50

6:60 STAKEHOLDER ADVISORY COUNCIL . . . . . . . . . . . . . . . . 6-516:60.10 Policy Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-516:60.20 Objects and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-516:60.30 Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-526:60.40 Selection and Appointment . . . . . . . . . . . . . . . . . . . . . . . . 6-556:60.50 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-55

6:70 MEMBER ADVISORY COUNCIL . . . . . . . . . . . . . . . . . . . . . 6-566:70.10 Policy Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-566:70.20 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-576:70.30 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-596:70.40 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-59

6:80 ADMINISTRATIVE DETAILS . . . . . . . . . . . . . . . . . . . . . . . 6-60

CHAPTER 7 REGULATIONOF PAYMENT SYSTEMS7:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-17:20 INTERNATIONAL POLICY BACKGROUND . . . . . . . . . . . . . 7-2

7:20.10 The Early BIS Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-37:20.10(1) The Basle Accord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-37:20.10(2) The Angell Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-47:20.10(3) The Lamfalussy Report . . . . . . . . . . . . . . . . . . . . . . . . . . 7-57:20.10(4) The Later Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-6

7:20.20 The BIS Core Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-77:20.30 The Later CPSS Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-97:20.35 Reports of the Committee on Payments and Financial

Market Infrastructures . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-127:20.35(1) Principles for Financial Market Infrastructures . . . . . . . . . 7-127:20.35(2) Distributed Ledger Technology in Payment, Clearing

and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-14.37:20.35(2)(a) BIS Committee Report . . . . . . . . . . . . . . . . . . . . . 7-14.37:20.35(2)(b) Bank of Canada Project Jasper Report . . . . . . . . . 7-14.4a

7:20.40 Second European Directive on Payments Law . . . . . . . . . . 7-14.4b7:30 CANADIAN POLICY BACKGROUND . . . . . . . . . . . . . . . 7-14.4d

7:30.10 Meeting International Standards. . . . . . . . . . . . . . . . . . . 7-14.4d7:30.20 Domestic Policy Initiatives. . . . . . . . . . . . . . . . . . . . . . . . 7-14.57:30.20(1) The Interac Consent Order . . . . . . . . . . . . . . . . . . . . . . 7-14.57:30.20(1)(a) The Original Order. . . . . . . . . . . . . . . . . . . . . . . . 7-14.57:30.20(1)(b) The Variation Order. . . . . . . . . . . . . . . . . . . . . . . 7-14.7

7:30.20(2) Improved Rights of Access – PolicyFormation Exercises . . . . . . . . . . . . . . . . . . . . . . . . . 7-14.9

7:30.20(3) Governance of the Payment System . . . . . . . . . . . . . . . . . 7-157:30.20(4) Promoting Consumers’ Interests . . . . . . . . . . . . . . . . . . . 7-177:30.20(5) Risk Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-18

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7:30.20(5)(a) Payment System Risk . . . . . . . . . . . . . . . . . . . . . . . 7-197:30.20(5)(b) Payment Item or Instruction Risk . . . . . . . . . . . . . . . 7-23

7:30.20(6) Refusal to Deal – Competition in Payments Services . . . . . . 7-247:30.25 Task Force on Payments System Review. . . . . . . . . . . . . . . . . 7-247:30.25(1) Formation and Mandate . . . . . . . . . . . . . . . . . . . . . . . . 7-247:30.25(2) Consulations, Interim and Final Reports . . . . . . . . . . . . . 7-257:30.25(3) Government’s Response. . . . . . . . . . . . . . . . . . . . . . . . . 7-277:30.25(3.5) Industry Response . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-287:30.25(3.5)(a) Canadian NFCMobile Payments Reference

Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-287:30.25(4) Major Findings of the Task Force . . . . . . . . . . . . . . . . . . 7-297:30.25(5) Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 7-307:30.25(6) Recommendations for Implementation . . . . . . . . . . . . . . . 7-317:30.25(7) Commentary and Analysis . . . . . . . . . . . . . . . . . . . . . . . 7-32

7:35 EXERCISE OF CONSTITUTIONAL AUTHORITY OVERPAYMENT SYSTEMS AND FINANCIAL MARKETINFRASTRUCTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-35

7:35.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-357:35.20 Sources of Legislative Authority . . . . . . . . . . . . . . . . . . . . . 7-377:35.30 History of Regulatory Initiatives and Probable Grounds . . . . . 7-387:35.40 Possible Grounds for Novel Forms of Payment . . . . . . . . . . . 7-43

7:40 CANADIAN LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . 7-447:40.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-447:40.20 Current Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-447:40.25 Enhanced Regulatory Powers – 2014 . . . . . . . . . . . . . . . . . . 7-457:40.30 New Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-467:40.30(1) Credit Business (Banks & c.) Regulations . . . . . . . . . . . . . 7-46

7:45 CODES OF CONDUCT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-467:45.10 Code of Conduct for the Credit and Debit Card

Industry in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-467:45.20 Canadian Code of Practice For Consumer Debit Card

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-477:48 PROPOSED REGULATION OF RETAIL PAYMENT SERVICES

PROVIDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-477:48.10 Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-477:48.20 Policy Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-487:48.30 Proposed Oversight Framework . . . . . . . . . . . . . . . . . . . . 7-48.27:48.40 Proposed Regulatory Framework . . . . . . . . . . . . . . . . . . . 7-48.47:48.50 Principles-Based Regulation. . . . . . . . . . . . . . . . . . . . . . . 7-48.77:48.60 Administrative Details . . . . . . . . . . . . . . . . . . . . . . . . . . 7-48.87:48.70 Limitation of Federal Powers . . . . . . . . . . . . . . . . . . . . . . 7-48.8

7:50 CONTROL OF SYSTEMIC AND PAYMENTS SYSTEMRISK (Payment Clearing and Settlement Act) . . . . . . . . . . . . . 7-48.10

7:50.05 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-48.107:50.05(1) Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . 7-48.107:50.05(2) Rationale for Enactment . . . . . . . . . . . . . . . . . . . . . . 7-48.107:50.05(3) Organization of PCSA. . . . . . . . . . . . . . . . . . . . . . . . 7-48.11

7:50.10 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-48.117:50.10(1) Systemic Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-48.117:50.10(2) Payments Systemic Risk. . . . . . . . . . . . . . . . . . . . . . . . . 7-497:50.10(3) Clearing and Settlement System. . . . . . . . . . . . . . . . . . . . 7-507:50.10(4) Other Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 7-51

7:50.20 Enforceability of the PCSA . . . . . . . . . . . . . . . . . . . . . . . . . 7-51

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7:50.20(1) The Pith and Substance of the PCSA . . . . . . . . . . . . . . . . 7-527:50.20(2) The Preamble. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.2

7:50.30 Bank of Canada Oversight and Regulation . . . . . . . . . . . . . . 7-52.37:50.30(1) Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.37:50.30(2) Regulatory Agreements . . . . . . . . . . . . . . . . . . . . . . . . 7-52.47:50.30(3) Information and Disclosure . . . . . . . . . . . . . . . . . . . . . 7-52.57:50.30(4) Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.67:50.30(5) Directives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.67:50.30(6) Compliance Orders and Penalties. . . . . . . . . . . . . . . . . . 7-52.77:50.30(7) Bank Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.8

7:50.40 Designation of Systems to Avert Systemic or PaymentsSystem Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.8

7:50.40(1) Conditions Precedent to Designation . . . . . . . . . . . . . . . 7-52.97:50.40(1)(a) Participants’ Characteristics. . . . . . . . . . . . . . . . . . 7-52.97:50.40(1)(b) Clearing or Settlement Currency. . . . . . . . . . . . . . 7-52.127:50.40(1)(c) Settlement Account . . . . . . . . . . . . . . . . . . . . . . 7-52.127:50.40(1)(d) Systems Designated . . . . . . . . . . . . . . . . . . . . . . 7-52.13

7:50.40(2) Criteria of Designation for Systemic Risk . . . . . . . . . . . 7-52.137:50.40(2.5) Criteria of Designation for Payment System Risk. . . . . 7-52.147:50.40(2.8) System Designated . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.167:50.40(3) Consequences of Designation . . . . . . . . . . . . . . . . . . . 7-52.167:50.40(3)(a) Benefits of Designation . . . . . . . . . . . . . . . . . . . . 7-52.167:50.40(3)(a)(i) Precedence of system rules . . . . . . . . . . . . . . . 7-52.177:50.40(3)(a)(ii) Freedom from restraining orders. . . . . . . . . . . 7-52.177:50.40(3)(a)(iii) Binding force of settlement rules . . . . . . . . . . 7-52.187:50.40(3)(a)(iv) Inapplicability of fraudulent preference laws. . 7-52.18a7:50.40(3)(a)(v) Approval of netting . . . . . . . . . . . . . . . . . . 7-52.18a7:50.40(3)(a)(vi) Bank loans and guaranties . . . . . . . . . . . . . 7-52.18b7:50.40(3)(a)(vii) Control over membership. . . . . . . . . . . . . . 7-52.18b

7:50.40(3)(b) Burdens of Designation. . . . . . . . . . . . . . . . . . . . 7-52.197:50.40(3)(b)(i) Reporting obligations . . . . . . . . . . . . . . . . . . 7-52.197:50.40(3)(b)(ii) Regulatory agreements . . . . . . . . . . . . . . . . . 7-52.197:50.40(3)(b)(iii) Directives . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.21

7:50.40(4) Challenge to Designation or Directive . . . . . . . . . . . . . 7-52.227:50.40(5) Administration of Designations. . . . . . . . . . . . . . . . . . 7-52.237:50.40(6) Application of PCSA Foreign Systems . . . . . . . . . . . . . 7-52.24

7:50.50 Participation by Authorized Foreign Banks and Institutions 7-52.267:50.55 Designation of Prominent Payment Systems . . . . . . . . . . . 7-52.277:50.60 Securities and Derivatives Clearing Houses . . . . . . . . . . . 7-52.28a7:50.60(1) Policy Foundations . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.28a7:50.60(2) Protections Extended . . . . . . . . . . . . . . . . . . . . . . . . 7-52.297:50.60(3) Clearing Houses Protected . . . . . . . . . . . . . . . . . . . . . 7-52.307:50.60(3)(a) Named Clearing Houses . . . . . . . . . . . . . . . . . . . 7-52.307:50.60(3)(b) Designated Clearing Houses . . . . . . . . . . . . . . . . 7-52.31

7:50.70 Netting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.317:50.70(1) Policy Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.317:50.70(2) Termination Rights Legally Immune . . . . . . . . . . . . . . 7-52.327:50.70(3) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.337:50.70(3)(a) Netting Agreement. . . . . . . . . . . . . . . . . . . . . . . 7-52.337:50.70(3)(a)(i) Eligible Financial Contract . . . . . . . . . . . . . . . 7-52.337:50.70(3)(a)(ii) Financial Institution . . . . . . . . . . . . . . . . . . . 7-52.347:50.70(3)(a)(iii) Participant . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.34

7:50.70(4) Limitation of Rights Under Eligible Financial Contracts . 7-52.34

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7:50.80 Bank of Canada Powers . . . . . . . . . . . . . . . . . . . . . . . . 7-52.367:60 EFFICIENCY AND SAFETY (Canadian Payments Act) . . . . . 7-52.36

7:60.10 Legislative Framework . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.377:60.10(1) Criteria of Designation . . . . . . . . . . . . . . . . . . . . . . . 7-52.377:60.10(1)(a) Policy Rationale . . . . . . . . . . . . . . . . . . . . . . . . 7-52.377:60.10(1)(b) Systems Caught . . . . . . . . . . . . . . . . . . . . . . . . . 7-52.39

7:60.10(2) Consequences of Designation . . . . . . . . . . . . . . . . . . . 7-52.407:60.10(2)(a) Informational Requirements . . . . . . . . . . . . . . . . . . 7-537:60.10(2)(b) Ministerial Directives . . . . . . . . . . . . . . . . . . . . . . . 7-54

7:60.10(3) Application to Systems Without a Canadian Manager. . . . . 7-557:60.10(4) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-55

7:60.20 Enforceability of Part 2 of the Canadian Payments Act . . . . . . 7-567:60.20(1) Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-567:60.20(1)(a) Reasonableness of Action . . . . . . . . . . . . . . . . . . . . 7-567:60.20(1)(b) Legitimacy of Concern for Efficiency. . . . . . . . . . . . . 7-577:60.20(1)(c) Vulnerability of Unreasonable Actions. . . . . . . . . . . . 7-577:60.20(1)(d) Risk of Excessive Action . . . . . . . . . . . . . . . . . . . . . 7-58

7:60.20(2) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-597:65 PAYMENT CARD NETWORKS ACT . . . . . . . . . . . . . . . . . . 7-59

7:65.10 Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-597:65.10(1) Original Text . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-597:65.10(2) Proposed Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 7-607:65.10(3) Legislative Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-60.17:65.10(4) Grounds for Support. . . . . . . . . . . . . . . . . . . . . . . . . . . 7-63

7:65.20 Legislative Control of Interchange Fees . . . . . . . . . . . . . . . . 7-677:65.30 Definitions and Scope of Application. . . . . . . . . . . . . . . . . . 7-687:65.30(1) Payment Card, Network and Operator . . . . . . . . . . . . . . . 7-667:65.30(2) Acquirer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-707:65.30(3) Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-707:65.30(4) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-70.1

7:65.40 Direct and Indirect Scope of Regulation . . . . . . . . . . . . . . . 7-70.27:65.40(1) Disclosure of Rates and Fees . . . . . . . . . . . . . . . . . . . . 7-70.37:65.40(2) Terms of Contracts with Issuers and Acquirers. . . . . . . . . 7-70.47:65.40(3) In Terrorem Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-70.47:65.40(4) ‘‘Voluntary’’ Reduction of Fees. . . . . . . . . . . . . . . . . . . . 7-71

7:65.50 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-717:70 CONSUMER PROTECTION . . . . . . . . . . . . . . . . . . . . . . . . . 7-72

7:70.05 International Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . 7-727:70.05(1) Financial Stability Board Report . . . . . . . . . . . . . . . . . . . 7-727:70.05(2) OECD G20 High-Level Principles . . . . . . . . . . . . . . . . . 7-72.1

7:70.10 Multiple Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-747:70.20 Financial Consumer Agency of Canada . . . . . . . . . . . . . . . . 7-777:70.20(1) Corporate History and Activities . . . . . . . . . . . . . . . . . . . 7-777:70.20(1.5) Interpretive Memoranda (‘‘Commissioner’s Guidance’’) . . 7-787:70.20(2) Mandate and Powers — Financial Institutions . . . . . . . . . . 7-797:70.20(2.5) Enforcement Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 7-827:70.20(2.5)(a) Prosecution of Offences . . . . . . . . . . . . . . . . . . . . 7-827:70.20(2.5)(b) Proceedings in Cases of Violations . . . . . . . . . . . . . 7-82

7:70.20(2.7) Civil Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-857:70.20(3) Mandate and Powers — Payment Card Networks . . . . . . . 7-857:70.20(4) Enforcement by Commissioner . . . . . . . . . . . . . . . . . . . . 7-867:70.20(5) Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-907:70.20(5)(a) Natural Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-91

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7:70.20(5)(b) Appellate Review. . . . . . . . . . . . . . . . . . . . . . . . . . 7-917:70.25 Money Service Businesses Licensing . . . . . . . . . . . . . . . . . . 7-927:70.30 Complaints-Resolution Services and Agencies . . . . . . . . . . . 7-92.27:70.30(1) In-House Ombudsmen. . . . . . . . . . . . . . . . . . . . . . . . . 7-92.27:70.30(2) Ombudsman for Banking Services and Investments. . . . . . 7-92.37:70.30(2)(a) Policy Background . . . . . . . . . . . . . . . . . . . . . . . . 7-92.37:70.30(2)(b) Corporate History and Powers . . . . . . . . . . . . . . . . 7-92.47:70.30(2)(c) Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-95

7:70.30(3) Judicial Review of Ombudsman Decisions. . . . . . . . . . . . . 7-957:70.40 External Complaints Bodies . . . . . . . . . . . . . . . . . . . . . . . . 7-997:70.40(1) Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-997:70.40(2) Regulation of External Complaints Bodies . . . . . . . . . . . 7-1007:70.40(3) Compulsory Disclosure of Availability . . . . . . . . . . . . . . 7-1017:70.40(4) Operations, Decisions and Appeals . . . . . . . . . . . . . . . . 7-101

7:70.50 Lack of Public Information . . . . . . . . . . . . . . . . . . . . . . . 7-103

PART 3 THE BANKER-CUSTOMERRELATION

CHAPTER 8 BANKSANDTHE BUSINESS OF BANKING8:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-18:20 CONSTITUTIONAL LAW ISSUES. . . . . . . . . . . . . . . . . . . . . . 8-3

8:20.10 Meaning of ‘‘Bank’’ and ‘‘Banker’’ . . . . . . . . . . . . . . . . . . . . 8-38:20.10(1) Traditional ‘‘Business Functions’’ Test . . . . . . . . . . . . . . . . 8-38:20.10(2) Reputational Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-48:20.10(3) Institutional Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-58:20.10(4) Can Parliament Decide the Issue? . . . . . . . . . . . . . . . . . . . 8-6

8:20.20 Meaning of ‘‘Banking’’ and ‘‘Business of Banking’’ . . . . . . . . . 8-78:20.20(1) Traditional Causes of Difficulty in Definitions . . . . . . . . . . . 8-78:20.20(1)(a) Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-78:20.20(1)(b) Popular Sense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-88:20.20(1)(c) Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9

8:20.20(2) New Approaches and Modern Influences . . . . . . . . . . . . . 8-108:20.20(2)(a) Greater Consensus on Main Issues . . . . . . . . . . . . . . 8-108:20.20(2)(b) Laws on ‘‘Banking’’ and ‘‘Business of Banking’’

Differentiated. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-118:20.20(2)(c) Some Classic Definitions ‘‘Outworn’’ . . . . . . . . . . . . . 8-138:20.20(2)(d) Bank Act Approach . . . . . . . . . . . . . . . . . . . . . . . . 8-148:20.20(2)(d)(i) Permitted Activities . . . . . . . . . . . . . . . . . . . . . . 8-148:20.20(2)(d)(ii) Expanded Scope (2018) . . . . . . . . . . . . . . . . . . . 8-15

8:20.20(2)(e) Diversity and ‘‘Cooperative Federalism’’ . . . . . . . . . . 8-168:20.20(2)(f) De-Emphasis on Paramountcy and Interjurisdictional

Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-178:20.20(2)(f)(i) Federal paramountcy . . . . . . . . . . . . . . . . . . . . . 8-188:20.20(2)(f)(ii) Interjurisdictional immunity . . . . . . . . . . . . . . . 8-22.4

8:20.30 Particular Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-26.38:20.30(1) Provincial Control of Banks’ Activities . . . . . . . . . . . . . . 8-26.58:20.30(1)(a) Special Bank Act Security . . . . . . . . . . . . . . . . . . . 8-26.58:20.30(1)(a)(i) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-278:20.30(1)(a)(ii) Bank of Montreal v. Hall. . . . . . . . . . . . . . . . . . 8-288:20.30(1)(a)(iii) Priority relative to PPSA interest at common

law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-308:20.30(1)(b) Banks’ Promotion of Insurance . . . . . . . . . . . . . . . 8-30.6

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8:20.30(1)(c) Banks’ Labour Relations and HumanRights Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-35

8:20.30(1)(d) Financial Consumer Protection . . . . . . . . . . . . . . . . 8-368:20.30(1)(d)(i) The federal approach. . . . . . . . . . . . . . . . . . . . 8-38.18:20.30(1)(d)(ii) The provinces’ approach . . . . . . . . . . . . . . . 8-38.12i8:20.30(1)(d)(iii) Overlapping regulations – common law

cases . . . . . . . . . . . . . . . . . . . . . . . . . . 8-38.12j8:20.30(1)(d)(iv) Overlapping regulations – Quebec cases. . . . . . 8-38.14

8:20.30(2) Banking-Like Activities of Non-Federal Corporations. . 8-38.22d8:20.30(3) Reach of Federal Banking Power. . . . . . . . . . . . . . . . 8-38.22e

8:30 MEANING OF KEY TERMS IN GENERALAPPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-38.27

8:30.10 Meaning of ‘‘Bank’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-38.278:30.10(1) In Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . 8-38.278:30.10(2) In Provincial Statutes . . . . . . . . . . . . . . . . . . . . . . . . 8-38.298:30.10(3) In Other Contexts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-40

8:30.20 Meaning of ‘‘Banking’’ and ‘‘the Business of Banking’’ . . . . . . 8-418:30.20(1) Banking by Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-428:30.20(2) Banking by Foreign Banks and Authorized

Foreign Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-44.18:30.20(3) Banking by Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-458:30.20(3)(a) Is the Law Permissive? . . . . . . . . . . . . . . . . . . . . . . 8-468:30.20(3)(b) Historical Precedents . . . . . . . . . . . . . . . . . . . . . . . 8-488:30.20(3)(c) Modern Judicial Recognition . . . . . . . . . . . . . . . . . . 8-49

8:30.30 Money Services Business Regulation . . . . . . . . . . . . . . . . . . 8-518:30.30(1) Constitutional Law of Money Services . . . . . . . . . . . . . . . . 8-52

CHAPTER 9 THE BANKING RELATIONSHIP9:10 CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1

9:10.10 Formation of Relation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-39:10.10(1) Voluntary Agreement of Parties . . . . . . . . . . . . . . . . . . . . 9-39:10.10(2) Statutory Compulsion of Bank . . . . . . . . . . . . . . . . . . . . . 9-39:10.10(3) Duty of Care When Opening Account . . . . . . . . . . . . . . . . 9-59:10.10(3)(a) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-59:10.10(3)(a.5) Duty to Applicant Customer . . . . . . . . . . . . . . . . . . 9-69:10.10(3)(b) Duty at Large . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-6.19:10.10(3)(b)(i) Duty to Comply with Standard Procedure . . . . . . 9-6.19:10.10(3)(b)(ii) Duty to Investigate Applicants . . . . . . . . . . . . . 9-6.39:10.10(3)(b)(iii) Relevance of Customer Relation with Claimant . 9-6.5

9:10.10(3)(c) [Deleted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-6.69:10.10(3)(d) Performance of Relevant Statutory Obligations. . . . . 9-6.6

9:10.20 Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-6.89:10.20(1) Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-79:10.20(1)(a) Federal Corporations . . . . . . . . . . . . . . . . . . . . . . . . 9-79:10.20(1)(b) Foreign Corporations . . . . . . . . . . . . . . . . . . . . . . . . 9-79:10.20(1)(c) Provincial Corporations . . . . . . . . . . . . . . . . . . . . . . 9-8

9:10.20(2) Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-89:10.30 Transactional Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-119:10.30(1) Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-119:10.30(1)(a) Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-119:10.30(1)(b) Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-12

9:10.30(2) Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-139:10.30(3) Memorandum in Writing . . . . . . . . . . . . . . . . . . . . . . . . 9-14

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9:10.30(3)(a) When Account Opened in Person . . . . . . . . . . . . . . . 9-149:10.30(3)(b) When Account Opened Online or by Telephone . . . . . 9-15

9:10.30(4) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-169:20 TERMS OF BANKING RELATIONSHIP . . . . . . . . . . . . . . . . 9-17

9:20.10 Terms Established by Express Agreement . . . . . . . . . . . . . . . 9-179:20.10(1) Conventional Forms of Agreement . . . . . . . . . . . . . . . . . 9-179:20.10(2) Electronic Notification . . . . . . . . . . . . . . . . . . . . . . . . 9-20.29:20.10(2)(a) Definition and Scope of Application . . . . . . . . . . . . 9-20.39:20.10(2)(a.1) Interpratation of Act and Regulations . . . . . . . . . . . 9-219:20.10(2)(b) Prerequisites of Use . . . . . . . . . . . . . . . . . . . . . . . . 9-229:20.10(2)(b)(i) Consent and designation of system. . . . . . . . . . . . 9-229:20.10(2)(b)(ii) Informed consent required. . . . . . . . . . . . . . . . . 9-229:20.10(2)(b)(iii) Information is provided to the designated

system . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-229:20.10(2)(b)(iv) Clear, simple and not misleading language . . . . . . 9-239:20.10(2)(b)(v) Administrative matters . . . . . . . . . . . . . . . . . . . 9-249:20.10(2)(b)(vi) Right to revoke consent . . . . . . . . . . . . . . . . . . 9-249:20.10(2)(b)(vii) Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.1

9:20.15 Duties of Bank Under Other Legislation . . . . . . . . . . . . . . 9-24.19:20.15(1) Human Rights Legislation . . . . . . . . . . . . . . . . . . . . . . 9-24.1

9:20.20 Statutorily Required Terms . . . . . . . . . . . . . . . . . . . . . . . 9-24.29:20.20(1) [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.2a9:20.20(2) PIPEDA Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.2a9:20.20(3) Cheque Hold Periods . . . . . . . . . . . . . . . . . . . . . . . . 9-24.2b9:20.20(3)(a) 2002 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.39:20.20(3)(b) Access to Funds Regulations, 2012 . . . . . . . . . . . . . 9-24.49:20.20(3)(b)(i) Persons protected . . . . . . . . . . . . . . . . . . . . . . 9-24.59:20.20(3)(b)(ii) Disclosure required . . . . . . . . . . . . . . . . . . . . 9-24.69:20.20(3)(b)(iii) Method of disclosure . . . . . . . . . . . . . . . . . . . 9-24.69:20.20(3)(b)(iv) Disclosure of policy changes . . . . . . . . . . . . . . 9-24.7

9:20.20(4) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.79:20.25 Statutorily Prohibited Terms . . . . . . . . . . . . . . . . . . . . . . 9-24.79:20.30 Implied Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-24.99:20.30(1) Basic Rights and Duties of Parties . . . . . . . . . . . . . . . . 9-24.109:20.30(1.5) Duties Derived From the Principle of Good Faith . . . . 9-24.129:20.30(1.5)(a) The Bhasin Principle. . . . . . . . . . . . . . . . . . . . . 9-24.129:20.30(1.5)(b) Application in Litigation Against Banks . . . . . . . 9-24.149:20.30(1.5)(c) Application to Customers . . . . . . . . . . . . . . . . 9-24.14h

9:20.30(2) Standard of Care by Bank . . . . . . . . . . . . . . . . . . . . 9-24.14i9:20.30(2)(a) The ‘‘Reasonable Banker’’ . . . . . . . . . . . . . . . . . 9-24.14i9:20.30(2)(a.1) Bank Undertaking a Higher or Special Duty. . . . . 9-24.159:20.30(2)(b) Contracting for a Lower Standard . . . . . . . . . . . . 9-24.179:20.30(2)(c) Performance of Relevant Statutory Obligations . . . . 9-24.17

9:20.30(3) Standard of Care by Customer . . . . . . . . . . . . . . . . . . 9-24.199:20.30(3)(a) When Writing a Cheque . . . . . . . . . . . . . . . . . . . . . 9-259:20.30(3)(b) When Giving Other Payments Instructions . . . . . . . . . 9-269:20.30(3)(c) New Duties Created by Contract. . . . . . . . . . . . . . . . 9-289:20.30(3)(d) Duties with Respect to the Administration of the

Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-289:20.30(3)(d)(i) Duty to examine account statements. . . . . . . . . . . 9-289:20.30(3)(d)(ii) Duty to maintain adequate accounting

controls . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-30

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9:20.30(3)(d)(iii) Duty to report perceived irregularitiesin account . . . . . . . . . . . . . . . . . . . . . . . . . 9-30.1

9:20.30(3)(d)(iv) New duties . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-329:20.30(3)(e) Affirmative cheque confirmation. . . . . . . . . . . . . . . . 9-32

9:20.30(4) Equality of Customers’ Treatment . . . . . . . . . . . . . . . . . . 9-339:20.30(5) Common Law Duty of Confidentiality . . . . . . . . . . . . . . 9-34.29:20.30(5)(a) Tournier v. National Provincial & Union

Bank of England. . . . . . . . . . . . . . . . . . . . . . . . . . 9-369:20.30(5)(b) Source of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-379:20.30(5)(c) Scope of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-38.29:20.30(5)(d) Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-409:20.30(5)(d)(i) Compulsion of law . . . . . . . . . . . . . . . . . . . . . . 9-409:20.30(5)(d)(ii) Public duty . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-459:20.30(5)(d)(iii) The bank’s own interest . . . . . . . . . . . . . . . . . . 9-489:20.30(5)(d)(iv) Consent of customer . . . . . . . . . . . . . . . . . . . . 9-539:20.30(5)(d)(v) New exceptions . . . . . . . . . . . . . . . . . . . . . . . . 9-55

9:20.30(5.5) Statutory Duties of Confidentiality . . . . . . . . . . . . . . . . 9-579:20.30(5.5)(a) Exclusivity of Federal Law . . . . . . . . . . . . . . . . . . 9-589:20.30(5.5)(b) PIPEDA as a Defence to Unauthorized

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-599:20.30(5.5)(c) PIPEDA as a Defence to Demands for

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-609:20.30(6) Statutory Duties re Data Collection . . . . . . . . . . . . . . . . 9-62a

9:20.40 Statutorily Required Disclosures. . . . . . . . . . . . . . . . . . . . 9-62a9:20.40(1) Bank Act Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . 9-62a9:20.40(1)(a) Account Charges and Fees. . . . . . . . . . . . . . . . . . . 9-62a9:20.40(1)(b) Complaint-Handling Procedures. . . . . . . . . . . . . . . 9-62.19:20.40(1)(c) Costs of Borrowing . . . . . . . . . . . . . . . . . . . . . . . 9-62.19:20.40(1)(d) Rates of Interest on Accounts and

Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . 9-62.19:20.40(1)(d)(i) Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . 9-62.19:20.40(1)(d)(ii) Index-linked deposits and debt instruments. . . . . 9-62.2

9:20.40(1)(e) Cheque Deposit Holding Period . . . . . . . . . . . . . . . 9-62.29:20.40(2) PIPEDA Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 9-62.2

9:30 DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-62.29:30.10 Meaning of ‘‘Deposit’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 9-62.29:30.10(1) In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-62.29:30.10(2) In Particular Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-639:30.10(2)(a) Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-639:30.10(2)(b) Canada Deposit Insurance Corporation Act . . . . . . . . 9-649:30.10(2)(c) Financial Institutions Depositors Compensation

Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-649:30.10(2)(d) Provincial Statutes . . . . . . . . . . . . . . . . . . . . . . . . . 9-659:30.10(2)(d)(i) Loan companies legislation. . . . . . . . . . . . . . . . . 9-659:30.10(2)(d)(ii) Credit union and caisse populaire legislation . . . . . 9-659:30.10(2)(d)(iii) Trust companies legislation . . . . . . . . . . . . . . . . 9-669:30.10(2)(d)(iv) Regulation of deposit-taking businesses. . . . . . . . 9-679:30.10(2)(d)(v) Prohibition of Deposit-taking. . . . . . . . . . . . . . . 9-68

9:30.20 Deposit as Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-689:30.20(1) Property in Money or Funds. . . . . . . . . . . . . . . . . . . . . . 9-689:30.20(2) Debt of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-68.29:30.20(3) Property of the Customer . . . . . . . . . . . . . . . . . . . . . . . . 9-70

9:30.30 Terms of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-70.1

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9:30.30(1) Agreement of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 9-70.19:30.30(1)(a) Terms of Repayment . . . . . . . . . . . . . . . . . . . . . . . 9-719:30.30(1)(a)(i) Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-729:30.30(1)(a)(ii) Time certain . . . . . . . . . . . . . . . . . . . . . . . . . . 9-729:30.30(1)(a)(iii) Conditional repayment obligations . . . . . . . . . . . 9-72

9:30.30(1)(b) Returns on Deposits. . . . . . . . . . . . . . . . . . . . . . . . 9-759:30.30(1)(b)(i) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-759:30.30(1)(b)(ii) Market-related or index-related returns . . . . . . . . 9-76

9:30.40 Locating Deposits and Address for Notices &c. . . . . . . . . . . . 9-769:30.40(1) Designation of Branch of Account . . . . . . . . . . . . . . . . . . 9-779:30.40(1)(a) Situs of Account for Ordinary Purposes . . . . . . . . . . . 9-789:30.40(1)(b) Situs of Account for Purposes of Indian Act . . . . . . . . 9-809:30.40(1)(c) Meaning of ‘‘Deposit Account’’ for this Purpose . . . . . 9-81

9:30.40(2) Address for Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-839:30.40(2)(a) To Attach Property of a Customer . . . . . . . . . . . . . . 9-839:30.40(2)(b) Service of Subpoenas . . . . . . . . . . . . . . . . . . . . . . . 9-849:30.40(2)(c) Service on Bank of Notices Under Bank Act . . . . . . . . 9-85

9:30.50 Limitation of Actions on Deposits. . . . . . . . . . . . . . . . . . . . 9-859:30.50(1) Under Provincial Limitations Statutes . . . . . . . . . . . . . . . 9-869:30.50(2) Under Old Limitation Provisions of the Bank Act . . . . . . . 9-87

9:30.60 Unclaimed Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-879:30.60(1) Under the Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-879:30.60(2) Under Insolvency Legislation . . . . . . . . . . . . . . . . . . . . . 9-88

9:40 ADMINISTRATION OF ACCOUNTS . . . . . . . . . . . . . . . . . . 9-889:40.10 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-899:40.20 Appropriation to Accounts . . . . . . . . . . . . . . . . . . . . . . . . 9-899:40.30 Cash Management; Mirror Accounts . . . . . . . . . . . . . . . . . . 9-899:40.40 Authorization to Debit and Credit . . . . . . . . . . . . . . . . . . . 9-939:40.40(1) Onus of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-939:40.40(2) Electronic Access Agreements . . . . . . . . . . . . . . . . . . . . . 9-949:40.40(2)(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-949:40.40(2)(b) Typical Contract Terms . . . . . . . . . . . . . . . . . . . . . 9-94

9:40.40(3) Commercially Reasonable Levels of Security . . . . . . . . . . 9-94.29:40.40(4) Other Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.5

9:40.50 Passbooks and Statements of Account . . . . . . . . . . . . . . . . 9-94.69:40.50(1) A Custom— Not a Duty . . . . . . . . . . . . . . . . . . . . . . . 9-94.69:40.50(2) Reliability of Accounting by Bank . . . . . . . . . . . . . . . . 9-94.8a

9:40.55 Return of Paid Cheques . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.99:40.60 Verification Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.99:40.60(1) Whether Agreements to be Interpreted ‘‘Strictly’’

Against Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.119:40.60(2) Application to Negligence of Bank. . . . . . . . . . . . . . . . 9-94.129:40.60(3) Application of Forgery to Corporate Drawer’s Signature 9-94.14b

9:40.70 Error Correction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.189:40.75 Limitation of Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.199:40.80 Duty to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.209:40.80(1) Duty of Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.209:40.80(1)(a) In Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.209:40.80(1)(a)(i) Operation of Account . . . . . . . . . . . . . . . . . . 9-94.219:40.80(1)(a)(ii) Administration of Credit . . . . . . . . . . . . . . . . 9-94.25

9:40.80(1)(b) Whether Bank Must Monitor Accounts for Fraud . . 9-94.269:40.80(1)(b)(i) Seaquest Investments. . . . . . . . . . . . . . . . . . 9-94.26a9:40.80(1)(b)(ii) Previous Rulings in Preliminary Proceedings. . 9-94.26c

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9:40.80(1)(b)(iii) Actual or Constructive Notice of Fraud . . . . 9-94.26d9:40.80(1)(b)(iv) The Duty and the Persons To Whom it is Owed 9-94.26f9:40.80(1)(b)(v) Unconscionable Advantage Based

on Knowledge of Accounts. . . . . . . . . . . . . 9-94.26j9:40.80(2) Duty of Customer. . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.26n

9:40.90 Freezing Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.26n9:40.90(1) By Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.26n9:40.90(1.5) By Federal Order . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.309:40.90(1.5)(a) The Freezing Assets of Corrupt Foreign

Officials Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.319:40.90(1.5)(a)(i) Summary . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.319:40.90(1.5)(a)(ii) Legislative history . . . . . . . . . . . . . . . . . . . 9-94.319:40.90(1.5)(a)(iii) Operative provisions . . . . . . . . . . . . . . . . . 9-94.329:40.90(1.5)(a)(iv) Analysis of terms . . . . . . . . . . . . . . . . . . . 9-94.329:40.90(1.5)(a)(v) Regulations and orders . . . . . . . . . . . . . . . . 9-94.359:40.90(1.5)(a)(vi) Obligations imposed . . . . . . . . . . . . . . . . . 9-94.379:40.90(1.5)(a)(vii) Role of R.C.M.P. . . . . . . . . . . . . . . . . . . . 9-94.40

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9:40.90(1.5)(a)(vii.5) Violation of Public International Law . . . . 9-94.409:40.90(1.5)(a)(viii) Conclusion. . . . . . . . . . . . . . . . . . . . . . 9-94.40a

9:40.90(1.5)(b) United Nations Act Freezes. . . . . . . . . . . . . . . 9-94.40b9:40.90(1.5)(b)(i) Property affected . . . . . . . . . . . . . . . . . . . . 9-94.419:40.90(1.5)(b)(ii) Freezing instructions . . . . . . . . . . . . . . . . . 9-94.42

9:40.90(1.5)(c) Special Economic Measures Act Freezes . . . . . . . 9-94.439:40.90(2) Mareva Injunctions. . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.43

9:45 OPEN BANKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.469:45.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.469:45.20 United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.499:45.30 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.519:45.30(1) Preliminaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.519:45.30(2) Bill C-74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.53

9:45.35 Privacy Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.579:45.20 Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.58

9:50 FIDUCIARY OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . 9-94.639:50.10 General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-94.639:50.20 Creating a Fiduciary Relation . . . . . . . . . . . . . . . . . . . . 9-94.649:50.30 Undertaking by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-979:50.40 Transferred Fiduciary Obligations. . . . . . . . . . . . . . . . . . . 9-1009:50.40(1) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1009:50.40(2) Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1019:50.40(3) The Supreme Court Decisions . . . . . . . . . . . . . . . . . . . . 9-1029:50.40(3)(a) Air Canada v. M & L Travel Ltd. . . . . . . . . . . . . . . 9-1029:50.40(3)(b) Gold v. Rosenberg . . . . . . . . . . . . . . . . . . . . . . . . 9-1049:50.40(3)(c) Citadel General Assurance Co. v.

Lloyds Bank Canada . . . . . . . . . . . . . . . . . . . . . . 9-1069:50.40(4) Trustee de son tort . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1079:50.40(5) Knowledge by the Bank . . . . . . . . . . . . . . . . . . . . . . . . 9-1089:50.40(5)(a) Knowing Assistance . . . . . . . . . . . . . . . . . . . . . . . 9-1099:50.40(5)(b) Knowing Receipt . . . . . . . . . . . . . . . . . . . . . . . . . 9-114

9:50.40(6) Effect of s. 437(3) Bank Act . . . . . . . . . . . . . . . . . . . . . 9-1189:60 SPECIAL RIGHTS OF BANKS AS CREDITORS

OF CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-118.29:60.10 Banker’s Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-118.29:60.10(1) Source of Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-118.29:60.10(2) Effect of Modern Personal Property Security Statutes . . . 9-118.39:60.10(3) Property Subject to Lien . . . . . . . . . . . . . . . . . . . . . . 9-118.49:60.10(3)(a) Funds on Deposit . . . . . . . . . . . . . . . . . . . . . . . 9-118.49:60.10(3)(a)(i) Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-118.49:60.10(3)(a)(ii) Credit unions . . . . . . . . . . . . . . . . . . . . . . . 9-118.5

9:60.10(3)(b) Other Forms of Property. . . . . . . . . . . . . . . . . . . . 9-1209:60.10(3)(c) Property of Others . . . . . . . . . . . . . . . . . . . . . . . . 9-1219:60.10(3)(d) Property in Possession . . . . . . . . . . . . . . . . . . . . . 9-122

9:60.10(4) Realization Under the Lien. . . . . . . . . . . . . . . . . . . . . . 9-1229:60.20 Banker’s Right of Consolidation of Accounts . . . . . . . . . . . 9-1239:60.20(1) In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1239:60.20(2) Right of Bank Only. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1259:60.20(3) Other Concepts Distinguished. . . . . . . . . . . . . . . . . . . . 9-1259:60.20(3)(a) Banker’s Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1259:60.20(3)(b) Set-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-126

9:60.20(4) Conditions of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . 9-1279:60.20(5) Fraudulent Preference or Conveyance . . . . . . . . . . . . . . 9-130

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August 2018C1-19

9:60.20(6) Priority Relative to a Security Interest in Proceeds . . . . . . 9-1309:60.20(6)(a) Cheque Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 9-1319:60.20(6)(b) Cash or Funds Proceeds . . . . . . . . . . . . . . . . . . . . 9-131

9:70 TERMINATION OF BANKING RELATIONSHIP. . . . . . . . . 9-1369:70.10 By the Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1369:70.20 By the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1379:70.20(1) Reason fo Termination . . . . . . . . . . . . . . . . . . . . . . . . 9-1379:70.20(1)(a) Where No Contractual Duty to Explain . . . . . . . . . . 9-1379:70.20(1)(b) Refusal to Deal . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1399:70.20(1)(c) PIPEDA Defence to Disclosure . . . . . . . . . . . . . . . 9-141

9:70.20(1.5) Notice Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-1429:70.20(2) Termination of a Service Only. . . . . . . . . . . . . . . . . . . . 9-1479:70.20(3) Closing a Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-147

VOLUME 2

CHAPTER 10 BANKS’ PAYMENTANDCOLLECTIONOFCHEQUES

10:10 DUTY TO PAY CUSTOMERS’ CHEQUES . . . . . . . . . . . . . . . 10-110:10.10 General Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-110:10.15 Section 437 of the Bank Act . . . . . . . . . . . . . . . . . . . . . . . . 10-310:10.20 Who is a ‘‘Banker’’ for This Purpose? . . . . . . . . . . . . . . . . . 10-310:10.30 Conditions of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-410:10.30(1) Properly Payable Items . . . . . . . . . . . . . . . . . . . . . . . . 10-410:10.30(2) Sufficient Available Funds or Credit. . . . . . . . . . . . . . . 10-6.110:10.30(3) No Suspicious Circumstances . . . . . . . . . . . . . . . . . . . . 10-8

10:10.30(3.5) No Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-8.310:10.30(4) Unauthorized Electronic Payments. . . . . . . . . . . . . . . . 10-8.6

10:10.40 Order of Payment of Items. . . . . . . . . . . . . . . . . . . . . . . . 10-8.810:10.50 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-8.1010:10.50(1) Material Considerations . . . . . . . . . . . . . . . . . . . . . . . . 10-910:10.50(1)(a) Personal Presentment . . . . . . . . . . . . . . . . . . . . . . 10-910:10.50(1)(b) Presentment Through the Clearing System . . . . . . . 10-1010:10.50(1)(c) Method of Payment . . . . . . . . . . . . . . . . . . . . . . 10-1210:10.50(1)(d) Reason for Inquiry . . . . . . . . . . . . . . . . . . . . . . . 10-13

10:10.50(2) On-Us Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-14.210:10.50(3) Effect of Provisional Settlement in the Clearing . . . . . . . 10-1710:10.50(4) Return of ‘‘Paid’’ Items . . . . . . . . . . . . . . . . . . . . . . . 10-1710:10.50(5) Return of Image Printout . . . . . . . . . . . . . . . . . . . . . . 10-18

10:10.60 Liability for Late Return . . . . . . . . . . . . . . . . . . . . . . . . . 10-1810:10.60(1) BEA, s. 126 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-1910:10.60(2) Timely Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-2010:10.60(3) Late Return Outside the Clearing. . . . . . . . . . . . . . . . . 10-2210:10.60(4) Late Return Through the Clearing . . . . . . . . . . . . . . . . 10-2210:10.60(5) Return of CAD Items to US Banks . . . . . . . . . . . . . . . 10-25

10:10.70 Restitution for Drawee Bank . . . . . . . . . . . . . . . . . . . . . . 10-2710:10.70(1) Conventional Restitutionary Theory. . . . . . . . . . . . . . . 10-2910:10.70(1)(a) Prima Facie Right to Restitution. . . . . . . . . . . . . 10-30.110:10.70(1)(b) Defences to Restitution of Mistaken Payments . . . 10-30.210:10.70(1)(b)(i) Payor’s intent . . . . . . . . . . . . . . . . . . . . . . . . 10-3110:10.70(1)(b)(ii) Consideration given by payee . . . . . . . . . . . . . 10-32

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10:10.70(1)(b)(iii) Change of position by payee . . . . . . . . . . . . . 10-3510:10.70(1)(b)(iv) Other defences . . . . . . . . . . . . . . . . . . . . . . 10-35

10:10.70(1)(c) Canadian Cases . . . . . . . . . . . . . . . . . . . . . . . . . 10-3610:10.70(1)(c)(i) Claim against customer. . . . . . . . . . . . . . . . . . 10-3710:10.70(1)(c)(ii) Claim against payee . . . . . . . . . . . . . . . . . . . 10-3710:10.70(1)(c)(iii) Claim against collecting bank. . . . . . . . . . . . . 10-39

10:10.70(2) Absence of Juristic Reason . . . . . . . . . . . . . . . . . . . . . 10-4010:10.70(2)(a) Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-4110:10.70(2)(b) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-4210:10.70(2)(c) Garland v. Consumers’ Gas Co. . . . . . . . . . . . . . 10-42.110:10.70(2)(c)(i) Analytical method . . . . . . . . . . . . . . . . . . . . 10-42.210:10.70(2)(c)(ii) Examples . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.310:10.70(2)(c)(iii) Application to mistaken payments . . . . . . . . 10-42.410:10.70(2)(c)(iv) Commercial good conscience . . . . . . . . . . . . 10-42.410:10.70(2)(c)(v) ‘‘Just debt’’ owed by another. . . . . . . . . . . . . 10-42.710:10.70(2)(c)(vi) Contract as Juristic Reason . . . . . . . . . . . . 10-42.1110:10.70(2)(c)(vii) Summary and conclusion . . . . . . . . . . . . . 10-42.13

10:10.70(3) Common Law Tracing . . . . . . . . . . . . . . . . . . . . . . 10-42.1310:10.80 Wrongful Dishonour . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.14

10:20 OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.1910:20.10 Remittance Instruments . . . . . . . . . . . . . . . . . . . . . . . 10-42.1910:20.10(1) Stop Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2010:20.10(2) Holder’s Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2110:20.10(3) Dishonour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2110:20.10(4) Fraudulent Alteration . . . . . . . . . . . . . . . . . . . . . . 10-42.2210:20.10(5) Forgery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2210:20.10(6) Defences of Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2310:20.10(6.5) Conversion of These Instruments. . . . . . . . . . . . . . 10-42.2510:20.10(6.8) International Remittance Services . . . . . . . . . . . . . 10-42.2510:20.10(7) Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . 10-42.26

10:20.20 Funds Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-42.2610:20.30 Statutory Duty to Pay Government Cheques. . . . . . . . . . 10-42.26

10:30 COLLECTION OF CHEQUES . . . . . . . . . . . . . . . . . . . . . . . 10-4310:30.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-4310:30.10(1) Authority to Collect . . . . . . . . . . . . . . . . . . . . . . . . . 10-4410:30.10(2) Status When Collecting . . . . . . . . . . . . . . . . . . . . . . . 10-4510:30.10(2)(a) Through the CPA Clearing Systems . . . . . . . . . . . . 10-4510:30.10(2)(a.1) Supply and Guaranty of Endorsements . . . . . . . . 10-4710:30.10(2)(b) On-Us Items . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-48

10:30.20 Source of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-48.210:30.30 Implied Elements of Duty . . . . . . . . . . . . . . . . . . . . . . . 10-48.210:30.30(0.5) Provisional Credit and Hold Period . . . . . . . . . . . . . . 10-4910:30.30(1) Selection of Collection Method . . . . . . . . . . . . . . . . . . 10-5010:30.30(1)(a) Image Rule Project Options . . . . . . . . . . . . . . . . . 10-5010:30.30(1)(b) Conventional Presentment Methods . . . . . . . . . . . 10-51

10:30.30(2) Duty to Present Promptly . . . . . . . . . . . . . . . . . . . . . . 10-5310:30.30(2.5) Re-Presentment Outside CAD Clearing . . . . . . . . . . . 10-5610:30.30(3) Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 10-56a10:30.30(4) Credit Payee’s Account . . . . . . . . . . . . . . . . . . . . . . 10-56b10:30.30(4)(a) Common Law Rule . . . . . . . . . . . . . . . . . . . . . 10-56b10:30.30(4)(b) Access to Funds Regulations, 2012 . . . . . . . . . . . 10-56.210:30.30(4)(b)(i) Duty to make funds available . . . . . . . . . . . . 10-56.310:30.30(4)(b)(ii) Person protected by the new duty . . . . . . . . . 10-56.5

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10:30.30(4)(b)(iii) Deposits to which the rule applies . . . . . . . . . 10-56.510:30.30(4)(b)(iv) Cases not covered by the rule . . . . . . . . . . . . 10-56.710:30.30(4)(b)(v) Compulsory availability of first $100 and

exceptions . . . . . . . . . . . . . . . . . . . . . . . . 10-56.910:30.30(4)(b)(vi) Notification of redress . . . . . . . . . . . . . . . 10-56.10

10:30.30(5) Give Notice of Dishonour. . . . . . . . . . . . . . . . . . . . 10-56.1110:30.40 Dishonoured (Returned) Items . . . . . . . . . . . . . . . . . . . 10-56.1410:30.40(1) Directly Presented Items. . . . . . . . . . . . . . . . . . . . . 10-56.1410:30.40(2) Timely Return through the CAD or USD Clearing . . . 10-56.1410:30.40(3) Late Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-5710:30.40(3)(a) Position of the Collecting Bank: Pre-2000 . . . . . . . . 10-5710:30.40(3)(b) Position of the Collecting Bank: Post-2000 . . . . . . . 10-61

10:30.40(4) Claim by Customer . . . . . . . . . . . . . . . . . . . . . . . . . . 10-6210:30.40(5) On-Us Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-64

10:30.50 Right of Charge-Back . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-6510:30.50(1) Right of Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-6510:30.50(2) No Duty on Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 10-68.210:30.50(3) Charge-Back of ‘‘Final’’ Payments . . . . . . . . . . . . . . . 10-68.2

10:40 CONVERSION OF CHEQUES . . . . . . . . . . . . . . . . . . . . . . 10-68.310:50 LIMITED PROTECTION OF COLLECTING BANK . . . . . . 10-68.4

10:50.10 History and Purpose of BEA, s. 165(3) . . . . . . . . . . . . . . . . 10-6910:50.10(1) Rights of Collecting Bank. . . . . . . . . . . . . . . . . . . . . . 10-6910:50.10(2) Legislative Reform . . . . . . . . . . . . . . . . . . . . . . . . . . 10-7110:50.10(3) Judicial Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 10-72

10:50.20 Effect of BEA, s. 165(3). . . . . . . . . . . . . . . . . . . . . . . . . . 10-7310:50.20(1) Conditions Precedent to Application of BEA,

s. 165(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-7410:50.20(1)(a) Cheque. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-7410:50.20(1)(b) Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-7510:50.20(1)(b)(i) Paper-based cheuqes . . . . . . . . . . . . . . . . . . . 10-7510:50.20(1)(b)(ii) Deposit of an official image . . . . . . . . . . . . . . 10-78

10:50.20(1)(c) Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-78.110:50.20(1)(d) For Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . 10-78.110:50.20(1)(e) By a ‘‘Person’’ . . . . . . . . . . . . . . . . . . . . . . . . . 10-78.310:50.20(1)(f) Person ‘‘Entitled to the Proceeds’’ . . . . . . . . . . . . 10-78.310:50.20(1)(f)(i) Section as makeweight . . . . . . . . . . . . . . . . . . 10-7910:50.20(1)(f)(ii) Unendorsed cheques deposited by payee . . . . . . 10-8010:50.20(1)(f)(iii) Cheques restrictively endorsed . . . . . . . . . . . 10-80.110:50.20.(1)(f)(iv) Missing or unauthorized endorsement . . . . . . . 10-82

10:50.20(2) Bank Is Not Holder in Due Course. . . . . . . . . . . . . . . . 10-8310:50.20(3) Defences of the Drawer . . . . . . . . . . . . . . . . . . . . . . . 10-8410:50.20(4) When BEA, s. 165(3) Does Not Apply . . . . . . . . . . . . . 10-8510:50.20(4)(a) Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . 10-8510:50.20(4)(b) Quebec. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-86

10:50.30 Cheques Marked ‘‘In Trust’’ . . . . . . . . . . . . . . . . . . . . . . 10-8610:50.30(1) Recent Class Action Proceedings Decisions . . . . . . . . . . 10-8610:50.30(2) Cheques Payable ‘‘In Trust’’ . . . . . . . . . . . . . . . . . . . 10-86.310:50.30(3) Cheques Bearing an ‘‘In Trust’’ Notation Elsewhere . . . 10-86.4

10:60 COLLECTION OF OTHER ITEMS. . . . . . . . . . . . . . . . . . . 10-86.610:60.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-86.610:60.20 ICC Uniform Rules for Collections . . . . . . . . . . . . . . . . . . 10-8710:60.30 Case Law on Collection. . . . . . . . . . . . . . . . . . . . . . . . . . 10-8810:60.30(1) Contractual Liability . . . . . . . . . . . . . . . . . . . . . . . . . 10-89

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10:60.30(2) Agency Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-8910:60.30(3) Liability in Damages for Negligence . . . . . . . . . . . . . . . 10-9010:60.30(4) Sub-Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-91

10:70 TRUNCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-91

PART 4 GENERAL-PURPOSE PAYMENT SYSTEMS

CHAPTER 11 THE NATIONALDEBIT EXCHANGE,CLEARINGANDSETTLEMENT SYSTEM

11:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-111:10.10 Debit Collection Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 11-111:10.10(1) On-Us Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-211:10.10(2) National Debit Clearing Systems . . . . . . . . . . . . . . . . . . 11-211:10.10(2)(a) Current By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . 11-211:10.10(2)(b) Current Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-311:10.10(2)(b)(i) ACSS Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 11-311:10.10(2)(b)(ii) USBES Rules . . . . . . . . . . . . . . . . . . . . . . . . 11-6

11:10.10(2)(c) Current Standards . . . . . . . . . . . . . . . . . . . . . . . . 11-611:10.10(3) Subordinate Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 11-611:10.10(4) Credit Transfer Systems . . . . . . . . . . . . . . . . . . . . . . . . 11-7

11:10.20 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-811:10.30 Clearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-911:10.40 Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-9

11:20 THE CAD DEBIT CLEARING (ACSS) . . . . . . . . . . . . . . . . . 11-1011:20.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1011:20.10(1) Messaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1111:20.10(2) Net-Net Clearing System . . . . . . . . . . . . . . . . . . . . . . 11-11

11:20.20 Legal Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.111:20.25 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.211:20.25(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.211:20.25(2) Legal Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.511:20.25(3) Collateral Pool Pledge: Calculation, Valuation and

Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.611:20.25(4) Application of Collateral Pool . . . . . . . . . . . . . . . . . 11-12.1011:20.25(5) Survivors Pay: Default and Additional Contributions . 11-12.12

11:20.30 Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12.1311:20.30(1) Direct Clearers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1311:20.30(2) Indirect Clearers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1411:20.30(3) Clearing Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-1611:20.30(4) Group Clearers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-19

11:20.40 Organization of the System . . . . . . . . . . . . . . . . . . . . . . . 11-2111:20.50 Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2211:20.50(1) Presence at Regional Exchange Points. . . . . . . . . . . . . . 11-2211:20.50(1)(a) Direct Clearers. . . . . . . . . . . . . . . . . . . . . . . . . . 11-2211:20.50(1)(b) Clearing Agents for Indirect Clearers . . . . . . . . . . . 11-2211:20.50(1)(c) Group Clearers . . . . . . . . . . . . . . . . . . . . . . . . . 11-2311:20.50(1)(d) Bank of Canada. . . . . . . . . . . . . . . . . . . . . . . . . 11-23

11:20.50(2) National Electronic Settlement Region . . . . . . . . . . . . . 11-2311:20.50(3) Diligence in Attendance . . . . . . . . . . . . . . . . . . . . . . . 11-24

11:20.60 Items Acceptable for Exchange . . . . . . . . . . . . . . . . . . . . . 11-2511:20.60(1) Classes of Payment Items . . . . . . . . . . . . . . . . . . . . . . 11-2611:20.60(2) Significance of Acceptability . . . . . . . . . . . . . . . . . . . . 11-2811:20.60(3) Approved Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-30

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11:20.60(3)(a) Paper Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3011:20.60(3)(b) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . 11-32

11:20.70 Exchange of Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3411:20.70(0.5) Transitional Note: CRDs, RRDs and Official Images . 11-34a11:20.70(1) Paper Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-34.211:20.70(1)(0.a) Clearing Replacement Documents. . . . . . . . . . . 11-34.311:20.70(1)(a) Exchange Procedure . . . . . . . . . . . . . . . . . . . . . 11-34.611:20.70(1)(b) Preparation of Items for Exchange . . . . . . . . . . . . 11-3511:20.70(1)(b)(i) MICR encoding . . . . . . . . . . . . . . . . . . . . . . 11-3511:20.70(1)(b)(ii) Stamping for identification. . . . . . . . . . . . . . . 11-3511:20.70(1)(b)(iii) Microfilming . . . . . . . . . . . . . . . . . . . . . . . 11-3611:20.70(1)(b)(iv) Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-3611:20.70(1)(b)(v) Statistics of value and volume . . . . . . . . . . . . . 11-36

11:20.70(1)(c) Collection of Cheques on Credit Unions . . . . . . . . . 11-3611:20.70(1)(d) Streams of Items . . . . . . . . . . . . . . . . . . . . . . . . 11-3711:20.70(1)(e) Identification of Items . . . . . . . . . . . . . . . . . . . . . 11-3811:20.70(1)(f) Returns – Time Limit in Normal Conditions . . . . . . 11-4011:20.70(1)(f)(i) ACSS returns . . . . . . . . . . . . . . . . . . . . . . . 11-40.111:20.70(1)(f)(ii) Ambiguity . . . . . . . . . . . . . . . . . . . . . . . . . . 11-4111:20.70(1)(f)(iii) Application to clearing agents and

group clearers . . . . . . . . . . . . . . . . . . . . . . 11-4111:20.70(1)(f)(iv) Express exceptions . . . . . . . . . . . . . . . . . . . . 11-42

11:20.70(1)(g) Returns in Contingency Conditions . . . . . . . . . . . . 11-4811:20.70(1)(h) Returns in Default Conditions . . . . . . . . . . . . . . . 11-49

11:20.70(1.5) Return Replacement Documents (‘‘RRDs’’) . . . . . . . . 11-5011:20.70(1.75) Returns of Image Printouts . . . . . . . . . . . . . . . . . . . 11-5211:20.70(1.75)(a) Return Through the ACSS. . . . . . . . . . . . . . . . 11-5211:20.70(1.75)(b) Return Outside the ACSS . . . . . . . . . . . . . . . 11-52.1

11:20.70(2) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-52.111:20.70(2)(a) Previously Authorized Recurring Items . . . . . . . . 11-52.211:20.70(2)(a)(i) Pre-authorized debits . . . . . . . . . . . . . . . . . . 11-52.311:20.70(2)(a)(ii) AFT Debits and Credits. . . . . . . . . . . . . . . . . 11-54

11:20.70(2)(b) Individually Authorized Single-InstancePayment Items . . . . . . . . . . . . . . . . . . . . . . . . 11-56

11:20.70(2)(b)(i) Shared point-of-service items. . . . . . . . . . . . . . 11-5711:20.70(2)(b)(ii) On-line payments . . . . . . . . . . . . . . . . . . . . . 11-6011:20.70(2)(b)(iii) Electronic data interchange (‘‘EDI’’) items . . . . 11-61

11:20.70(2)(c) Miscellaneous Electronic Payment Items. . . . . . . . . 11-6311:20.70(2)(d) Returned Items . . . . . . . . . . . . . . . . . . . . . . . . . 11-6411:20.70(2)(e) Unreturnable Items. . . . . . . . . . . . . . . . . . . . . . . 11-64

11:20.70(3) Electronic Presentment of Official Imagesof Eligible Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-66

11:20.80 Clearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-6611:20.80(1) System Description . . . . . . . . . . . . . . . . . . . . . . . . . 11-66.111:20.80(2) Theoretical Foundation . . . . . . . . . . . . . . . . . . . . . . . 11-69

11:20.90 Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-7111:20.90(1) Theoretical Foundation . . . . . . . . . . . . . . . . . . . . . . . 11-7211:20.90(2) The National Electronic Settlement Region . . . . . . . . . . 11-7211:20.90(3) Time of Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 11-7411:20.90(4) Finality of Settlement . . . . . . . . . . . . . . . . . . . . . . . . 11-7511:20.90(5) Legislative Protection of Settlement . . . . . . . . . . . . . . . 11-76

11:20.100 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-7611:20.100(1) History of Policies and Procedures . . . . . . . . . . . . . . . 11-76

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11:20.100(2) ‘‘Default’’ by Direct Clearer or Group Clearer . . . . . . . 11-7711:20.100(2)(a) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11-7711:20.100(2)(b) Meaning of ‘‘Default’’ in this Context. . . . . . . . . . 11-7711:20.100(2)(c) Official Action Upon Default by Direct Clearer . . . 11-7911:20.100(2)(d) Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . 11-7911:20.100(2)(e) Denial of Access to ACSS and USBES . . . . . . . . . 11-8311:20.100(2)(f) Purging of Post-Dated Items . . . . . . . . . . . . . . . . 11-8311:20.100(2)(g) Settlement by Survivors . . . . . . . . . . . . . . . . . . . 11-8311:20.100(2)(g)(i) Default Contributions: Initial Contributors . . . 11-8511:20.100(2)(g)(ii) Default Contributions: Secondary

Contributors . . . . . . . . . . . . . . . . . . . . . . 11-86.111:20.100(2)(g)(iii) Additional Contributions: Tertiary

Contributors . . . . . . . . . . . . . . . . . . . . . . 11-86.111:20.100(3) Default by an Indirect Clearer . . . . . . . . . . . . . . . . . 11-86.211:20.100(3)(a) Governing Law . . . . . . . . . . . . . . . . . . . . . . . 11-86.211:20.100(3)(b) Meaning of ‘‘Default’’ in this Context. . . . . . . . . 11-86.211:20.100(3)(c) Notice of Default . . . . . . . . . . . . . . . . . . . . . . 11-86.311:20.100(3)(d) Purging of Post-Dated Items. . . . . . . . . . . . . . . . 11-8711:20.100(3)(e) Settlement by Clearing Agent . . . . . . . . . . . . . . . 11-87

11:30 USD DEBIT CLEARING (‘‘USBES’’) . . . . . . . . . . . . . . . . . . 11-8811:30.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-8811:30.10(1) Statistics of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-8811:30.10(2) Eligible Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-8811:30.10(3) Applicable Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-89

11:30.20 Terminology and Scope of Application . . . . . . . . . . . . . . . 11-8911:30.20(1) Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-8911:30.20(2) Scope of Application . . . . . . . . . . . . . . . . . . . . . . . . . 11-9011:30.20(2)(a) Paper Items Addressed to Banks in Canada. . . . . . . 11-9011:30.20(2)(a.5) Replacement Documents and Images. . . . . . . . . . 11-9111:30.20(2)(b) Paper Items Addressed to Banks in

the United States . . . . . . . . . . . . . . . . . . . . . . . 11-9211:30.20(2)(c) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . 11-92

11:30.30 Organization of the System . . . . . . . . . . . . . . . . . . . . . . 11-10111:30.40 Legal Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10211:30.50 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10311:30.50(1) Direct Clearers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10311:30.50(2) Indirect Clearers . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-104

11:30.60 Items Acceptable for Exchange . . . . . . . . . . . . . . . . . . . . 11-10411:30.60(1) Paper Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10411:30.60(2) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-105

11:30.70 Exchange of Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10611:30.70(1) Paper Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10611:30.70(1)(a) Streams of Items . . . . . . . . . . . . . . . . . . . . . . . 11-10711:30.70(1)(b) Exchange Process . . . . . . . . . . . . . . . . . . . . . . . 11-10811:30.70(1)(c) Returned Items . . . . . . . . . . . . . . . . . . . . . . . . 11-108

11:30.70(2) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10911:30.80 Clearing and Settlement . . . . . . . . . . . . . . . . . . . . . . . . 11-11011:30.90 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-11111:30.90(1) Paper Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-11111:30.90(2) AFT Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-112

11:40 OTHER CURRENCY ITEMS . . . . . . . . . . . . . . . . . . . . . 11-112.111:50 LEGAL RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-112.2

11:50.10 Binding Effect of Clearing Rules on Members . . . . . . . . . 11-112.2

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11:50.20 Binding Effect of Clearing Rules on the Public . . . . . . . . . 11-11311:50.30 Precedence of BEA Over ACSS Rules . . . . . . . . . . . . . . . 11-11811:50.30(1) The Issue or Issues . . . . . . . . . . . . . . . . . . . . . . . . . 11-11811:50.30(2) Use of the ACSS Clearing Instead of Presentment

under BEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-118.111:50.30(3) Other ACSS Rules in Conflict with BEA Provisions . . . 11-120

11:50.40 Effects of Involvency . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12411:50.40(1) Claims of CPAMembers . . . . . . . . . . . . . . . . . . . . . 11-12411:50.40(2) Priority Payment Instruments . . . . . . . . . . . . . . . . . . 11-12411:50.40(2)(a) Instruments Affected. . . . . . . . . . . . . . . . . . . . . 11-12511:50.40(2)(a.5) Priority Electronic Payment Items. . . . . . . . . . . 11-12711:50.40(2)(b) Limitations upon Recovery . . . . . . . . . . . . . . . . 11-128

11:50.40(3) The Precedent of the Northland Bank Case . . . . . . . . . 11-12911:60 RISKMANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-130

CHAPTER 12 THE LARGEVALUETRANSFER SYSTEM12:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1

12:10.10 General Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-112:10.20 Some Statistics of Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-212:10.30 Regulatory Design Objectives. . . . . . . . . . . . . . . . . . . . . . . 12-312:10.40 BIS Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-512:10.40(1) Core Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-512:10.40(2) System Interdependencies . . . . . . . . . . . . . . . . . . . . . . . 12-5

12:20 GOVERNING LAW AND REGULATION . . . . . . . . . . . . . . . 12-612:20.10 LVTS By-Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-712:20.20 LVTS Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-812:20.30 Guideline for Misdirected LVTS Payments . . . . . . . . . . . . . . 12-912:30.40 LVTS Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-10

12:30 DESCRIPTION OF THE SYSTEM . . . . . . . . . . . . . . . . . . . . 12-1112:30.10 Participation Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1212:30.10(1) Settlement Account with Bank of Canada . . . . . . . . . . . 12-1212:30.10(2) Technical Competence . . . . . . . . . . . . . . . . . . . . . . . . 12-1212:30.10(3) Admission Fee or Cost Contribution . . . . . . . . . . . . . 12-12.112:30.10(4) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1312:30.10(4)(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1312:30.10(4)(b) Foreign Installations. . . . . . . . . . . . . . . . . . . . . . 12-1312:30.10(4)(c) Foreign Bank Applicants . . . . . . . . . . . . . . . . . . . 12-13

12:30.20 Description of Normal Operation . . . . . . . . . . . . . . . . . . . 12-1412:30.20(1) Initializing the LVTS . . . . . . . . . . . . . . . . . . . . . . . . . 12-1412:30.20(2) Exchange of Messages . . . . . . . . . . . . . . . . . . . . . . . . 12-1512:30.20(3) Scheduling Payments . . . . . . . . . . . . . . . . . . . . . . . . . 12-1612:30.20(4) Finality of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1712:30.20(4)(a) LVTS Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-1712:30.20(4)(b) Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-18

12:30.20(5) Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-2112:30.20(6) Error Detection, Resolution and Compensation . . . . . . . 12-2212:30.20(6)(a) Errors in Amount or Timing of Payments . . . . . . . . 12-2212:30.20(6)(b) Errors in Designating Payee or Account . . . . . . . . . 12-24

12:30.30 Exceptional Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-2412:30.30(1) Jumbo Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-2412:30.30(2) Type ‘‘R’’ Payments . . . . . . . . . . . . . . . . . . . . . . . . . 12-2512:30.30(3) Emergency Conditions . . . . . . . . . . . . . . . . . . . . . . . . 12-26

12:30.40 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-26

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12:30.40(1) Tranche 1 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 12-2712:30.40(2) Tranche 2 Bilateral Credit Limits and Aggregate

Net Debit Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-2912:30.40(3) ASO and Maximum ASO . . . . . . . . . . . . . . . . . . . . . . 12-3012:30.40(4) Payment Queue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-3112:30.40(5) Continuous (Nebulous) Netting . . . . . . . . . . . . . . . . . . 12-3112:30.40(6) Finality of Settlement . . . . . . . . . . . . . . . . . . . . . . . . 12-3412:30.40(7) Bank of Canada Guaranty . . . . . . . . . . . . . . . . . . . . . 12-35

12:30.50 Default and Non-Viability of a Participant . . . . . . . . . . . . . 12-3612:30.50(1) Non-Viable Participant . . . . . . . . . . . . . . . . . . . . . . . 12-3712:30.50(2) Participant in Default . . . . . . . . . . . . . . . . . . . . . . . . 12-3812:30.50(3) Multiple Participant Defaults . . . . . . . . . . . . . . . . . . . 12-39

12:40 LEGAL RELATIONS: LVTS BY-LAW AND RULES . . . . . . . 12-3912:40.10 Between CPA and Participants . . . . . . . . . . . . . . . . . . . . . 12-4012:40.20 Between Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4312:40.20(1) Bilateral Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4312:40.20(2) Error Detection and Rectification . . . . . . . . . . . . . . . . 12-4412:40.20(3) Claims and Compensation . . . . . . . . . . . . . . . . . . . . . 12-4512:40.20(4) Timing of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 12-46

12:40.30 Between Payors and Participants. . . . . . . . . . . . . . . . . . . . 12-4712:40.30(1) Sending Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4712:40.30(2) Receiving Participant. . . . . . . . . . . . . . . . . . . . . . . . . 12-47

12:40.40 Between Payees and Participants. . . . . . . . . . . . . . . . . . . . 12-4812:40.40(1) Sending Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4812:40.40(2) Receiving Participant. . . . . . . . . . . . . . . . . . . . . . . . . 12-4812:40.40(2)(a) Latest Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4912:40.40(2)(a)(i) Delay in referring to the branch of account . . . . 12-5012:40.40(2)(a)(ii) Late receipt . . . . . . . . . . . . . . . . . . . . . . . . . 12-5012:40.40(2)(a)(iii) Force majeure . . . . . . . . . . . . . . . . . . . . . . . 12-5012:40.40(2)(a)(iv) Account blocked . . . . . . . . . . . . . . . . . . . . . 12-51

12:40.40(2)(b) Earliest Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-5212:40.50 Between Payor and Payee . . . . . . . . . . . . . . . . . . . . . . . . 12-5312:40.50(1) Use of the System . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-5312:40.50(2) System Malfunction . . . . . . . . . . . . . . . . . . . . . . . . . 12-5412:40.50(3) Time of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-54

12:50 COMPLIANCEWITH BIS CORE PRINCIPLES. . . . . . . . . . . 12-5512:60 COMPLIANCEWITH BANK OF CANADA

REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-58

CHAPTER 13 PAYMENTBYCREDITCARDSANDUNDERLETTERSOF CREDIT

13:00 BANK CREDIT IN PAYMENTMECHANISMS . . . . . . . . . . . 13-113:05 BANKS’ POWERS AND AUTHORITY TO PROVIDE

NON-CARD-BASED CREDIT PAYMENTS METHODS . . . . . 13-313:10 LEGAL FOUNDATION OF CREDIT CARDS. . . . . . . . . . . . 13-4.2

13:10.10(1) Legal Basis of Liability of Participants on Credit Cards . . 13-4.213:10.10(2) Obsolete Theories of Credit Card Issuer’s Liability . . . . . 13-4.313:10.10(2)(a) Unilateral Contract . . . . . . . . . . . . . . . . . . . . . . . 13-513:10.10(2)(b) Tripartite Agreement . . . . . . . . . . . . . . . . . . . . . . 13-613:10.10(2)(c) Terms of Contract Found by Implication

or Inference . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-713:10.10(2)(d) Sales ‘‘Drafts’’ As Bills of Exchange. . . . . . . . . . . . . 13-8

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13:15 FEDERAL REGULATION OF CREDIT CARDAGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-10

13:15.10 Regulation of Credit Practices vs. Regulation of PaymentServices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-10

13:15.15 Cost of Borrowing Regulations. . . . . . . . . . . . . . . . . . . . 13-12.313:15.20 Credit Business Practices (Banks &c.) Regulations . . . . . . . 13-12.513:15.23 Negative Option Marketing and Billing . . . . . . . . . . . . . . 13-12.613:15.25 Prepaid Payment Products Regulations . . . . . . . . . . . . . . . 13-1713:15.25(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-1713:15.25(2) Legislative Authority . . . . . . . . . . . . . . . . . . . . . . . . . 13-1813:15.25(3) Persons Obligated . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-1913:15.25(4) Persons Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-1913:15.25(5) Products Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-1913:15.25(6) Initial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.113:15.25(7) Additional Disclosure upon Issue. . . . . . . . . . . . . . . . 13-20.313:15.25(8) Additional Disclosure on Product . . . . . . . . . . . . . . . 13-20.413:15.25(9) Permitted and Prohibited Fees. . . . . . . . . . . . . . . . . . 13-20.513:15.25(10) Omitted Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.5

13:15.28 Cost of Borrowing Disclosure Regulations . . . . . . . . . . . . 13-20.713:15.30 Regulation of Merchant Agreements . . . . . . . . . . . . . . . . 13-20.813:15.40 Code of Conduct for the Credit and Debit Card Industry . . 13-20.8

13:18 COMPETITION LAW PROCEEDINGS . . . . . . . . . . . . . . . 13-20.813:18.10 Commissioner v. Visa Canada Corp. and MasterCard

International Inc. (2013) . . . . . . . . . . . . . . . . . . . . . . . . 13-20.813:18.10(1) Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.813:18.10(2) Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.913:18.10(3) Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.1013:18.10(4) Regulatory Influence . . . . . . . . . . . . . . . . . . . . . . . 13-20.1013:18.10(5) Voluntary Reduction of Fees. . . . . . . . . . . . . . . . . . 13-20.11

13:18.20 Watson v. Bank of America . . . . . . . . . . . . . . . . . . . . . 13-20.1113:19 APPLICATION OF PROVINCIAL LAWS OF CONTRACT,

MARKET CONDUCT AND CONSUMER PROTECTIONTO BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.12a

13:19.10 Contractual Norms vs. Regulatory Standards . . . . . . . . . 13-20.1313:19.10(1) Same in Substance. . . . . . . . . . . . . . . . . . . . . . . . . 13-20.13

13:19.15 Conflicting Formats of Disclosure. . . . . . . . . . . . . . . . . 13-20.1813:19.20 Availability of Punitive Damages . . . . . . . . . . . . . . . . . 13-20.1913:19.20(1) Wrongful Conduct by Issuer . . . . . . . . . . . . . . . . . . 13-20.1913:19.20(2) Consumer Transaction Cancellations . . . . . . . . . . . . 13-20.22

13:20 PAYMENT BY CREDIT CARD OR DEVICE . . . . . . . . . . 13-20.2513:20.05 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.2513:20.05(0.3) Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20.2513:20.05(0.5) Device . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2113:20.05(1) Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2113:20.05(2) Consumer Protection Law . . . . . . . . . . . . . . . . . . . . . 13-22

13:20.10 Scope of Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2313:20.10(1) Charge Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2313:20.10(2) Merchant Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-23

13:20.20 System Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2413:20.20(1) Organizational Infrastructure . . . . . . . . . . . . . . . . . . 13-26.113:20.20(1)(a) Sponsoring Organizations’ Functions and Terms . . 13-26.113:20.20(1)(b) Other Participants’ Functions. . . . . . . . . . . . . . . 13-26.313:20.20(1)(b)(i) Networking Integrating Contracts . . . . . . . . . 13-26.3

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13:20.20(1)(b)(ii) Mere Service Providers . . . . . . . . . . . . . . . . 13-26.613:20.20(2) Merchant/Acceptors’ and Merchant Bank/Acquirers’

Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26.713:20.20(3) Types of Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26.813:20.20(3)(a) Retail Credit Cards. . . . . . . . . . . . . . . . . . . . . . 13-26.813:20.20(3)(b) Business Credit Cards . . . . . . . . . . . . . . . . . . . . 13-26.813:20.20(3)(c) Prepaid Credit Cards. . . . . . . . . . . . . . . . . . . . . 13-26.913:20.20(3)(c)(i) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26.913:20.20(3)(c)(ii) Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26.1013:20.20(3)(c)(iii) System description . . . . . . . . . . . . . . . . . . 13-26.1013:20.20(3)(c)(iv) Regulation . . . . . . . . . . . . . . . . . . . . . . . 13-26.1213:20.20(3)(c)(v) Legal relations . . . . . . . . . . . . . . . . . . . . . 13-26.13

13:20.20(3)(c.1) Secured Credit Cards . . . . . . . . . . . . . . . . . . 13-26.1413:20.20(3)(c.2) Credit Card Cheques . . . . . . . . . . . . . . . . . . 13-26.1413:20.20(3)(d) Contactless Credit Card Transactions . . . . . . . . 13-26.1613:20.20(3)(d)(i) Voice . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26.1613:20.20(3)(d)(ii) Radio frequency identification (‘‘RFID’’) . . . 13-26.1613:20.20(3)(d)(iii) Mobile phone access . . . . . . . . . . . . . . . 13-26.16b

13:20.20(4) Exchange of Sales Vouchers . . . . . . . . . . . . . . . . . 13-26.16b13:20.20(5) Netting and Settlement of Reciprocal Claims . . . . . . 13-26.16c13:20.20(6) Payment by Cardholders . . . . . . . . . . . . . . . . . . . . . . 13-27

13:20.30 Terms of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2813:20.30(0.5) Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . 13-28.113:20.30(1) Merchant/Acquirer Agreement . . . . . . . . . . . . . . . . . 13-28.113:20.30(1)(a) Terms of Agreements at Present . . . . . . . . . . . . . 13-28.113:20.30(1)(b) Competition Bureau Challenge . . . . . . . . . . . . . . . 13-32

13:20.30(2) Cardholder/Issuer Agreement . . . . . . . . . . . . . . . . . . . 13-3313:20.30(2)(a) Mandatory Provisions. . . . . . . . . . . . . . . . . . . . . 13-34

13:20.30(3) Merchant/Cardholder Agreement . . . . . . . . . . . . . . . . 13-3713:20.30(4) Card Association/Participant . . . . . . . . . . . . . . . . . . . 13-37

13:20.40 Legal Relations of Parties . . . . . . . . . . . . . . . . . . . . . . . . 13-3813:20.40(1) Sponsor and Members . . . . . . . . . . . . . . . . . . . . . . . . 13-3813:20.40(1.5) Member and Client of Co-Branded Card . . . . . . . . . . 13-4013:20.40(2) Card Issuer and Cardholder . . . . . . . . . . . . . . . . . . . . 13-4013:20.40(2)(a) Unsolicited Distribution . . . . . . . . . . . . . . . . . . . 13-4213:20.40(2)(a.1) Collection, Use and Disposal of Personal

Information . . . . . . . . . . . . . . . . . . . . . . . . . 13-4413:20.40(2)(b) Cost of Borrowing . . . . . . . . . . . . . . . . . . . . . . . 13-4413:20.40(2)(b)(i) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-4413:20.40(2)(b)(ii) Cost of Borrowing Disclosure . . . . . . . . . . . . . 13-4713:20.40(2)(b)(iii) Changes in Interest Rate . . . . . . . . . . . . . . . . 13-49

13:20.40(2)(c) Capacity to Contract. . . . . . . . . . . . . . . . . . . . . . 13-5313:20.40(2)(c)(i) Mental incompetence . . . . . . . . . . . . . . . . . . . 13-5313:20.40(2)(c)(ii) Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-54

13:20.40(2)(d) Contract Formation . . . . . . . . . . . . . . . . . . . . . . 13-5613:20.40(2)(d)(i) Single Applicant . . . . . . . . . . . . . . . . . . . . . 13-5613:20.40(2)(d)(ii) Joint Liability of Authorized Users . . . . . . . . 13-61

13:20.40(2)(e) Unauthorized Transactions . . . . . . . . . . . . . . . . . 13-6713:20.40(2)(e)(i) Loss or Theft of Card . . . . . . . . . . . . . . . . . . 13-6713:20.40(2)(e)(ii) Other Causes . . . . . . . . . . . . . . . . . . . . . . . 13-70

13:20.40(2)(f) Security of PIN. . . . . . . . . . . . . . . . . . . . . . . . . . 13-7613:20.40(2)(g) Refunds and Cancellations. . . . . . . . . . . . . . . . . . 13-7613:20.40(2)(h) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-81

TABLEOF CONTENTS

October 2018C1-28.1

13:20.40(2)(h)(i) Interest Before and After Judgment . . . . . . . . . 13-8113:20.40(2)(h)(ii) Limitation. . . . . . . . . . . . . . . . . . . . . . . . . 13-82.113:20.40(2)(h)(iii) Simplified Evidence in Uncontested Claims . . 13-82.113:20.40(2)(h)(iv) Costs of Recovery . . . . . . . . . . . . . . . . . . . 13-82.213:20.40(2)(h)(v) Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-82.4

13:20.40(2)(i) Merchant Dispute Resolution . . . . . . . . . . . . . . . 13-82.513:20.40(2)(i)(i) Introduction . . . . . . . . . . . . . . . . . . . . . . . . 13-82.513:20.40(2)(i)(ii) Bank’s Claim for Direct Redress . . . . . . . . . . 13-82.713:20.40(2)(i)(iii) Offer to Assist . . . . . . . . . . . . . . . . . . . . . . 13-82.813:20.40(2)(i)(iv) Standing Orders . . . . . . . . . . . . . . . . . . . . . 13-82.913:20.40(2)(i)(v) Association Rules . . . . . . . . . . . . . . . . . . . 13-82.13

13:20.40(2)(j) Credit Limits . . . . . . . . . . . . . . . . . . . . . . . . . 13-82.1613:20.40(2)(k) Service Charges . . . . . . . . . . . . . . . . . . . . . . . 13-82.2113:20.40(2)(k)(i) Foreign currency conversion . . . . . . . . . . . . 13-82.2113:20.40(2)(k)(ii) Cash advances . . . . . . . . . . . . . . . . . . . . . 13-82.23

13:20.40(2)(l) Account Statements and Interest . . . . . . . . . . . . 13-82.2313:20.40(2)(m) Miscellaneous Issues . . . . . . . . . . . . . . . . . . . 13-82.2513:20.40(2)(n) Uncovered Issues . . . . . . . . . . . . . . . . . . . . . . 13-82.2813:20.40(2)(o) Debt Collection Practices. . . . . . . . . . . . . . . . . 13-82.2813:20.40(2)(p) Legal Effect of Card Use . . . . . . . . . . . . . . . . . 13-82.30

13:20.40(3) Merchant/Acceptor and Merchant Bank/Acquirer . . . 13-82.3113:20.40(3)(a) Terms of Participation. . . . . . . . . . . . . . . . . . . 13-82.3113:20.40(3)(b) Terms of Terminal and Card Use . . . . . . . . . . . 13-82.3213:20.40(3)(c) Duties of Merchant When Processing

Transactions . . . . . . . . . . . . . . . . . . . . . . . . 13-82.3413:20.40(3)(d) Effect of Authorization of Transactions . . . . . . . 13-82.3513:20.40(3)(e) Telephone and Internet Transactions . . . . . . . . . . . 13-8413:20.40(3)(f) Banking and Security. . . . . . . . . . . . . . . . . . . . . . 13-8513:20.40(3)(g) Chargeback. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-85


C1-28.2


13:20.40(3)(h) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-8813:20.40(4) Merchant/Acceptor and Cardholder . . . . . . . . . . . . . . . 13-8913:20.40(4)(a) Absolute or Conditional Payment . . . . . . . . . . . . . 13-9013:20.40(4)(b) The Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . 13-9113:20.40(4)(c) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-9613:20.40(4)(d) Unauthorized Transaction . . . . . . . . . . . . . . . . . 13-96.1

13:20.40(5) Finality of Payment and Risk of Non-Payment. . . . . . . . 13-9713:30 PAYMENT UNDER LETTERS OF CREDIT AND DEMAND

GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-9813:30.10 Legal Foundation of Letters of Credit . . . . . . . . . . . . . . . . 13-9813:30.10(1) Sui Generis Form of Contract . . . . . . . . . . . . . . . . . . . 13-9813:30.10(2) Test of Bankruptcy of Issuer . . . . . . . . . . . . . . . . . . . 13-10013:30.10(3) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-102

13:30.20 Customs and Practices of Bankers . . . . . . . . . . . . . . . . . . 13-10313:30.20(1) Uniform Customs and Practice for Documentary

Credits (‘‘UCP500’’ and ‘‘UCP600’’) . . . . . . . . . . . . 13-10313:30.20(1)(a) History and General . . . . . . . . . . . . . . . . . . . . . 13-10313:30.20(1)(b) Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-10413:30.20(1)(c) ICC Expert Advice . . . . . . . . . . . . . . . . . . . . . . 13-107

13:30.20(2) eUCP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-10813:30.20(2)(a) History and General . . . . . . . . . . . . . . . . . . . . . 13-10813:30.20(2)(b) Application . . . . . . . . . . . . . . . . . . . . . . . . . . 13-108.1

13:30.20(3) International Stand-By Practices (‘‘ISP98’’) andUniform Rules for Demand Guarantees (‘‘URDG 758’’) . 13-108.1

13:30.20(3)(a) History and General . . . . . . . . . . . . . . . . . . . . 13-108.113:30.20(3)(b) Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-111

13:30.20(4) UNCITRAL Convention on Stand-By Credits . . . . . . . 13-11213:30.20(4)(a) History and General . . . . . . . . . . . . . . . . . . . . . 13-11213:30.20(4)(b) Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-11313:30.20(4)(c) Adoption by Canada. . . . . . . . . . . . . . . . . . . . . 13-11413:30.20(4)(c)(i) History and general . . . . . . . . . . . . . . . . . . . 13-11413:30.20(4)(c)(ii) Application . . . . . . . . . . . . . . . . . . . . . . . . 13-115

13:30.20(5) Rules for Independent Guaranties . . . . . . . . . . . . . . . 13-11613:30.20(5)(a) International Chamber of Commerce Texts . . . . . . 13-11613:30.20(5)(a)(i) History and general . . . . . . . . . . . . . . . . . . . 13-11613:30.20(5)(a)(ii) Application . . . . . . . . . . . . . . . . . . . . . . . . 13-117

13:30.20(5)(b) The Common Law Developments . . . . . . . . . . . . 13-11813:30.20(5)(b)(i) The UK cases . . . . . . . . . . . . . . . . . . . . . . . 13-11813:30.20(5)(b)(ii) The Canadian cases . . . . . . . . . . . . . . . . . . 13-12313:30.20(5)(b)(iii) Accounting between parties . . . . . . . . . . . . . 13-125

13:30.20(5)(c) UIGLC Act Taxonomy . . . . . . . . . . . . . . . . . . . 13-12513:30.30 Principles of Letter of Credit Law . . . . . . . . . . . . . . . . . . 13-12613:30.30(1) Independence of Credits - Conventional Law . . . . . . . . 13-12713:30.30(1)(a) As Between Beneficiary and Issuer. . . . . . . . . . . . 13-12713:30.30(1)(b) As Between Beneficiary and Applicant . . . . . . . . . 13-12913:30.30(1)(c) As Between Beneficiary and Confirming Bank . . . . 13-130

13:30.30(1.5) Independence of Undertakings - UIGLC Act. . . . . . . 13-13113:30.30(1.5)(a) Issuer’s Obligation . . . . . . . . . . . . . . . . . . . . . 13-13113:30.30(1.5)(b) Relevant Definitions. . . . . . . . . . . . . . . . . . . . 13-13113:30.30(1.5)(b)(i) Applicant . . . . . . . . . . . . . . . . . . . . . . . . 13-13113:30.30(1.5)(b)(ii) Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 13-13113:30.30(1.5)(b)(iii) Counter-guarantee . . . . . . . . . . . . . . . . . 13-13213:30.30(1.5)(b)(iv) Counter-guarantor . . . . . . . . . . . . . . . . . 13-132

TABLEOF CONTENTS

November 2016C1-29

13:30.30(1.5)(b)(v) Honour . . . . . . . . . . . . . . . . . . . . . . . . . 13-13213:30.30(1.5)(b)(vi) Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . 13-13213:30.30(1.5)(b)(vii) Presentation . . . . . . . . . . . . . . . . . . . . . 13-13213:30.30(1.5)(b)(viii) Undertaking . . . . . . . . . . . . . . . . . . . . . 13-133

13:30.30(2) Dealing in Documents - Conventional Law . . . . . . . . . 13-13313:30.30(2.5) Dealing in Documents - UIGLC Act . . . . . . . . . . . . 13-13413:30.30(3) Strict Compliance - Conventional Law . . . . . . . . . . . . 13-13413:30.30(3)(a) Basic Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-13413:30.30(3)(b) Equitable Considerations Precluding Enforcement . 13-13513:30.30(3)(c) Acceptability of Documents for Documentary

Credits - Conventional Law . . . . . . . . . . . . . . . . . . . 13-13613:30.30(3)(d) Acceptability of Documents for Stand-By

Credits and First Demand Guaranties - ConventionalLaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-138

13:30.30(3)(e) Conclusion - Conventional Law . . . . . . . . . . . . . 13-14413:30.30(3.5) Strict Compliance - UIGLC Act . . . . . . . . . . . . . . 13-144.113:30.30(3.5)(a) Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . 13-144.113:30.30(3.5)(b) Equitable Considerations - UIGLC Act . . . . . . 13-144.213:30.30(3.5)(c) Acceptability of Documents - UIGLC Act . . . . . 13-14513:30.30(3.5)(d) Conclusion - UIGLC Act . . . . . . . . . . . . . . . . 13-146

13:30.30(4) Other Principles - Conventional Law . . . . . . . . . . . . . 13-14713:30.30(4.5) Other Principles - UIGLC Act . . . . . . . . . . . . . . . . 13-14813:30.30(4.5)(a) Consideration . . . . . . . . . . . . . . . . . . . . . . . . 13-14813:30.30(4.5)(b) Internationality of Interpretation . . . . . . . . . . . 13-14913:30.30(4.5)(c) Binding on Crown . . . . . . . . . . . . . . . . . . . . . 13-149

13:30.30(5) Implied Duty of Good Faith - Conventional Law . . . . . 13-15013:30.30(5)(a) Good Faith in International Texts . . . . . . . . . . . . 13-15213:30.30(5)(b) Good Faith in Equity . . . . . . . . . . . . . . . . . . . . 13-15413:30.30(5)(c) Good Faith in Contract Law . . . . . . . . . . . . . . . 13-15713:30.30(5)(d) Problems with this Analysis . . . . . . . . . . . . . . . . 13-15813:30.30(5)(e) Unilateral Contract? . . . . . . . . . . . . . . . . . . . . . 13-15913:30.30(5)(f) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-162

13:30.30(5.5) Duty of Good Faith - UIGLC Act . . . . . . . . . . . . . . 13-16313:30.40 Interpretation of Terms of Credit - Conventional Law

and UIGLC Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16413:30.40(1) Revocability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16513:30.40(2) Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16513:30.40(3) Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16613:30.40(4) Partial Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16713:30.40(5) Place for Presentment . . . . . . . . . . . . . . . . . . . . . . . 13-16713:30.40(6) Termination (Expiration) . . . . . . . . . . . . . . . . . . . . . 13-16713:30.40(7) Subrogation of Issuer, Applicant and Nominated

Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16913:30.50 Payment (Honour) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16913:30.50(1) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-16913:30.50(2) Set-Off Claimed by Issuing Bank . . . . . . . . . . . . . . . . 13-17113:30.50(2.5) Excessive Demand by Beneficiary . . . . . . . . . . . . . . 13-17113:30.50(3) Claim by Customer for Wrongful Honour of Credit . . . 13-17213:30.50(4) Preventing Honour - Conventional Law . . . . . . . . . . . 13-17313:30.50(5) Preventing Honour - UIGLC Act. . . . . . . . . . . . . . . . 13-176

13:30.60 The Fraud Exception in Documentary Cedits - ConventionalLaw. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-176

13:30.60(1) Acts of the Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 13-177

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13:30.60(2) Acts of Third Persons . . . . . . . . . . . . . . . . . . . . . . . 13-17813:30.60(3) Claims by Negotiating Banks . . . . . . . . . . . . . . . . . . 13-178

13:30.70 The Fraud Exception in Stand-By Creditsand Guaranties - Conventional Law . . . . . . . . . . . . . . . 13-180

13:30.70(1) The Inadequacy of ISP98 and Misapplicationof UCP500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-180

13:30.70(2) The Canadian Cases’ Concept of Fraud . . . . . . . . . . . 13-18113:30.70(3) The Relevance of the Underlying Transaction . . . . . . . 13-18313:30.70(3)(a) Letters of Credit as Guaranties of

Lessee’s Obligations . . . . . . . . . . . . . . . . . . . . 13-18313:30.70(3)(b) The Relevance of a Security Intent . . . . . . . . . . . 13-184

13:30.75 The Fraud Exception - UIGLC Act . . . . . . . . . . . . . . . . . 13-18613:30.75(1) The Statutory Test . . . . . . . . . . . . . . . . . . . . . . . . . 13-18613;30.75(2) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-18713:30.75(2)(a) Genuineness . . . . . . . . . . . . . . . . . . . . . . . . . . 13-18713:30.75(2)(b) ‘‘Falsified’’ Documents . . . . . . . . . . . . . . . . . . . 13-18713:30.75(2)(c) Fraud by Beneficiary on Issuer or Applicant . . . . . 13-18813:30.75(2)(d) High Probability of Illegality . . . . . . . . . . . . . . . 13-18913:30.75(2)(e) Specific and Residual Concepts of Fraud . . . . . . . 13-18913:30.75(2)(f) Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . 13-190

13:30.80 Other Exceptions - Conventional Law . . . . . . . . . . . . . . . 13-19113:30.80(1) Illegality of Underlying Transaction . . . . . . . . . . . . . . 13-19113:30.80(2) Forgery or Nullity of a Material Document . . . . . . . . . 13-19313:30.80(3) Mistake. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-193

13:30.90 Other Exceptions - UIGLC Act . . . . . . . . . . . . . . . . . . . 13-19413:30.100 Reimbursement of Issuer or Confirming Bank -

Conventional Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-19413:30.110 Reimbursement of Issuer and Confirmer - UIGLC Act . . . 13-19613:30.120 Insolvency of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 13-19713:30.120(1) Issuing Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-19713:30.120(2) Applicant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-19913:30.120(3) Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-199

13:30.130 Conflicts of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-20013:30.130(1) Conventional Law . . . . . . . . . . . . . . . . . . . . . . . . . 13-20013:30.130(2) UIGLC Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-202

CHAPTER 14 PAYMENTBYDEBITCARDANDOTHERDEVICESAT THE POINTOF SERVICE

14:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-114:10.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-114:10.10(1) Brief History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-114:10.10(2) Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-314:10.10(2)(a) Interac Association. . . . . . . . . . . . . . . . . . . . . . . . 14-314:10.10(2)(b) Visa Debit and MasterCard Debit . . . . . . . . . . . . . . 14-614:10.10(2)(c) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-6

14:10.10(3) Banks’ Power and Authority to Provide Non-Card-BasedDebit Payment Methods . . . . . . . . . . . . . . . . . . . . . . . 14-7

14:15 REGULATION OF DEBIT CARDS . . . . . . . . . . . . . . . . . . . . 14-914:15.10 Canadian Code of Practice for Consumer Debit

Card Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-914:15.10(1) History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-914:15.10(2) Content. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1014:15.10(3) Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.1

TABLEOF CONTENTS

August 2017C1-31

14:15.20 Code of Conduct for the Credit and Debit Card Industryin Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.2

14:15.20(1) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.214:15.20(1.5) Scope of Application . . . . . . . . . . . . . . . . . . . . . . . 14-10.314:15.20(2) Coming into Force . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.314:15.20(2.5) [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.514:15.20(3) Policy Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.514:15.20(4) Interpretive Memoranda (‘‘Commissioner’s

Guidance’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.1214:15.20(4)(a) Limited Authority . . . . . . . . . . . . . . . . . . . . . 14-10.1214:15.20(4)(b) Guidance Documents . . . . . . . . . . . . . . . . . . . 14-10.1614:15.20(4)(c) From ‘‘Voluntary Code’’ to ‘‘Mandatory

Compliance’’ . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.1714:15.20(4)(d) Specific Format of Disclosure. . . . . . . . . . . . . . 14-10.17

14:15.30 Negative Option Marketing and Billing . . . . . . . . . . . . . 14-10.1814:15.40 Prepaid Payment Products Regulations . . . . . . . . . . . . . 14-10.1814:15.50 Proposed Financial Consumer Code . . . . . . . . . . . . . . . 14-10.18

14:20 CARD AND PIN POS ITEMS— CPA ACSS RULE E1 . . . . 14-10.1814:20.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.1814:20.20 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-10.1914:20.30 Legal Foundation of Rule E1 . . . . . . . . . . . . . . . . . . . . . . 14-1214:20.40 System Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1214:20.40(1) Participants’ Responsibilities. . . . . . . . . . . . . . . . . . . . 14-1314:20.40(1)(a) Acquirer Financial Institutions . . . . . . . . . . . . . . . 14-1314:20.40(1)(b) Payor Financial Institution Responsibilities . . . . . . 14-14

14:20.40(2) Transaction Processing . . . . . . . . . . . . . . . . . . . . . . . 14-1514:20.40(2)(a) POS Terminal Security . . . . . . . . . . . . . . . . . . . . 14-1514:20.40(2)(b) Data Transmission . . . . . . . . . . . . . . . . . . . . . . . 14-1614:20.40(2)(c) Authentication, Authorization and Approval. . . . . . 14-1614:20.40(2)(d) Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1714:20.40(2)(e) Audit Trail . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-17

14:20.40(3) Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1714:20.40(3)(a) Under Rule E1. . . . . . . . . . . . . . . . . . . . . . . . . . 14-1814:20.40(3)(b) Under the Debit Card Code . . . . . . . . . . . . . . . . . 14-18

14:20.50 Liability for Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1814:20.50(1) Cardholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . 14-1814:20.50(2) Liability in Other Cases . . . . . . . . . . . . . . . . . . . . . . 14-18.2

14:25 PIN-LESS POS ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.314:25.05 Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . 14-18.314:25.10 CPA ACSS Rule E4 — Introduction . . . . . . . . . . . . . . . . 14-18.314:25.20 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.414:25.30 Legal Foundation of Rule E4 . . . . . . . . . . . . . . . . . . . . . 14-18.714:25.40 System Description – Interac FLASH . . . . . . . . . . . . . . . 14-18.714:25.40(1) Point-of-Service Devices. . . . . . . . . . . . . . . . . . . . . . 14-18.814:25.40(2) Privacy and Security . . . . . . . . . . . . . . . . . . . . . . . . 14-18.914:25.40(3) Validation and Authorization . . . . . . . . . . . . . . . . . 14-18.1014:25.40(4) Exchange, Clearing and Settlement. . . . . . . . . . . . . . 14-18.1114:25.40(5) Liability for Unauthorized Use . . . . . . . . . . . . . . . . 14-18.1114:25.40(6) Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 14-18.12

14:30 CURRENCY DISPENSING. . . . . . . . . . . . . . . . . . . . . . . 14-18.1314:30.10 On-Us Currency Dispensing. . . . . . . . . . . . . . . . . . . . . 14-18.1314:30.20 Automated Banking Machine Networks. . . . . . . . . . . . . 14-18.1414:30.20(1) Interac CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.14

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14:30.20(2) The Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.1414:30.30 Informal Currency Dispensing . . . . . . . . . . . . . . . . . . . 14-18.14

14:40 INTERAC DEBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.1514:40.10 National POS Debit Card Network . . . . . . . . . . . . . . . . 14-18.1514:40.10(1) Debit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.1614:40.10(2) System Description . . . . . . . . . . . . . . . . . . . . . . . . 14-18.1814:40.10(3) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18.1814:40.10(4) Transaction Processing . . . . . . . . . . . . . . . . . . . . . 14-18.2014:40.10(5) Exchange, Clearing and Settlement. . . . . . . . . . . . . . 14-18.2014:40.10(6) Customer Accounting and Dispute Resolution . . . . . . 14-18.20

14:40.20 Terms of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-1914:40.20(1) Inter-Member Contract . . . . . . . . . . . . . . . . . . . . . . . 14-1914:40.20(2) Cardholder Contract . . . . . . . . . . . . . . . . . . . . . . . . . 14-1914:40.20(2)(a) PIN Security . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2014:40.20(2)(b) Debit Card Code Disclosure Requirements . . . . . . . 14-2014:40.20(2)(c) Liability Limitation: System Unavailability . . . . . . . 14-21

14:40.20(3) Merchant/Acquirer Contract. . . . . . . . . . . . . . . . . . . . 14-2114:40.20(3)(a) Accept Debit Cards . . . . . . . . . . . . . . . . . . . . . . 14-2114:40.20(3)(b) Maintain Security. . . . . . . . . . . . . . . . . . . . . . . . 14-2114:40.20(3)(c) Transaction Processing . . . . . . . . . . . . . . . . . . . . 14-21

14:40.20(4) Merchant/Cardholder Contract . . . . . . . . . . . . . . . . . . 14-2214:40.20(5) Merchant/Network Services Contract . . . . . . . . . . . . . . 14-22

14:40.30 Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2214:40.30(1) Who May Act as a Card Issuer . . . . . . . . . . . . . . . . . . 14-2314:40.30(2) Formation of Cardholder Contracts . . . . . . . . . . . . . . . 14-2514:40.30(3) Capacity of Cardholder . . . . . . . . . . . . . . . . . . . . . . . 14-2514:40.30(4) Liability for Use (Authorized and Unauthorized) . . . . . . 14-2614:40.30(4)(a) The Debit Card Code Provisions . . . . . . . . . . . . . . 14-2614:40.30(4)(b) The Interpretive Guide . . . . . . . . . . . . . . . . . . . . 14-2814:40.30(4)(c) The Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-29

14:40.30(5) Liability for Unauthorized Use of Merchant Terminal . . . 14-3014:40.30(6) Whether Payment Is Final or Conditional . . . . . . . . . . . 14-3014:40.30(7) The Irrevocability of POS Items in the ACSS . . . . . . . . . 14-3114:40.30(8) Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-31

14:40.40 International Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-3214:40.40(1) Interac International Debit Services . . . . . . . . . . . . . . . 14-32

14:50 OTHER POS DEBIT TRANSFER SYSTEMS . . . . . . . . . . . . 14-32.114:50.10 Dexit ‘‘Instead of Cash’’ . . . . . . . . . . . . . . . . . . . . . . . . 14-32.114:50.20 Pre-Funded Debit Cards and Devices . . . . . . . . . . . . . . . . 14-3414:50.20(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-3414:50.20(1)(a) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-3414:50.20(1)(b) CPA Guidelines for Pre-Funded Debit Products

and Services . . . . . . . . . . . . . . . . . . . . . . . . . . 14-3614:50.20(1)(c) CPA ACSS Rules . . . . . . . . . . . . . . . . . . . . . . . . 14-4014:50.20(1)(c.1) Federal Regulation of Prepaid Debit Cards. . . . . . 14-4114:50.20(1)(d) Provincial Regulation of Prefunded Debit Cards . . . 14-4114:50.20(1)(e) Regulation of Gift Cards . . . . . . . . . . . . . . . . . . . 14-4114:50.20(1)(e)(i) Definition . . . . . . . . . . . . . . . . . . . . . . . . . . 14-4214:50.20(1)(e)(ii) Prohibited terms and fees . . . . . . . . . . . . . . . . 14-4314:50.20(1)(e)(iii) Required disclosure . . . . . . . . . . . . . . . . . . . 14-4414:50.20(1)(e)(iv) Restrictions on use . . . . . . . . . . . . . . . . . . . . 14-44

14:50.20(1)(f) Provincial Regulation of Cash Cards . . . . . . . . . . . 14-4514:50.20(1)(f)(i) Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . 14-45

TABLEOF CONTENTS

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14:50.20(1)(f)(ii) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 14-4514:50.20(1)(f)(iii) Terms and conditions . . . . . . . . . . . . . . . . . . 14-4614:50.20(1)(f)(iv) System description . . . . . . . . . . . . . . . . . . . . 14-4714:50.20(1)(f)(v) Case Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 14-48

14:50.20(1)(g) Payroll Cards. . . . . . . . . . . . . . . . . . . . . . . . . . . 14-4914:50.20(2) System Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . 14-4914:50.20(2)(a) Open Loop Cards. . . . . . . . . . . . . . . . . . . . . . . . 14-4914:50.20(2)(b) Closed Loop Cards. . . . . . . . . . . . . . . . . . . . . . . 14-50

14:50.20(3) Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-5214:50.20(3)(a) Legal Relations of Issuer and Cardholder . . . . . . . . 14-5214:50.20(3)(a)(i) Open loop cards . . . . . . . . . . . . . . . . . . . . . . 14-5414:50.20(3)(a)(ii) Closed loop card . . . . . . . . . . . . . . . . . . . . . 14-55

14:50.20(3)(b) Other Legal Relations . . . . . . . . . . . . . . . . . . . . . 14-5614:50.20(3)(b)(i) Is payment final or conditional? . . . . . . . . . . . . 14-5614:50.20(3)(b)(ii) Is the cardholder the purchaser? . . . . . . . . . . . 14-57

14:50.20(3)(c) Is the Value on a Prefunded Card a Deposit? . . . . . . 14-5714:50.20(3)(c)(i) Open loop cards . . . . . . . . . . . . . . . . . . . . . . 14-5714:50.20(3)(c)(ii) Closed loop cards . . . . . . . . . . . . . . . . . . . . . 14-60

14:50.30 [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-6114:50.40 International Visa and MasterCard POS Debit Card

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-61

CHAPTER 14.5 MOBILE PHONE PAYMENTSANDTRANSFERS

14.5:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-114.5:10.10 Introduction and Classification of Systems . . . . . . . . . . . . 14.5-1

14.5:20 DEFINITION AND OPEN PAYMENT SYSTEMDESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2

14.5:20.10(1) Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-214.5:20.10(2) European Union Definition and Experience . . . . . . . . 14.5-414.5:20.10(3) United States Definition and Experience . . . . . . . . . . . 14.5-614.5:20.10(4) Candian Definitions and Experience . . . . . . . . . . . . . 14.5-7

14.5:30 REGULATION OFMOBILE-PHONE PAYMENTS . . . . . . . . 14.5-914.5:30.10 Code of Conduct for the Credit and Debit Card Industry

in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-914.5:30.20(1) History and Scope of Application . . . . . . . . . . . . . . . 14.5-914.5:30.10(2) Adoption and Phased Application . . . . . . . . . . . . . . . 14.5-914.5:30.10(3) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-1014.5:30.10(3)(a) Acquirer and Payment Card Network . . . . . . . . 14.5-1014.5:30.10(3)(b) Contactless Payment; Mobile Device . . . . . . . . . 14.5-1114.5:30.10(3)(c) Mobile Wallet; Payment Applet; Payment

Credential . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-1214.5:30.10(4) Policy Elements . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-12.1

14.5:30.20 Payment Card Networks Act . . . . . . . . . . . . . . . . . . . 14.5-12.214.5:30.30 Proposed Financial Consumer Code . . . . . . . . . . . . . . 14.5-12.3

14.5:40 CLASSIFICATION AND SYSTEMS DESCRIPTIONS . . . . 14.5-12.414.5:40.10 Types of Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-12.414.5:40.20 Mobile-Phone-Based Credit Card Payments . . . . . . . . . . 14.5-1314.5:40.20(1) System Description . . . . . . . . . . . . . . . . . . . . . . . . 14.5-1314.5:40.20(2) Legal Relations of Parties. . . . . . . . . . . . . . . . . . . . 14.5-1414.5:40.20(2)(a) Customer, Merchant and Issuer inter se . . . . . . . 14.5-1414.5:40.20(2)(b) Merchant and Service Provider. . . . . . . . . . . . . 14.5-14

14.5:40.30 Mobile-Phone-Based Debit Card Payments. . . . . . . . . . . 14.5-17

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14.5:40.40 Mobile Phone Access to Funds on Deposit with Telco. . . . 14.5-1814.5:40.45 MintChipTM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-18.1

14.5:50 CLOSED CREDIT ACCESS PAYMENT SYSTEMS . . . . . . 14.5-18.214.5:50.10 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-18.214.5:50.10(1) System Description . . . . . . . . . . . . . . . . . . . . . . . 14.5-18.214.5:50.10(2) Regulation of Closed System . . . . . . . . . . . . . . . . . 14.5-1914.5:50.10(3) Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-19

14.5:60 MOBILE-PHONE-BASED FUNDS TRANSFERS . . . . . . . . 14.5-2014.5:60.10 Zoompass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2014.5:60.10(1) System Description . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2114.5:60.10(2) Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2314.5:60.10(3) Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-23

14.5:70 MOBILE PHONE DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . 14.5-2414.5:80 WALLETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-25

14.5:80.10 Apple Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2514.5:80.20 Hyperwallet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-2614.5:80.30 Android Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5-27

14.5:90 TOKENIZATION OF PAYMENTS ORDERS . . . . . . . . . . . 14.5-28

CHAPTER 15 RECURRING DEBITANDCREDITTRANSFERS

15:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-115:10.10 Editorial Note on Classification of Systems. . . . . . . . . . . . . . 15-115:10.10(1) Debit Transfers versus Credit Transfers. . . . . . . . . . . . . . 15-115:10.10(2) Recurring versus Single Instance Transfers . . . . . . . . . . . 15-2

15:20 PRE-AUTHORIZED DEBITS . . . . . . . . . . . . . . . . . . . . . . . . 15-315:20.10 Overview and Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-315:20.10(1) Versions of the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 15-315:20.10(2) Type of PADs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-415:20.10(3) Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-5

15:20.20 System Description and Terms of Participation . . . . . . . . . . . 15-615:20.20(1) Rules Based . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-615:20.20(2) Duties of Sponsoring Financial Institution. . . . . . . . . . . . 15-615:20.20(2)(a) Where There Is an Independent Payee . . . . . . . . . . . 15-715:20.20(2)(a)(i) Documentation . . . . . . . . . . . . . . . . . . . . . . . . 15-715:20.20(2)(a)(ii) Operational responsibilities . . . . . . . . . . . . . . . 15-715:20.20(2)(a)(iii) Legal liability for PADs . . . . . . . . . . . . . . . . . 15-7

15:20.20(2)(b) Where Sponsor and Payee Same . . . . . . . . . . . . . . . 15-815:20.20(3) Undertaking by Payee . . . . . . . . . . . . . . . . . . . . . . . . . 15-815:20.20(3)(a) Legal Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 15-815:20.20(3)(b) Adherence to CPA Act, By-Laws, Rules and

Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-915:20.20(3)(c) Relations with Payor. . . . . . . . . . . . . . . . . . . . . . . 15-915:20.20(3)(c)(i) Payor authorization . . . . . . . . . . . . . . . . . . . . . 15-915:20.20(3)(c)(ii) Electronic authorizations and commercially

reasonable verification. . . . . . . . . . . . . . . . . 15-1015:20.20(3)(c)(iii) Pre-notification and fresh authorization . . . . . . 15-1315:20.20(3)(c)(iv) Change of banking . . . . . . . . . . . . . . . . . . . . 15-1515:20.20(3)(c)(v) Cancellation of authorization . . . . . . . . . . . . . 15-15

15:20.20(3)(d) Relations with Sponsor . . . . . . . . . . . . . . . . . . . . 15-1615:20.20(3)(d)(i) Accuracy of PADs. . . . . . . . . . . . . . . . . . . . . 15-1615:20.20(3)(d)(ii) Limited rights with respect to NSF PADs . . . . . 15-1615:20.20(3)(d)(iii) Reimbursement of challenged PADs . . . . . . . . 15-17

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15:20.20(3)(d)(iv) Payee’s indemnity . . . . . . . . . . . . . . . . . . . . 15-1715:20.20(3)(d)(v) Exculpation of sponsor . . . . . . . . . . . . . . . . . 15-1715:20.20(3)(d)(vi) Miscellaneous matters . . . . . . . . . . . . . . . . . 15-18

15:20.20(4) Duties of Processing Financial Institution . . . . . . . . . . . 15-1815:20.20(4)(a) Accept and Pay PADs . . . . . . . . . . . . . . . . . . . . . 15-1815:20.20(4)(b) Dishonour . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-1815:20.20(4)(c) Error Correction . . . . . . . . . . . . . . . . . . . . . . . . 15-1915:20.20(4)(d) Default by Processing Member . . . . . . . . . . . . . . . 15-20

15:20.20(5) Authorization by Payor . . . . . . . . . . . . . . . . . . . . . . 15-20.115:20.20(5)(a) Mandatory Terms . . . . . . . . . . . . . . . . . . . . . . 15-20.115:20.20(5)(a)(i) Contract or authorization . . . . . . . . . . . . . . . 15-20.115:20.20(5)(a)(ii) Capacity and authority . . . . . . . . . . . . . . . . . 15-2215:20.20(5)(a)(iii) Accuracy of account data . . . . . . . . . . . . . . . 15-2315:20.20(5)(a)(iv) Notification of sum payable and timing of

payments . . . . . . . . . . . . . . . . . . . . . . . . . 15-2415:20.20(5)(a)(v) Dispute resolution and reimbursement . . . . . . . 15-2415:20.20(5)(a)(vi) Termination . . . . . . . . . . . . . . . . . . . . . . . . 15-24

15:20.20(5)(b) Optional Terms . . . . . . . . . . . . . . . . . . . . . . . . . 15-2615:20.20(6) Payment Conditional Only . . . . . . . . . . . . . . . . . . . . . 15-2615:20.20(7) Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-26.115:20.20(8) Exchange, Clearing and Settlement. . . . . . . . . . . . . . . 15-26.1

15:20.30 Other Legal Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-26.115:20.30(1) Availability of Set-Off . . . . . . . . . . . . . . . . . . . . . . . 15-26.215:20.30(2) Late Payment of Premiums under Insurers’ PADs. . . . . . 15-2715:20.30(3) Debtor-Initiated Payments . . . . . . . . . . . . . . . . . . . . . 15-28

15:30 AUTOMATED FUNDS TRANSFER SYSTEM (‘‘AFTS’’) . . . . 15-2915:30.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-2915:30.20 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3015:30.30 Types of Payment Processed. . . . . . . . . . . . . . . . . . . . . . . 15-3115:30.40 Payment Item Processing. . . . . . . . . . . . . . . . . . . . . . . . . 15-3215:30.50 Exchange and Clearing . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3215:30.50(1) Lead Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3215:30.50(2) Confirmation of Receipt. . . . . . . . . . . . . . . . . . . . . . . 15-3315:30.50(3) Edit of Received Data and File Rejection . . . . . . . . . . . 15-33

15:30.60 Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3415:30.70 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3415:30.80 Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-3515:30.80(1) Authorized Transactions . . . . . . . . . . . . . . . . . . . . . . 15-3515:30.80(1)(a) Limited Effect of Agreements . . . . . . . . . . . . . . . . 15-3515:30.80(1)(b) Effect of ACSS Rules . . . . . . . . . . . . . . . . . . . . . 15-36

15:30.80(2) Unauthorized Transactions. . . . . . . . . . . . . . . . . . . . . 15-3615:30.80(2)(a) Liability of Payor Bank . . . . . . . . . . . . . . . . . . . . 15-3715:30.80(2)(b) Liability of Payee Bank . . . . . . . . . . . . . . . . . . . . 15-3715:30.80(2)(b)(i) Negligence in Opening Account . . . . . . . . . . . . 15-3715:30.80(2)(b)(ii) ‘‘Knowing Receipt’’ . . . . . . . . . . . . . . . . . . . 15-3815:30.80(2)(b)(iii) ‘‘Conversion’’ . . . . . . . . . . . . . . . . . . . . . . . 15-3815:30.80(2)(b)(iii)A Limited scope of application of tort

of conversion . . . . . . . . . . . . . . . . . . . . . . 15-3915:30.80(2)(b)(iii)B Payments from an account without the

mandate of the customer cannot be chargedto the customer . . . . . . . . . . . . . . . . . . . . 15-42

15:30.80(2)(b)(iii)C The value transferred by the payor’sbank to the payee’s bank in the CAD

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Settlement is its own, not the property ofthe payor . . . . . . . . . . . . . . . . . . . . . . . . 15-43

15:30.80(2)(b)(iii)D The value received from the payor’s bankand paid to its customer is the property of thepayee bank, not of the payor . . . . . . . . . . 15-45

15:30.80(2)(b)(iii)E Actions of a payee bank are not thedirect, or proximate, cause of the loss of thepayor’s bank balance . . . . . . . . . . . . . . . . 15-46

15:30.80(2)(b)(iii)F Modern Canadian Cases . . . . . . . . . . . . . . 15-4915:40 REAL ESTATE CLOSING FUNDS MANAGEMENT

SYSTEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-5115:40.10 System Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-5115:40.20 Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-52

CHAPTER 16 SINGLE-INSTANCEDEBITSANDCREDITS16:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-1

16:10.10 Scope of Chapter and Explanation of Terms . . . . . . . . . . . . . 16-116:10.10(1) Why ‘‘Single-Instance’’ Payments Are Different . . . . . . . . 16-116:10.10(2) Single-Instance Payments Not Addressed

in this Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-216:10.10(2)(a) LVTS, Credit Cards and Point-of-Service

Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-216:10.10(2)(b) International Funds Transfers . . . . . . . . . . . . . . . . 16-2


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16:10.20 Classification of Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 16-316:10.20(1) B2B; P2B; and P2P Payments Systems . . . . . . . . . . . . . . 16-316:10.20(2) Innovative and Established Systems . . . . . . . . . . . . . . . . 16-416:10.20(3) Debit Transfer and Credit Transfer Systems. . . . . . . . . . . 16-416:10.20(4) On-Us and Not-on-Us Systems . . . . . . . . . . . . . . . . . . . 16-5

16:20 POLICY AND TECHNICAL FOUNDATIONS . . . . . . . . . . . . 16-516:20.10 Relevant Policy Statements . . . . . . . . . . . . . . . . . . . . . . . . 16-516:20.10(1) Principles and Guidelines . . . . . . . . . . . . . . . . . . . . . . . 16-516:20.10(1)(a) Electronic Commerce . . . . . . . . . . . . . . . . . . . . . . 16-516:20.10(1)(a)(i) Background . . . . . . . . . . . . . . . . . . . . . . . . . . 16-516:20.10(1)(a)(ii) Current relative values. . . . . . . . . . . . . . . . . . . 16-6

16:20.10(1)(b) International Influences. . . . . . . . . . . . . . . . . . . . . 16-716:20.10(1)(c) Federal Government Initiatives . . . . . . . . . . . . . . . . 16-816:20.10(1)(d) Privacy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-816:20.10(1)(e) Open Network Payment Systems

Development Policy . . . . . . . . . . . . . . . . . . . . . . 16-816:20.10(1)(f) Secrecy of Banking Information and PINs. . . . . . . . . 16-916:20.10(1)(g) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-10

16:20.10(2) Technical Standards . . . . . . . . . . . . . . . . . . . . . . . . . 16-1016:20.10(2)(a) EDI Message Standards . . . . . . . . . . . . . . . . . . . 16-1116:20.10(2)(b) S.W.I.F.T. Standards . . . . . . . . . . . . . . . . . . . . . 16-1116:20.10(2)(b)(i) Legal effect of messages . . . . . . . . . . . . . . . . . 16-1216:20.10(2)(b)(ii) Member-administered closed user groups . . . . . 16-14

16:20.10(2)(c) International Trade Documentation Standards . . . . 16-1416:20.10(2)(c)(i) Bolero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-1416:20.10(2)(c)(ii) TradeCard. . . . . . . . . . . . . . . . . . . . . . . . . . 16-15

16:20.10(3) Consumer Protection Policy . . . . . . . . . . . . . . . . . . . . 16-1616:20.10(3)(a) Principles of Consumer Protection for

Electronic Commerce . . . . . . . . . . . . . . . . . . . . 16-1616:20.10(3)(b) The Canadian Code of Practice. . . . . . . . . . . . . . . 16-1716:20.10(3)(c) CPA Policy on Consumer Dispute Resolution

Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-1816:20.10(3)(d) Proposed Financial Consumer Code . . . . . . . . . . 16-18.2

16:30 INTERNET PAYMENTS: ACSS CLEARING ANDSETTLEMENT OF ONLINE PAYMENT ITEMS . . . . . . . 16-18.2

16:30.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-18.216:30.12 Policy Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-2016:30.12(1) International Policy Documents. . . . . . . . . . . . . . . . . . 16-2016:30.12(2) Domestic Policy Documents . . . . . . . . . . . . . . . . . . . 16-20.1

16:30.15 Regulation of Online Payment Services . . . . . . . . . . . . . . 16-20.116:30.18 Systems Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20.116:30.18(1) Interac Online . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20.116:30.18(2) ‘‘On-Us’’ Online Payments . . . . . . . . . . . . . . . . . . . . 16-20.2

16:30.20 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-20.316:30.20(1) Merchants’ Requirements . . . . . . . . . . . . . . . . . . . . . 16-20.316:30.20(2) Consumers’ Requirements . . . . . . . . . . . . . . . . . . . . . 16-2116:30.20(3) Financial Institutions’ Requirements . . . . . . . . . . . . . . 16-22

16:30.30 Transaction Processing Procedures . . . . . . . . . . . . . . . . . . 16-2416:30.30(1) Legal Foundation of Rule E2 . . . . . . . . . . . . . . . . . . . 16-2416:30.30(2) Initiating Online Payment Transactions. . . . . . . . . . . . . 16-2516:30.30(3) Secure Connection to Payor Financial Institution . . . . . 16-26.116:30.30(4) Authentication, Authorization and Approval . . . . . . . . . 16-2716:30.30(4.5) Reporting Status: Notification of Beneficiary. . . . . . . . 16-29

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16:30.30(5) Exchange, Clearing and Settlement. . . . . . . . . . . . . . . . 16-2916:30.30(6) Record Keeping and Tracing. . . . . . . . . . . . . . . . . . . . 16-3016:30.30(7) Adjustments and Refunds. . . . . . . . . . . . . . . . . . . . . . 16-30

16:30.40 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3116:30.40(1) Under Rule E2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3116:30.40(1)(a) Required Procedures. . . . . . . . . . . . . . . . . . . . . . 16-3116:30.40(1)(b) Scope of Application. . . . . . . . . . . . . . . . . . . . . . 16-32

16:30.40(1.5) Under Public Commitments . . . . . . . . . . . . . . . . . . . 16-3216:30.40(1.5)(a) Interac Online ‘‘Zero Liability’’ Commitment . . . . 16-3216:30.40(1.5)(b) Canadian Bankers’ Association Public

Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 16-3416:30.40(2) Under Provincial Law . . . . . . . . . . . . . . . . . . . . . . . . 16-34

16:30.50 Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-34.116:30.50(1) Payor and Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-34.116:30.50(1)(a) Is Payment Final or Conditional? . . . . . . . . . . . . 16-34.216:30.50(1)(b) Proof of Payment . . . . . . . . . . . . . . . . . . . . . . . 16-34.2

16:30.50(2) Payor and Payor’s Financial Institution . . . . . . . . . . . 16-34.216:30.50(3) Payee and Acquirer/Acquirer Financial Institution . . . . . 16-3516:30.50(3)(a) Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3516:30.50(3)(b) When Payment Made . . . . . . . . . . . . . . . . . . . . . 16-3616:30.50(3)(c) Connection Service Agreements . . . . . . . . . . . . . . 16-36

16:40 ACSS-BASED ELECTRONIC DATA INTERCHANGEPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-37

16:40.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3716:40.20 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3716:40.20(1) Trade Partners’ Requirements . . . . . . . . . . . . . . . . . . . 16-3716:40.20(2) Financial Institutions’ Requirements . . . . . . . . . . . . . . 16-37

16:40.30 Transaction Processing Procedures . . . . . . . . . . . . . . . . . . 16-3816:40.30(1) ACSS Rule E3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-3916:40.30(2) Initiating EDI Payments. . . . . . . . . . . . . . . . . . . . . . . 16-4016:40.30(3) Authentication, Authorization and Approval . . . . . . . . 16-40.116:40.30(4) Exchange, Clearing and Settlement. . . . . . . . . . . . . . . . 16-4116:40.30(5) Record Keeping and Tracing. . . . . . . . . . . . . . . . . . . . 16-4216:40.30(6) Countermands, Adjustments and Refunds . . . . . . . . . . . 16-42

16:40.40 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-4316:40.50 Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-4316:40.50(1) Payor and Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-4316:40.50(1)(a) Is Payment Final or Conditional? . . . . . . . . . . . . . 16-4316:40.50(1)(b) Proof of Payment . . . . . . . . . . . . . . . . . . . . . . . . 16-44

16:40.50(2) Payor and Payor’s Financial Institution . . . . . . . . . . . . 16-4416:40.50(3) Payee and Payee’s Financial Institution. . . . . . . . . . . . . 16-4516:40.50(3)(a) When Payment Final . . . . . . . . . . . . . . . . . . . . . 16-4516:40.50(3)(b) Proof of Payment . . . . . . . . . . . . . . . . . . . . . . . . 16-45

16:50 ACSS-BASED BILL PAYMENT REMITTANCESERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-45

16:50.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-4516:50.20 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-46.116:50.20(1) Creditors’ Requirements. . . . . . . . . . . . . . . . . . . . . . 16-46.116:50.20(1)(a) Corporate Creditor Agreement . . . . . . . . . . . . . . 16-46.116:50.20(1)(b) Invoice Specifications . . . . . . . . . . . . . . . . . . . . . 16-48

16:50.20(2) Financial Institutions’ Requirements . . . . . . . . . . . . . . 16-4816:50.20(2)(a) Payee’s Financial Institution. . . . . . . . . . . . . . . . . 16-4816:50.20(2)(b) Payors’ Financial Institutions . . . . . . . . . . . . . . . . 16-48

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16:50.30 Transaction Processing Procedures . . . . . . . . . . . . . . . . . . 16-4916:50.30(1) Creation of Payment Items . . . . . . . . . . . . . . . . . . . . . 16-4916:50.30(1)(a) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . 16-4916:50.30(1)(b) Paper-Based Items . . . . . . . . . . . . . . . . . . . . . . . 16-50

16:50.30(2) Exchange of Items. . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5116:50.30(2)(a) Electronic Items . . . . . . . . . . . . . . . . . . . . . . . . . 16-5116:50.30(2)(b) Paper-Based Items . . . . . . . . . . . . . . . . . . . . . . . 16-51

16:50.30(3) Adjustments and Returns . . . . . . . . . . . . . . . . . . . . . . 16-5216:50.30(4) Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5216:50.30(5) Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-53

16:50.40 Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5316:50.40(1) Payor and Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5316:50.40(1)(a) Is Payment Final or Conditional? . . . . . . . . . . . . . 16-5316:50.40(1)(b) Proof of Payment . . . . . . . . . . . . . . . . . . . . . . . . 16-54

16:50.40(2) Payee and Payee’s Financial Institution. . . . . . . . . . . . . 16-5416:50.50 Correction of Electronic Bill Payment Errors . . . . . . . . . . 16-54.1

16:60 INNOVATIVE SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . 16-54.216:60.03 International Perspective . . . . . . . . . . . . . . . . . . . . . . . . 16-54.216:60.05 Innovative Systems in Canada . . . . . . . . . . . . . . . . . . . . 16-54.316:60.10 Possible Sources of Applicable Law. . . . . . . . . . . . . . . . . . 16-5516:60.10(1) Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-5616:60.10(1)(a) Payment Clearing and Settlement Act . . . . . . . . . . 16-5616:60.10(1)(b) Electronic Payments to and by the Government . . . . 16-5616:60.10(1)(c) Electronic Commerce, Signature and

Evidence Acts . . . . . . . . . . . . . . . . . . . . . . . . . 16-5716:60.10(1)(c)(i) Electronic contracting . . . . . . . . . . . . . . . . . . 16-5816:60.10(1)(c)(ii) Electronic signatures . . . . . . . . . . . . . . . . . . . 16-5816:60.10(1)(c)(iii) Electronic payments . . . . . . . . . . . . . . . . . . 16-58.116:60.10(1)(c)(iv) Electronic evidence. . . . . . . . . . . . . . . . . . . . 16-59

16:60.10(1)(d) Privacy Legislation . . . . . . . . . . . . . . . . . . . . . . . 16-6016:60.10(1)(e) Money Laundering Law . . . . . . . . . . . . . . . . . . . 16-6116:60.10(1)(f) Accidental Application . . . . . . . . . . . . . . . . . . . . 16-63

16:60.10(2) Laws of Other States and Rules of Foreign Systems. . . . . 16-6416:60.10(3) International Texts . . . . . . . . . . . . . . . . . . . . . . . . . . 16-6516:60.10(3)(a) UNCITRALModel Law on International Credit

Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-6616:60.10(3)(b) UNCITRAL Electronic Signatures . . . . . . . . . . . . 16-6716:60.10(3)(c) Due Diligence (Money Laundering and Terrorist

Financing) . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-6816:60.10(4) Law of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-7016:60.10(5) Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-7116:60.10(5)(a) Authority of the Payor . . . . . . . . . . . . . . . . . . . 16-72.116:60.10(5)(b) Error by the Payor . . . . . . . . . . . . . . . . . . . . . . 16-72.216:60.10(5)(c) Error by the Originating Bank . . . . . . . . . . . . . . . 16-7316:60.10(5)(d) Transaction Processing . . . . . . . . . . . . . . . . . . . . 16-7516:60.10(5)(e) Duty of the Beneficiary Bank . . . . . . . . . . . . . . . . 16-7816:60.10(5)(f) Finality of Payment. . . . . . . . . . . . . . . . . . . . . . . 16-80

16:60.20 Bill Payment Remittance Systems . . . . . . . . . . . . . . . . . . . 16-8216:60.20(1) Canada Post’s epost. . . . . . . . . . . . . . . . . . . . . . . . . . 16-8216:60.20(2) On-Us Bill Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 16-8316:60.20(3) TelPay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-8416:60.20(3)(a) Service Description . . . . . . . . . . . . . . . . . . . . . . . 16-8416:60.20(3)(b) System Description. . . . . . . . . . . . . . . . . . . . . . . 16-85

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16:60.20(3)(c) Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . 16-8616:60.30 E-Mail Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-8616:60.30(1) Interac e-TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . 16-8616:60.30(1)(a) Service Description . . . . . . . . . . . . . . . . . . . . . . . 16-8616:60.30(1)(b) System Description. . . . . . . . . . . . . . . . . . . . . . . 16-8716:60.30(1)(c) Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . . 16-88

16:60.30(2) On-Us E-mail Payments . . . . . . . . . . . . . . . . . . . . . . . 16-8916:60.40 Online Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9016:60.40(1) PayPal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9016:60.40(1)(a) Service Description . . . . . . . . . . . . . . . . . . . . . . . 16-9016:60.40(1)(b) System Description. . . . . . . . . . . . . . . . . . . . . . . 16-9116:60.40(1)(c) User Agreement . . . . . . . . . . . . . . . . . . . . . . . . 16-92.116:60.40(1)(c)(i) Choice of law and jurisdiction . . . . . . . . . . . . 16-92.116:60.40(1)(c)(ii) Legal relations . . . . . . . . . . . . . . . . . . . . . . 16-92.116:60.40(1)(c)(iii) Conditions of use . . . . . . . . . . . . . . . . . . . . 16-92.216:60.40(1)(c)(iv) Limitations of liability . . . . . . . . . . . . . . . . 16-92.216:60.40(1)(c)(v) Error correction and unauthorized use . . . . . . . 16-9316:60.40(1)(c)(vi) Dispute resolution . . . . . . . . . . . . . . . . . . . . 16-94

16:70 FASTER PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9516:70.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9516:70.20 Faster Payments UK . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9616:70.20(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9616:70.20(2) System Description . . . . . . . . . . . . . . . . . . . . . . . . . . 16-97

16:70.30 Faster Payments USA. . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9816:70.30(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-9816:70.30(2) Summary of Reports . . . . . . . . . . . . . . . . . . . . . . . . . 16-9916:70.30(2.5) Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . 16-10116:70.30(3) Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-101

16:70.40 Faster Payments Canada . . . . . . . . . . . . . . . . . . . . . . . . 16-102

PART 5 PAYMENT FOR INVESTMENT SECURITIES

CHAPTER 17 PAYMENT INCDSX FOR INVESTMENTSECURITIES

17:10 INTRODUCTION TO SECURITIES TRADESSETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-1

17:10.10 Pre-1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-117:10.20 From 1970 to 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-217:10.30 Since 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-3

17:20 THE CANADIAN DEPOSITORY FOR SECURITIESLIMITED (‘‘CDS’’). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4

17:20.10 Corporate and Systems History . . . . . . . . . . . . . . . . . . . . . 17-417:20.10(1) Corporate History. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-417:20.10(2) Systems History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5

17:20.20 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-717:20.20(1) Securities-Related Orders . . . . . . . . . . . . . . . . . . . . . . . 17-717:20.20(1)(a) Ontario Securities Commission . . . . . . . . . . . . . . . . 17-717:20.20(1)(b) Quebec Securities Commission . . . . . . . . . . . . . . . . 17-917:20.20(1)(c) Securities and Exchange Commission . . . . . . . . . . . 17-1017:20.20(1)(d) Name in Payment Clearing and Settlement Act . . . . 17-1017:20.20(1)(e) Custodian of Securities Issued by Federal Financial

Institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . 17-1117:20.20(2) Payment System-Related Orders . . . . . . . . . . . . . . . . . 17-11

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17:20.20(2)(a) Designation of CDSX under Part I of the PaymentClearing and Settlement Act . . . . . . . . . . . . . . . 17-11

17:20.20(3) Regulatory Balance and ConstitutionalLaw Positioning . . . . . . . . . . . . . . . . . . . . . . . . . . 17-13

17:20.30 CDS’ Legal Relations with Participants . . . . . . . . . . . . . . . 17-1417:20.30(1) Participant Agreement . . . . . . . . . . . . . . . . . . . . . . . . 17-1417:20.30(1)(a) Common Form Agreement . . . . . . . . . . . . . . . . . 17-1617:20.30(1)(b) Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 17-1617:20.30(1)(b)(i) Individual provisions . . . . . . . . . . . . . . . . . . . 17-1717:20.30(1)(b)(ii) Effective delivery of funds and securities . . . . . . 17-17

17:20.30(2) CDS’ Rules, Procedures and User Guides . . . . . . . . . . . 17-1917:30 CDSX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-20

17:30.10 System Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-2017:30.10(1) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-2017:30.10(2) Funds Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-2217:30.10(3) Securities Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 17-24

17:30.20 Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-2517:30.20(1) Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-2517:30.20(2) Classification of Participants . . . . . . . . . . . . . . . . . . . . 17-2817:30.20(2)(a) Bank of Canada . . . . . . . . . . . . . . . . . . . . . . . . . 17-2917:30.20(2)(b) Extenders of Credit. . . . . . . . . . . . . . . . . . . . . . . 17-2917:30.20(2)(b)(i) Sureties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-3017:30.20(2)(b)(ii) Qualified designated banker . . . . . . . . . . . . . . 17-31

17:30.20(2)(c) Active Federated Participant . . . . . . . . . . . . . . . . 17-3217:30.20(2)(d) Settlement Agents . . . . . . . . . . . . . . . . . . . . . . . 17-3317:30.20(2)(e) Receivers of Credit . . . . . . . . . . . . . . . . . . . . . . . 17-34

17:30.20(3) Significance of Classes . . . . . . . . . . . . . . . . . . . . . . . . 17-3417:30.30 Depository Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-34.117:30.30(1) Securities Eligible for Deposit . . . . . . . . . . . . . . . . . . 17-34.117:30.30(2) Forms of Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 17-3517:30.30(2)(a) Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-3517:30.30(2)(b) Certificated and Uncertificated Securities . . . . . . . . 17-3617:30.30(2)(c) Security Entitlements . . . . . . . . . . . . . . . . . . . . . 17-37

17:30.30(3) Warranty of Depositing Participant . . . . . . . . . . . . . . . 17-3817:30.30(3.5) Reconciliation of Accounts. . . . . . . . . . . . . . . . . . . . 17-3917:30.30(4) Withdrawal of Deposited Securities and Funds. . . . . . . . 17-3917:30.30(4)(a) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-3917:30.30(4)(b) Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-39

17:30.40 Entitlements Processing. . . . . . . . . . . . . . . . . . . . . . . . . . 17-4017:30.50 Settlement Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4217:30.50(1) Trade Processing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4317:30.50(1)(a) Trade-for-Trade Settlement . . . . . . . . . . . . . . . . . 17-4417:30.50(1)(a)(i) Normal trades. . . . . . . . . . . . . . . . . . . . . . . . 17-4417:30.50(1)(a)(ii) Abnormal trades . . . . . . . . . . . . . . . . . . . . . 17-4417:30.50(1)(a)(iii) Funds transfers . . . . . . . . . . . . . . . . . . . . . . 17-45

17:30.50(1)(b) FINet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4617:30.50(1)(c) Continuous Net Settlement. . . . . . . . . . . . . . . . . . 17-47

17:30.50(2) Settlement Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4717:30.60 Payment Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4917:30.60(1) Cash Recap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-4917:30.60(2) Book Entry Payments . . . . . . . . . . . . . . . . . . . . . . . . 17-4917:30.60(3) Acceptable Payment . . . . . . . . . . . . . . . . . . . . . . . . . 17-5117:30.60(4) Type ‘‘L’’ Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-52

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17:30.70 Legal Effects of Dematerializing Securities andFunds in CDSX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-53

17:30.70(1) Change of Situs of Deposited Securities. . . . . . . . . . . . 17-54.117:30.70(1)(a) Under Traditional Law . . . . . . . . . . . . . . . . . . . 17-54.117:30.70(1)(b) Under Securities Transfer Acts . . . . . . . . . . . . . . 17-54.4

17:30.70(2) Change of Registered Ownership of Securities . . . . . . . 17-54.417:30.70(3) Change of Legal Character of Deposited

Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . 17-54.717:30.70(3)(a) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-54.717:30.70(3)(b) Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-55

17:30.70(4) Transfer of Security Entitlement . . . . . . . . . . . . . . . . . 17-5617:30.80 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5717:30.80(1) The International Influence. . . . . . . . . . . . . . . . . . . . . 17-5717:30.80(1)(a) The Group of Thirty . . . . . . . . . . . . . . . . . . . . . . 17-5717:30.80(1)(b) Bank for International Settlements . . . . . . . . . . . . 17-58

17:30.80(2) The CDSX Risk Management Rules. . . . . . . . . . . . . . . 17-6317:30.80(2)(a) Participant Qualifications and Monitoring . . . . . . . 17-6417:30.80(2)(b) Contractual Rights of Set-Off and Retention. . . . . . 17-6517:30.80(2)(c) Security Interests . . . . . . . . . . . . . . . . . . . . . . . . 17-6617:30.80(2)(d) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-6717:30.80(2)(d)(i) Sureties’ lines of credit . . . . . . . . . . . . . . . . . . 17-6717:30.80(2)(d)(ii) Fund credit rings . . . . . . . . . . . . . . . . . . . . . 17-6817:30.80(2)(d)(iii) Category credit rings . . . . . . . . . . . . . . . . . . 17-69

17:30.80(2)(e) System-Operating Caps and CCP Cap . . . . . . . . . . 17-7117:30.80(2)(f) Other Risk Management Controls . . . . . . . . . . . . . 17-7317:30.80(2)(f)(i) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-7317:30.80(2)(f)(ii) Exculpatory clauses . . . . . . . . . . . . . . . . . . . . 17-7417:30.80(2)(f)(iii) Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . 17-7417:30.80(2)(f)(iv) Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-74

17:40 CROSS-BORDER SERVICES. . . . . . . . . . . . . . . . . . . . . . . . 17-7517:40.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-7517:40.20 Regulated But Not Designated . . . . . . . . . . . . . . . . . . . . . 17-7617:40.30 Legal Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-7717:40.40 Funds and Securities Accounts . . . . . . . . . . . . . . . . . . . . . 17-7817:40.50 Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-7817:40.60 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-79

17:50 DEFAULT AND SUSPENSION . . . . . . . . . . . . . . . . . . . . . . 17-7917:50.10 Events of Default/Reasons for Suspension . . . . . . . . . . . . . 17-7917:50.10(1) At Payment Exchange . . . . . . . . . . . . . . . . . . . . . . . . 17-7917:50.10(2) Other Grounds for Automatic Suspension . . . . . . . . . . . 17-8117:50.10(3) Discretionary Suspension . . . . . . . . . . . . . . . . . . . . . . 17-81

17:50.20 Consequences of Suspension . . . . . . . . . . . . . . . . . . . . . . 17-8117:50.30 Suspension and Judicial Staying Orders . . . . . . . . . . . . . . . 17-8217:50.30(1) Eligible Financial Contracts . . . . . . . . . . . . . . . . . . . . 17-8217:50.30(2) Protection of Systemically Important Operations . . . . . . 17-87

17:60 LEGAL ANALYSIS OF PAYMENT RISK. . . . . . . . . . . . . . . 17-87

CHAPTER 18 PAYMENTUNDER FINANCIALDERIVATIVES CONTRACTS

18:10 INTRODUCTION TO FINANCIAL DERIVATIVES . . . . . . . . 18-118:10.10 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-118:10.20 Exchanges and the Market Structure . . . . . . . . . . . . . . . . . . 18-418:10.30 Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-5

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18:20 RISK ASSESSMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-818:20.10 Risks in Exchange-Traded Financial Options

and Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-8.118:20.10(1) Clearing House Risks Identified. . . . . . . . . . . . . . . . . . 18-8.118:20.10(2) Participants’ Risks Not Identified . . . . . . . . . . . . . . . . 18-1118:20.10(3) Defensive Action by Clearing Houses . . . . . . . . . . . . . . 18-12

18:20.20 Risks in Over-the-Counter Financial Options andDerivatives Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . 18-14

18:30 CANADIAN DERIVATIVES CLEARINGCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.1

18:30.10 Corporate History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.118:30.20 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.118:30.25 Publication of Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.318:30.30 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.318:30.30(1) Membership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-18.318:30.30(1)(a) Basis and Governing Law . . . . . . . . . . . . . . . . . 18-18.318:30.30(1)(b) Classes of Membership . . . . . . . . . . . . . . . . . . . 18-18.418:30.30(1)(c) Qualifications of Membership . . . . . . . . . . . . . . . 18-18.4

18:30.30(2) Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-1918:30.30(2)(a) Types of Account . . . . . . . . . . . . . . . . . . . . . . . . 18-1918:30.30(2)(b) Terms of Account Agreements . . . . . . . . . . . . . . . 18-1918:30.30(2)(b)(i) Basic rights and obligations of parties . . . . . . . . 18-1918:30.30(2)(b)(ii) Lien or security interest . . . . . . . . . . . . . . . . . 18-2018:30.30(2)(b)(iii) Netting . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2218:30.30(2)(b)(iv) Close-out . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2318:30.30(2)(b)(v) Consolidation of accounts and set-off. . . . . . . . 18-23

18:30.30(3) Legal Relations of Members and Corporation . . . . . . . . 18-2418:30.40 Operations Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2518:30.40(1) Issue of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2518:30.40(2) Trade Reporting and Novation . . . . . . . . . . . . . . . . . . 18-2618:30.40(3) Administration of Accounts . . . . . . . . . . . . . . . . . . . . 18-2718:30.40(4) Netting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2818:30.40(5) Daily Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2818:30.40(6) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-2918:30.40(7) Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-31

18:30.50 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-3118:30.50(1) Rules Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-3218:30.50(1)(a) Membership Qualifications . . . . . . . . . . . . . . . . . 18-3218:30.50(1)(b) Clearing Funds Deposits . . . . . . . . . . . . . . . . . . 18-32.118:30.50(1)(c) Margin Requirements . . . . . . . . . . . . . . . . . . . . . 18-3318:30.50(1)(c)(i) Purpose of margin . . . . . . . . . . . . . . . . . . . . . 18-3318:30.50(1)(c)(ii) Margin calculation . . . . . . . . . . . . . . . . . . . . 18-3318:30.50(1)(c)(iii) Eligible margin collateral. . . . . . . . . . . . . . . . 18-35

18:30.50(2) Statutory Protections . . . . . . . . . . . . . . . . . . . . . . . . . 18-3818:30.60 Default (Non-Conforming Status). . . . . . . . . . . . . . . . . . . 18-4118:30.60(1) Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-4118:30.60(2) Action by Corporation. . . . . . . . . . . . . . . . . . . . . . . . 18-4218:30.60(2)(a) Suspension and Loss Minimilization . . . . . . . . . . . 18-4218:30.60(2)(b) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-43

18:40 SWAPCLEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-4318:40.10 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-4318:40.20 Designation under Canadian Law . . . . . . . . . . . . . . . . . . . 18-4418:40.30 Clearing and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . 18-45

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PART 6 CLEARINGANDSETTLEMENTOF FOREIGNEXCHANGETRANSACTIONS

CHAPTER 19 CLEARINGANDSETTLEMENTOF FOREIGNEXCHANGETRANSACTIONS

19:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-119:10.10 Nature of the Foreign Exchange Market . . . . . . . . . . . . . . . 19-119:10.20 Problems with Conventional Analysis . . . . . . . . . . . . . . . . . 19-219:10.30 Risk in the Foreign Exchange Market . . . . . . . . . . . . . . . . . 19-419:10.30(1) Herstatt (Time Zone) Risk . . . . . . . . . . . . . . . . . . . . . . 19-419:10.30(2) Other Perceived Risks . . . . . . . . . . . . . . . . . . . . . . . . . 19-519:10.30(2)(a) BIS Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-519:10.30(2)(b) Canadian Response . . . . . . . . . . . . . . . . . . . . . . 19-8.1

19:10.40 Netting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-8.119:10.40(1) Bilateral Netting Agreements . . . . . . . . . . . . . . . . . . . 19-8.119:10.40(2) Multilateral Netting Systems . . . . . . . . . . . . . . . . . . . . 19-1119:10.40(3) Legislative Protections . . . . . . . . . . . . . . . . . . . . . . . . 19-1219:10.40(3)(a) Eligible Financial Contracts . . . . . . . . . . . . . . . . . 19-1219:10.40(3)(b) Payment Clearing and Settlement Act . . . . . . . . . . 19-16

19:10.50 Secure Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-1819:20 CONTINUOUS LINKED SETTLEMENT . . . . . . . . . . . . . . . 19-19

19:20.10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-1919:20.20 CLS Bank International . . . . . . . . . . . . . . . . . . . . . . . . . 19-2019:20.20(1) Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-2119:20.20(2) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-2219:20.20(3) Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-2319:20.20(3)(a) Summary of Operating Procedure . . . . . . . . . . . . . 19-2419:20.20(3)(b) Detail of Operating Procedure . . . . . . . . . . . . . . . 19-2519:20.20(3)(b)(i) Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 19-2519:20.20(3)(b)(ii) Confirmation. . . . . . . . . . . . . . . . . . . . . . . . 19-2619:20.20(3)(b)(iii) Netting of positions . . . . . . . . . . . . . . . . . . . 19-2719:20.20(3)(b)(iv) Funding settlement accounts . . . . . . . . . . . . . 19-2719:20.20(3)(b)(v) Settling matched entries . . . . . . . . . . . . . . . . . 19-2719:20.20(3)(b)(vi) Finality of payments . . . . . . . . . . . . . . . . . . 19-28

19:20.20(3.5) Same Day Settlement of CAD/USD Trades. . . . . . . . 19-28.119:20.20(4) Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . 19-28.119:20.20(4)(a) Short Position Limits . . . . . . . . . . . . . . . . . . . . 19-28.219:20.20(4)(b) Aggregate Short Position Limit. . . . . . . . . . . . . . . 19-2919:20.20(4)(c) Positive Adjusted Account Balance . . . . . . . . . . . . 19-2919:20.20(4)(d) Survivors Pay . . . . . . . . . . . . . . . . . . . . . . . . . . 19-30

19:20.20(5) Failure to Settle . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3019:20.20(6) Participant Default . . . . . . . . . . . . . . . . . . . . . . . . . . 19-31

19:20.30 Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3219:20.30(1) Rules Binding Among Participants. . . . . . . . . . . . . . . . 19-3219:20.30(2) Payment Clearing and Settlement Act . . . . . . . . . . . . . . 19-3219:20.30(3) Between Payors and Payees. . . . . . . . . . . . . . . . . . . . . 19-3419:20.30(4) Eligible Financial Contracts . . . . . . . . . . . . . . . . . . . . 19-3519:20.30(5) Compliance with International Policy Requirements . . . . 19-3619:20.30(5)(a) Liquidity Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3619:20.30(5)(b) Herstatt Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3719:20.30(5)(c) Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3719:20.30(5)(d) Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-3819:20.30(5)(e) Replacement Risk. . . . . . . . . . . . . . . . . . . . . . . . 19-38

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19:20.30(5)(f) Operational Risk . . . . . . . . . . . . . . . . . . . . . . . . 19-38

VOLUME 3

PART 7 NEGOTIABLE INSTRUMENTS

CHAPTER 20 INTRODUCTION TONEGOTIABLEINSTRUMENTS

20:10 CUSTOM AND THE LAWMERCHANT . . . . . . . . . . . . . . . . 20-120:10.10 Goodwin v. Robarts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-120:10.20 Canadian Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-320:10.30 New Customs and Usages . . . . . . . . . . . . . . . . . . . . . . . . . 20-4

20:20 THE QUALITY OF NEGOTIABILITY . . . . . . . . . . . . . . . . . . 20-820:20.10 Common Law Principles . . . . . . . . . . . . . . . . . . . . . . . . . . 20-820:20.20 Utility of Precedents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-920:20.30 Legislative Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-920:20.40 Negotiability by Estoppel . . . . . . . . . . . . . . . . . . . . . . . . 20-11

20:30 CODIFICATION OF BILLS OF EXCHANGE LAWIN CANADA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-11

20:30.10 History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-1120:30.20 Constitutional Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . 20-1320:30.20(1) Applicable Principles . . . . . . . . . . . . . . . . . . . . . . . . . 20-1320:30.20(2) Specific Propositions . . . . . . . . . . . . . . . . . . . . . . . . . 20-1320:30.20(3) Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-1520:30.20(3)(a) Concurrent Application. . . . . . . . . . . . . . . . . . . . 20-1520:30.20(3)(b) Federal Paramountcy . . . . . . . . . . . . . . . . . . . . . 20-1620:30.20(3)(c) Statutes of Limitation . . . . . . . . . . . . . . . . . . . . . 20-1920:30.20(3)(d) Depository Bills and Notes . . . . . . . . . . . . . . . . . 20-19

CHAPTER 21 INTERPRETATIONOF THE BILLSOFEXCHANGE ACT

21:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-121:20 STATUTORY DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 21-1

21:20.10 Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-221:20.20 Action and Defence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-321:20.30 Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-321:20.40 Bearer and Holder (‘‘Person’’) . . . . . . . . . . . . . . . . . . . . . . 21-421:20.40(1) Bearer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-521:20.40(2) Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-521:20.40(3) Crown. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-7

21:20.50 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-921:20.50(1) A Difficult Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-921:20.50(2) A Primer on ‘‘Delivery’’ . . . . . . . . . . . . . . . . . . . . . . . . 21-921:20.50(3) The Influence of BEA s. 165(3) . . . . . . . . . . . . . . . . . . 21-1121:20.50(4) Issue to Named Payee . . . . . . . . . . . . . . . . . . . . . . . . 21-1121:20.50(5) Possession versus Custody . . . . . . . . . . . . . . . . . . . . . 21-1321:20.50(6) Constructive Delivery . . . . . . . . . . . . . . . . . . . . . . . . 21-1521:20.50(7) Meaning of ‘‘Transfer’’ . . . . . . . . . . . . . . . . . . . . . . . 21-1521:20.50(8) Delivery by Post . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-16

21:20.60 Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-16

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21:20.70 Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-1721:20.70(1) Meaning of Issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-1721:20.70(2) Place of Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-19

21:20.80 Sundays, Holidays, Non-Juridical Days and Non-BusinessDays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-20

21:20.90 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2221:20.100 Bankrupt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2221:20.110 Inland Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2321:20.110(1) Purpose of Distinction . . . . . . . . . . . . . . . . . . . . . . . 21-2321:20.110(2) Case Law: Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2421:20.110(3) Meaning of ‘‘Drawn’’ . . . . . . . . . . . . . . . . . . . . . . . . 21-2521:20.110(4) Case Law: Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-25

21:20.120 Judicially Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 21-2621:20.120(1) Draft. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2621:20.120(2) Drawer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2621:20.120(3) Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-2821:20.120(4) Endorsee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-28

21:20.130 Other Defined or Explained Terms . . . . . . . . . . . . . . . . . . 21-2921:20.140 Official Image of Eligible Bill. . . . . . . . . . . . . . . . . . . . . . 21-3021:20.140(1) Defintions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-30.121:20.140(1)(a) Meaning of ‘‘Bank’’ in this Context . . . . . . . . . . 21-30.121:20.140(1)(b) Eligible Bill . . . . . . . . . . . . . . . . . . . . . . . . . . 21-30.121:20.140(1)(c) Official Image . . . . . . . . . . . . . . . . . . . . . . . . 21-30.1

21:30 RULE OF CODE CONSTRUCTION. . . . . . . . . . . . . . . . . . 21-30.221:40 GENERAL PROVISIONS OF THE BEA . . . . . . . . . . . . . . . . 21-33

21:40.10 Good Faith and Negligence . . . . . . . . . . . . . . . . . . . . . . . 21-3321:40.10(1) Question of Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-3421:40.10(2) The Right Test? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-37

21:40.20 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-3921:40.20(1) The Signature Itself . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4021:40.20(2) The Medium of Signature . . . . . . . . . . . . . . . . . . . . . 21-40.121:40.20(2)(a) Pencil; Erasable Ink . . . . . . . . . . . . . . . . . . . . . 21-40.121:40.20(2)(b) Stamps; Printed and Typewritten Names . . . . . . . 21-40.121:40.20(2)(c) Other Media . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-41

21:40.20(3) Placement of Signature. . . . . . . . . . . . . . . . . . . . . . . . 21-4221:40.20(4) Authority to Sign . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4321:40.20(5) Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-43

21:40.30 Corporate Seals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4321:40.30(1) Specialty Item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4321:40.30(2) Full Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-44

21:40.40 Reckoning of Time: Non-Business Days. . . . . . . . . . . . . . . 21-4521:40.50 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4621:40.50(1) Dividend Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4621:40.50(2) Municipal Government Warrants . . . . . . . . . . . . . . . . 21-47

21:40.60 Saving of Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4821:40.70 British Statutes Not in Force . . . . . . . . . . . . . . . . . . . . . . 21-4821:40.80 Rules of the Common Law of England. . . . . . . . . . . . . . . . 21-4821:40.80(1) Non-Bills Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-4921:40.80(2) Pre-BEA Case Law . . . . . . . . . . . . . . . . . . . . . . . . . 21-50.121:40.80(3) Strict Sense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-50.2

21:40.90 Protest as Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-52.121:40.100 Bank Officers Not to Act as Notaries . . . . . . . . . . . . . . . . 21-5321:40.110 Bill or Note Given for a Patent Right . . . . . . . . . . . . . . . . 21-53

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CHAPTER 22 FORMALVALIDITY22:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-1

22:10.10 Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-122:10.20 Promissory Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-122:10.30 Consumer Bills and Notes . . . . . . . . . . . . . . . . . . . . . . . . . 22-122:10.40 Depository Bills and Notes . . . . . . . . . . . . . . . . . . . . . . . . 22-222:10.50 Bankers’ Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2

22:20 DEFINITION OF A BILL . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-222:20.10 Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-422:20.10(1) Express Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-522:20.10(2) Implied Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-622:20.10(2)(a) Notes Associated with Other Documents . . . . . . . . . 22-622:20.10(2)(b) Instruments Referring to Other Documents. . . . . . . . 22-922:20.10(2)(c) Instruments Secured by Trust Indenture . . . . . . . . . 22-1322:20.10(2)(d) Instruments Reciting Executory Consideration . . . . 22-15

22:20.20 Order to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-1622:20.30 Addressed by One Person to Another . . . . . . . . . . . . . . . 22-16.122:20.40 Signed by the Person Giving It . . . . . . . . . . . . . . . . . . . . 22-18a22:20.50 On Demand or at a Fixed or Determinable Future Time . . . 22-18.122:20.60 A Sum Certain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-18.122:20.70 In Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-18.122:20.80 To or to the Order of a Specified Person, or to Bearer . . . . . 22-18.122:20.80(1) Words of Negotiability. . . . . . . . . . . . . . . . . . . . . . . 22-18.122:20.80(2) Status of Non-Conforming Instruments . . . . . . . . . . . 22-18.422:20.80(3) Specified Person or Bearer . . . . . . . . . . . . . . . . . . . . 22-18.5

22:20.90 Any Act . . . in Addition to Payment . . . . . . . . . . . . . . . . 22-18.522:20.100 Contingency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-19

22:30 LEGAL EFFECTS OF INSTRUMENTS NOT QUALIFYINGAS BILLS OR NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-20

22:40 PARTIES TO A BILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2222:40.10 Drawee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2222:40.10(1) Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2222:40.10(2) Several Drawees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2222:40.10(3) Referee in Case of Need . . . . . . . . . . . . . . . . . . . . . . . 22-2322:40.10(4) Fictitious Drawee . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-23

22:40.20 Drawer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2322:40.20(1) Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2422:40.20(2) Several Drawers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2422:40.20(3) Fictitious Drawer . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-24

22:40.30 Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2422:40.30(1) Bearer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2522:40.30(2) Named Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2622:40.30(3) Several Payees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2822:40.30(4) Misdescribed Payee . . . . . . . . . . . . . . . . . . . . . . . . . . 22-2922:40.30(5) Same Name as Payee . . . . . . . . . . . . . . . . . . . . . . . . . 22-2922:40.30(6) Office Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-3022:40.30(7) Payee Blank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-3022:40.30(8) Lacking Legal Personality. . . . . . . . . . . . . . . . . . . . . . 22-3022:40.30(8.5) Non-Existing or Fictitious Payees - Historical and

Conceptual Overview . . . . . . . . . . . . . . . . . . . . . . . 22-3122:40.30(8.5)(a) Theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-3122:40.30(8.5)(b) History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-33

22:40.30(9) Non-Existent Payee . . . . . . . . . . . . . . . . . . . . . . . . . . 22-43

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22:40.30(9)(a) Inanimate Payee. . . . . . . . . . . . . . . . . . . . . . . . . 22-4422:40.30(9)(a.1) Entities Not Yet Existing, or No Longer Existing. . 22-4522:40.30(9)(b) Fraudulent Invention . . . . . . . . . . . . . . . . . . . . . 22-4622:40.30(9)(b)(i) Employee Fraud - The Concrete Column

Clamps Rule . . . . . . . . . . . . . . . . . . . . . . . . . 22-4722:40.30(9)(b)(ii) Employee Fraud - The Plausibility Doctrine . . 22-50.1

22:40.30(9)(c) Other Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-50.222:40.30(9)(c)(i) Identity Theft - Non-Existent Person. . . . . . . . 22-50.222:40.30(9)(c)(ii) Instruments Not Cheques. . . . . . . . . . . . . . . 22-50.6

22:40.30(10) Real Person as Fictitious Payee . . . . . . . . . . . . . . . . 22-50.822:40.30(10)(a) Drawer Not Intending to Benefit Named Payee . 22-50.8a22:40.30(10)(a)(i) Innocent Mis-Designation . . . . . . . . . . . . . 22-50.8a22:40.30(10)(a)(ii) Mis-Designation by Fraudulent Drawer . . . . 22-50.922:40.30(10)(a)(iii) Mis-Designation by Deceived Drawer -

Identity Theft . . . . . . . . . . . . . . . . . . . . 22-50.1122:40.30(10)(a)(iv) Drawer Not Intending to Benefit

Named Payee. . . . . . . . . . . . . . . . . . . . . 22-50.1522:40.30(10)(a)(iv)A The Reasoning of the Majority . . . . . . . 22-50.1622:40.30(10)(a)(iv)B The Reasoning of the Minority . . . . . . . 22-50.22

22:40.30(11) Policy Considerations. . . . . . . . . . . . . . . . . . . . . . 22-50.2322:40.30(11)(a) Policy Foundations of the Majority Decision . . . 22-50.2322:40.30(11)(b) Policy Foundations of the Minority Opinion . . . 22-50.29

22:40.30(12) Circumventing Teva; A Possible Solution. . . . . . . . . 22-50.3122:40.40 Duplicate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-50.3922:40.40(1) Drawer and Payee . . . . . . . . . . . . . . . . . . . . . . . . . 22-50.4022:40.40(2) Drawer and Drawee . . . . . . . . . . . . . . . . . . . . . . . . . 22-5122:40.40(3) Drawee and Payee. . . . . . . . . . . . . . . . . . . . . . . . . . . 22-51

22:40.50 Other Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5222:40.50(1) Accommodation Parties . . . . . . . . . . . . . . . . . . . . . . . 22-5222:40.50(2) Anomalous Endorsers . . . . . . . . . . . . . . . . . . . . . . . . 22-5322:40.50(3) Referee in Case of Need . . . . . . . . . . . . . . . . . . . . . . . 22-5322:40.50(4) Acceptor for Honour under Protest . . . . . . . . . . . . . . . 22-53

22:50 TIME OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5322:50.10 When Payable on Demand. . . . . . . . . . . . . . . . . . . . . . . . 22-5322:50.10(1) Payable at Sight or on Demand . . . . . . . . . . . . . . . . . 22-54.122:50.10(1.5) Demand After Future Date (‘‘Delayed Demand’’) . . . 22-54.222:50.10(2) No Time Expressed . . . . . . . . . . . . . . . . . . . . . . . . . 22-54.722:50.10(3) Inconsistent Alternatives . . . . . . . . . . . . . . . . . . . . . . 22-5522:50.10(4) Accelerated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 22-56

22:50.20 Uncertain Future Time . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5622:50.30 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5722:50.30(1) Time of Day Expressed . . . . . . . . . . . . . . . . . . . . . . . 22-5722:50.30(2) Alternative Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5822:50.30(3) ‘‘On or Before’’ Date . . . . . . . . . . . . . . . . . . . . . . . . 22-58.122:50.30(4) Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-58.222:50.30(5) Right of Renewal . . . . . . . . . . . . . . . . . . . . . . . . . . 22-58.4

22:50.40 Days of Grace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-58.522:50.50 Reckoning Time of Payment . . . . . . . . . . . . . . . . . . . . . . 22-59

22:60 DATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5922:60.10 Undated Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-5922:60.20 Antedated Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-6122:60.30 Post-Dated Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-6122:60.40 Sunday; Non-Juridical Day . . . . . . . . . . . . . . . . . . . . . . . 22-61

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22:60.50 Presumption of True Date . . . . . . . . . . . . . . . . . . . . . . . . 22-6222:70 SUM CERTAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-62

22:70.10 Statutory Aids to Certainty . . . . . . . . . . . . . . . . . . . . . . 22-64.122:70.20 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-64.122:70.20(1) Fixed Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-64.122:70.20(2) Floating Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-6622:70.20(3) LIBOR/EURIBOR/CDOR . . . . . . . . . . . . . . . . . . . . 22-6922:70.20(3.5) Proposed Regulation of Benchmark Submissions . . . . . 22-7022:70.20(4) Compound or Simple. . . . . . . . . . . . . . . . . . . . . . . . 22-70.222:70.20(5) Before and After Maturity . . . . . . . . . . . . . . . . . . . . . 22-7122:70.20(6) Before and After Default . . . . . . . . . . . . . . . . . . . . . . 22-7222:70.20(7) Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-7222:70.20(8) Deemed Reinvestment Principle. . . . . . . . . . . . . . . . . 22-72.122:70.20(9) 360-Day Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-72.122:70.20(10) Other Periods Less than a Year . . . . . . . . . . . . . . . . . 22-73

22:70.30 Stated Instalments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-7522:70.40 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-76.122:70.50 Discrepancy Between Words and Figures . . . . . . . . . . . . . 22-76.1

22:80 MISCELLANEOUS POINTS OF FORM . . . . . . . . . . . . . . . . 22-7722:80.10 Recital of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-7722:80.20 Place of Drawing or Payment . . . . . . . . . . . . . . . . . . . . . . 22-7722:80.30 Incomplete Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . 22-7822:80.40 Qualified Forms of Drawing . . . . . . . . . . . . . . . . . . . . . . 22-7822:80.40(1) Drawer’s Disclaimer of Liability . . . . . . . . . . . . . . . . . 22-7822:80.40(2) Maker’s Disclaimer of Liability . . . . . . . . . . . . . . . . . . 22-7922:80.40(3) Endorser’s Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . 22-7922:80.40(4) Waiver of Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-80

22:90 FORMALITIES OF ACCEPTANCE . . . . . . . . . . . . . . . . . . 22-80.122:90.10 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-80.122:90.20 Delivery or Notification . . . . . . . . . . . . . . . . . . . . . . . . . 22-8122:90.30 By the Drawee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8122:90.30(1) Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8122:90.30(2) Name Added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8122:90.30(3) Signature Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8222:90.30(4) Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8222:90.30(5) Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8222:90.30(6) Wrong Designation . . . . . . . . . . . . . . . . . . . . . . . . . . 22-82

22:90.40 Requirements of Signature and Form . . . . . . . . . . . . . . . . 22-8222:90.50 Time of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8322:90.60 Types of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8422:90.60(1) Qualified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8522:90.60(2) Conditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8522:90.60(3) Partial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-8522:90.60(4) Qualified as to Time . . . . . . . . . . . . . . . . . . . . . . . . . 22-8622:90.60(5) At a Particular Place . . . . . . . . . . . . . . . . . . . . . . . . . 22-86

CHAPTER 23 TRANSACTIONALVALIDITY23:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-123:20 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-1

23:20.10 Reason for Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . 23-223:20.20 Examples of Sufficient Delivery . . . . . . . . . . . . . . . . . . . . . 23-223:20.30 Communication of Acceptance . . . . . . . . . . . . . . . . . . . . . . 23-323:20.40 Presumption of Valid Delivery . . . . . . . . . . . . . . . . . . . . . . 23-4

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23:20.40(1) General Rebuttable Presumption . . . . . . . . . . . . . . . . . . 23-423:20.40(2) As Between Immediate Parties. . . . . . . . . . . . . . . . . . . . 23-523:20.40(3) Special Irrebuttable Presumption . . . . . . . . . . . . . . . . . . 23-6

23:20.50 Proof of Conditional Delivery . . . . . . . . . . . . . . . . . . . . . . 23-823:20.50(1) Defence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-823:20.50(2) Parol Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-923:20.50(3) Escrow of the Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-923:20.50(4) Delivery by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-923:20.50(5) Disregard of Condition . . . . . . . . . . . . . . . . . . . . . . . 23-10

23:20.60 Incomplete Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . 23-1023:20.60(1) Affected Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 23-1123:20.60(2) Material Particular . . . . . . . . . . . . . . . . . . . . . . . . . . 23-1223:20.60(3) Authority to Complete . . . . . . . . . . . . . . . . . . . . . . . . 23-1323:20.60(4) Missing Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-1323:20.60(5) Interest Clauses in Notes . . . . . . . . . . . . . . . . . . . . . . 23-1423:20.60(6) Particulars Out of Order. . . . . . . . . . . . . . . . . . . . . . . 23-1623:20.60(7) Unauthorized Delivery. . . . . . . . . . . . . . . . . . . . . . . . 23-1623:20.60(7)(a) Strict Authority . . . . . . . . . . . . . . . . . . . . . . . . . 23-1723:20.60(7)(b) Such‘‘ Instrument. . . . . . . . . . . . . . . . . . . . . . . . 23-1823:20.60(7)(c) Custodian or Agent. . . . . . . . . . . . . . . . . . . . . . . 23-1823:20.60(7)(d) Current Canadian Position . . . . . . . . . . . . . . . . . 23-1923:20.60(7)(e) Consumer Law Influences . . . . . . . . . . . . . . . . . . 23-21

23:20.60(8) Negotiated to a Holder in Due Course . . . . . . . . . . . . . 23-2123:20.60(9) Within a Reasonable Time . . . . . . . . . . . . . . . . . . . . . 23-22

23:20.70 Delivery as Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2223:30 CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-22

23:30.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2323:30.10(1) Capacity for What Purpose . . . . . . . . . . . . . . . . . . . . . 23-2323:30.10(2) Special Rule for Cheques . . . . . . . . . . . . . . . . . . . . . . 23-25

23:30.20 Corporate Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2623:30.30 Infants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2623:30.30(1) English Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-26.123:30.30(2) Canadian Common Law . . . . . . . . . . . . . . . . . . . . . . 23-2723:30.30(3) Liability of Adult Co-Maker . . . . . . . . . . . . . . . . . . . . 23-28

23:30.40 Mental Incompetents . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2923:30.40(1) Mental Incompetents So Found. . . . . . . . . . . . . . . . . . 23-2923:30.40(2) Mental Disorder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-2923:30.40(3) Intoxicated Persons . . . . . . . . . . . . . . . . . . . . . . . . . . 23-30

23:30.50 Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-3123:30.50(1) Married Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-3123:30.50(2) Municipal Corporations . . . . . . . . . . . . . . . . . . . . . . . 23-3123:30.50(3) Crown. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-32

23:30.60 Effect on Other Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 23-3223:30.60(1) Rights of Holders in Due Course . . . . . . . . . . . . . . . . . 23-3223:30.60(2) Liabilities of Other Parties . . . . . . . . . . . . . . . . . . . . . 23-34

23:30.70 Statutory Preclusions to Deny Capacity . . . . . . . . . . . . . . . 23-3423:40 AUTHORITY TO SIGN . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-35

23:40.10 Authority and Agency Power of Agents . . . . . . . . . . . . . . . 23-3623:40.10(1) Express Actual Authority . . . . . . . . . . . . . . . . . . . . . . 23-3823:40.10(2) Implied Actual Authority . . . . . . . . . . . . . . . . . . . . . . 23-3923:40.10(3) Agency Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-4023:40.10(3)(a) Customary Authority . . . . . . . . . . . . . . . . . . . . . 23-4023:40.10(3)(b) Apparent Authority . . . . . . . . . . . . . . . . . . . . . . 23-42


C1-50

23:40.10(3)(c) Indoor Management Rule . . . . . . . . . . . . . . . . . . 23-4323:40.10(3)(d) Ordinary Course Dealings . . . . . . . . . . . . . . . . . . 23-43

23:40.20 Forged or Unauthorized Signatures. . . . . . . . . . . . . . . . . . 23-4423:40.20(1) What Signatures Within Section . . . . . . . . . . . . . . . . . 23-4423:40.20(2) Canadian Authorities. . . . . . . . . . . . . . . . . . . . . . . . . 23-4523:40.20(3) Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-4723:40.20(4) Agency Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-4723:40.20(5) Banking Resolutions and Contracts . . . . . . . . . . . . . . . 23-4823:40.20(6) Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 23-48.123:40.20(7) Onus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-48.1

23:40.30 Effect of Such Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 23-4923:40.30(1) Acceptor of Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5023:40.30(2) Maker of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5023:40.30(3) Drawer of Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5023:40.30(4) Drawer of Cheque. . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5123:40.30(5) Payee or Other Endorser of Bill or Note . . . . . . . . . . . . 23-53

23:40.40 Preclusion from Denying Forgery . . . . . . . . . . . . . . . . . . . 23-5423:40.40(1) Adoption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5523:40.40(2) Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5623:40.40(3) Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-5823:40.40(4) Knowing Silence . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-58.123:40.40(4)(a) Knowledge of Facts . . . . . . . . . . . . . . . . . . . . . . 23-5923:40.40(4)(b) Duty to Speak . . . . . . . . . . . . . . . . . . . . . . . . . . 23-59

23:40.40(5) Other Forms of Preclusion . . . . . . . . . . . . . . . . . . . . . 23-6023:40.40(6) Detrimental Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 23-6323:40.40(7) Against the Crown . . . . . . . . . . . . . . . . . . . . . . . . . . 23-6323:40.40(8) Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-63

23:40.50 Ratification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-6423:40.60 Recovery of Money Paid on Forged Endorsements . . . . . . . 23-6523:40.60(1) Outline of Commentary . . . . . . . . . . . . . . . . . . . . . . . 23-6623:40.60(2) Action for Conversion . . . . . . . . . . . . . . . . . . . . . . . . 23-6623:40.60(2)(a) Conversion of Instrument and Proceeds . . . . . . . . . 23-6723:40.60(2)(b) Conditions Precedent to Action . . . . . . . . . . . . . . 23-7023:40.60(2)(b)(0.5) Negotiable instrument. . . . . . . . . . . . . . . . 23-70.123:40.60(2)(b)(i) Proper plaintiff . . . . . . . . . . . . . . . . . . . . . . . 23-7223:40.60(2)(b)(ii) Valuable instrument . . . . . . . . . . . . . . . . . . . 23-7523:40.60(2)(b)(iii) Action without authority . . . . . . . . . . . . . 23-76.2a23:40.60(2)(b)(iv) Loss suffered . . . . . . . . . . . . . . . . . . . . . 23-76.2d

23:40.60(2)(c) Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . 23-76.2e23:40.60(2)(d) BEA s. 165(3) . . . . . . . . . . . . . . . . . . . . . . . . . 23-76.3

23:40.60(3) Civil Law of Quebec . . . . . . . . . . . . . . . . . . . . . . . . 23-76.423:40.60(4) Drawer vs. Drawee . . . . . . . . . . . . . . . . . . . . . . . . . 23-76.523:40.60(4)(a) Drawer’s Signature . . . . . . . . . . . . . . . . . . . . . . 23-76.523:40.60(4)(b) Forged Endorsement . . . . . . . . . . . . . . . . . . . . . 23-77

23:40.60(5) Drawer vs. Collecting Bank. . . . . . . . . . . . . . . . . . . . . 23-7823:40.60(5)(a) Forged Drawer’s Signature . . . . . . . . . . . . . . . . . 23-7823:40.60(5)(b) Forged Endorsement . . . . . . . . . . . . . . . . . . . . . 23-7923:40.60(5)(b)(i) Effect of s. 165(3) . . . . . . . . . . . . . . . . . . . . . 23-7923:40.60(5)(b)(ii) Failure to give notice. . . . . . . . . . . . . . . . . . . 23-80

23:40.60(6) Drawee vs. Collecting Bank . . . . . . . . . . . . . . . . . . . . 23-8223:40.60(6)(a) Drawer’s Signature Forged . . . . . . . . . . . . . . . . . 23-8223:40.60(6)(b) Forged Endorsements . . . . . . . . . . . . . . . . . . . . . 23-84

23:40.60(7) Collecting Bank vs. Prior Endorsers . . . . . . . . . . . . . . . 23-86

TABLEOF CONTENTS

October 2018C1-51

23:40.60(8) Payee vs. Drawee . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-8623:40.60(9) Payee vs. Collecting Bank . . . . . . . . . . . . . . . . . . . . . . 23-8723:40.60(10) Waiver of Conversion. . . . . . . . . . . . . . . . . . . . . . . . 23-87

23:40.70 Recovery of Money Paid on Other Instruments . . . . . . . . . 23-88.423:40.70(1) Maker of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-88.423:40.70(2) Payee of Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-88.423:40.70(3) Forged Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . 23-88.5

23:40.80 Signature by Procuration. . . . . . . . . . . . . . . . . . . . . . . . . 23-8923:40.80(1) What Signatures Within BEA, s. 50 . . . . . . . . . . . . . . . 23-8923:40.80(2) Effect of Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-91

23:50 REPRESENTATIVE SIGNATURES . . . . . . . . . . . . . . . . . . . 23-9223:50.10 Liability of Representative or Principal? . . . . . . . . . . . . . . . 23-9323:50.20 Corporation or Individual Liable . . . . . . . . . . . . . . . . . . . 23-9423:50.30 Admissibility of Parol Evidence . . . . . . . . . . . . . . . . . . . . 23-9523:50.30(1) Ambiguity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-9523:50.30(2) Intention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-9823:50.30(3) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-100

23:50.40 Signature for Unformed Corporation . . . . . . . . . . . . . . . 23-10123:50.50 Signature for Other Non-Existent Principal. . . . . . . . . . . . 23-10223:50.60 Liability of Agent Signing Without Authority . . . . . . . . . . 23-10223:50.70 Partnership Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 23-10323:50.70(1) Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-10323:50.70(2) Acts Within Authority of Signer . . . . . . . . . . . . . . . . 23-10423:50.70(3) Acts Binding Otherwise . . . . . . . . . . . . . . . . . . . . . . 23-10423:50.70(4) Trading and Non-Trading Firms . . . . . . . . . . . . . . . . 23-10523:50.70(5) Cheques and Endorsements . . . . . . . . . . . . . . . . . . . 23-10523:50.70(6) Special Forms of Execution. . . . . . . . . . . . . . . . . . . . 23-106

23:60 TRADE OR ASSUMED NAMES . . . . . . . . . . . . . . . . . . . . 23-10723:70 VALUABLE CONSIDERATION . . . . . . . . . . . . . . . . . . . . 23-107

23:70.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-10823:70.10(1) Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-10823:70.10(2) Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-109

23:70.20 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-11023:70.30 Antecedent Debt or Liability . . . . . . . . . . . . . . . . . . . . . 23-11123:70.30(1) Nature of the Problem . . . . . . . . . . . . . . . . . . . . . . . 23-11123:70.30(2) Relation Between Debt and Cheque . . . . . . . . . . . . . . 23-11223:70.30(2.5) Antecedent Debt as Consideration for Note . . . . . . . 23-11523:70.30(3) Antecedent Debts and Accomodation Parties . . . . . . . . 23-116

23:70.40 Instruments Under Seal. . . . . . . . . . . . . . . . . . . . . . . . 23-116.223:70.50 Special Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . 23-11723:70.50(1) Patent Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-11723:70.50(2) Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-11723:70.50(3) Consumer Goods and Services. . . . . . . . . . . . . . . . . . 23-118

CHAPTER 24 HOLDERS24:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1

24:10.10 Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-124:10.10(1) Conventional Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-124:10.10(2) Official Image of Eligible Bill . . . . . . . . . . . . . . . . . . . . 24-2

24:10.20 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-324:10.30 Time of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-3

24:20 HOLDER FOR VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-424:20.10 Presumption of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-4

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24:20.10(1) Extent of Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-624:20.10(2) Bank Credit as Value . . . . . . . . . . . . . . . . . . . . . . . . . . 24-6

24:20.20 Qualifying as Holder for Value . . . . . . . . . . . . . . . . . . . . . 24-6.124:20.20(1) Consideration and Value Compared . . . . . . . . . . . . . . . . 24-724:20.20(2) Holder for Value Qua Whom . . . . . . . . . . . . . . . . . . . . 24-824:20.20(3) When Value Given . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-9

24:20.30 Holder with a Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-924:20.30(1) Meaning of ‘‘Lien’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1024:20.30(2) Enforceability of Lien . . . . . . . . . . . . . . . . . . . . . . . . 24-10

24:20.40 Liability of Accommodation Party . . . . . . . . . . . . . . . . . . 24-1124:20.50 Defences Available Against Holder for Value . . . . . . . . . . . 24-11

24:30 HOLDER IN DUE COURSE . . . . . . . . . . . . . . . . . . . . . . . . 24-1124:30.10 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1124:30.20 Qualifying Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1224:30.20(1) Face of Bill Complete and Regular . . . . . . . . . . . . . . . . 24-1224:30.20(1)(a) Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1224:30.20(1)(b) Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-13

24:30.20(2) Not Overdue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-1424:30.20(3) No Notice of Dishonour. . . . . . . . . . . . . . . . . . . . . . . 24-14

24:30.30 Good Faith and No Notice of Defect of Title . . . . . . . . . . . 24-1424:30.30(1) Question of Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-14.124:30.30(1)(a) Actual or Constructive Notice . . . . . . . . . . . . . . 24-14.124:30.30(1)(b) Grounds for Suspicion . . . . . . . . . . . . . . . . . . . . 24-1624:30.30(1)(c) Notorious Facts and Prior Knowledge . . . . . . . . . . 24-17

24:30.30(2) Knowledge or Suspicion of What? . . . . . . . . . . . . . . . . 24-1924:30.30(2)(a) Real or Absolute Defences . . . . . . . . . . . . . . . . . . 24-1924:30.30(2)(b) Defects of Title . . . . . . . . . . . . . . . . . . . . . . . . . 24-1924:30.30(2)(c) Absence of Consideration . . . . . . . . . . . . . . . . . . 24-2024:30.30(2)(d) Executory Consideration . . . . . . . . . . . . . . . . . . . 24-2024:30.30(2)(e) Other Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-2124:30.30(2)(f) Changed Circumstances . . . . . . . . . . . . . . . . . . . . 24-2224:30.30(2)(g) Notice and the Knowledge of Corporations. . . . . . . 24-22

24:30.35 Takes for Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-2624:30.40 Sheltered Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-2724:30.40(1) New Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-2724:30.40(2) Reacquiring Party . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-28

24:30.50 Presumptions in Favour of Holder . . . . . . . . . . . . . . . . . . 24-2924:30.50(1) Holds for Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-2924:30.50(2) Holds in Due Course . . . . . . . . . . . . . . . . . . . . . . . . . 24-2924:30.50(3) Application to Payee . . . . . . . . . . . . . . . . . . . . . . . . . 24-3024:30.50(4) Facts Rebutting Presumption . . . . . . . . . . . . . . . . . . . 24-3024:30.50(4)(a) Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-3124:30.50(4)(b) Duress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-33

24:30.60 Re-Establishing Holder in Due Course Status . . . . . . . . . . . 24-3424:30.70 Payee as Holder in Due Course. . . . . . . . . . . . . . . . . . . . . 24-3624:30.70(1) On Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-3624:30.70(2) On Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-4024:30.70(2)(a.5) Immediate Parties . . . . . . . . . . . . . . . . . . . . . . 24-4024:30.70(2)(a) Remote Party . . . . . . . . . . . . . . . . . . . . . . . . . 24-40.324:30.70(2)(b) Certified Cheques. . . . . . . . . . . . . . . . . . . . . . . 24-40.424:30.70(2)(c) Reasonable Expectations . . . . . . . . . . . . . . . . . . 24-40.524:30.70(2)(d) Avals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-40.6

24:30.70(3) [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-40.6

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24:30.80 Drawee as Holder in Due Course . . . . . . . . . . . . . . . . . . 24-40.624:30.90 Agreements Giving Holder in Due Course Status . . . . . . . . . 24-43

24:40 SPECIAL HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-4824:50 KNOWLEDGE OF USURY. . . . . . . . . . . . . . . . . . . . . . . . . 24-48

24:50.10 Effect of Section 58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-4824:50.20 History of Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-4824:50.30 Meaning of ‘‘Usury’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-5024:50.40 Should Section 58 be Retained? . . . . . . . . . . . . . . . . . . . . . 24-51

24:60 RIGHTS AND DUTIES OF HOLDERS. . . . . . . . . . . . . . . . . 24-52

CHAPTER 25 TRANSFERANDNEGOTIATION25:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-125:20 ENDORSEMENT GENERALLY . . . . . . . . . . . . . . . . . . . . . . 25-2

25:20.10 Negotiation by Endorsement . . . . . . . . . . . . . . . . . . . . . . . 25-325:20.20 Formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-325:20.20(1) Simple Signature or Stamp . . . . . . . . . . . . . . . . . . . . . . 25-325:20.20(2) Certainty of Designation . . . . . . . . . . . . . . . . . . . . . . . 25-425:20.20(3) Two or More Payees . . . . . . . . . . . . . . . . . . . . . . . . . . 25-5

25:20.30 Allonges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-625:20.40 Intention to Endorse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-625:20.50 Non-Entity Payees: Irregular Endorsements . . . . . . . . . . . . . 25-725:20.60 Presumption of Order of Endorsements . . . . . . . . . . . . . . . . 25-8

25:30 FORMS OF ENDORSEMENT . . . . . . . . . . . . . . . . . . . . . . . . 25-825:30.10 Blank or General Endorsement. . . . . . . . . . . . . . . . . . . . . . 25-925:30.20 Special Endorsement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1025:30.20(1) Conversion of Blank into Special Endorsement. . . . . . . . 25-1025:30.20(2) Striking Out Endorsements . . . . . . . . . . . . . . . . . . . . . 25-10

25:30.30 Restrictive Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . 25-1125:30.30(1) Legal Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1125:30.30(2) Effect of BEA s. 165(3). . . . . . . . . . . . . . . . . . . . . . . . 25-12

25:30.40 Qualified Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1425:30.50 Partial Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1425:30.60 Conditional Endorsement . . . . . . . . . . . . . . . . . . . . . . . . 25-1425:30.70 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1525:30.70(1) Words of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1525:30.70(2) Words of Assignment . . . . . . . . . . . . . . . . . . . . . . . . 25-16

25:40 TRANSFERWITHOUT ENDORSEMENT . . . . . . . . . . . . . . 25-1725:40.10 Instruments Payable to Order. . . . . . . . . . . . . . . . . . . . . . 25-1725:40.10(1) Legal Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-1725:40.10(2) Rights of Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . 25-20.1

25:40.20 Transfer of Bearer Instrument by Delivery . . . . . . . . . . . . 25-20.325:40.20(1) Warranties by Transferor . . . . . . . . . . . . . . . . . . . . . 25-20.325:40.20(1)(a) Quality of Bill . . . . . . . . . . . . . . . . . . . . . . . . . 25-20.325:40.20(1)(b) Right to Transfer . . . . . . . . . . . . . . . . . . . . . . . . 25-2125:40.20(1)(c) Not Aware Bill Valueless . . . . . . . . . . . . . . . . . . . 25-21

25:40.20(2) Repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-2125:40.20(3) Liability Dehors the Instrument. . . . . . . . . . . . . . . . . . 25-22

25:50 TRANSFER OTHER THAN UNDER THE BEA . . . . . . . . . . 25-2225:50.10 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-2225:50.20 Transfer as Investment Security . . . . . . . . . . . . . . . . . . . . 25-2325:50.30 Securities Transfer Acts Transfers . . . . . . . . . . . . . . . . . . . 25-24

25:60 TRANSFER AFTERMATURITY OR DISHONOUR. . . . . . . 25-2625:60.10 Post-Maturity Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 25-26

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25:60.10(1) When Time Bill Overdue . . . . . . . . . . . . . . . . . . . . . . 25-2725:60.10(2) Interest Overdue on Time Bill . . . . . . . . . . . . . . . . . . . 25-2725:60.10(3) When Demand Note Overdue . . . . . . . . . . . . . . . . . . . 25-2725:60.10(4) When Cheques and Demand Bills Overdue . . . . . . . . . . 25-27

25:60.20 Dishonoured Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-2925:70 REACQUISITION AND REISSUE . . . . . . . . . . . . . . . . . . . . 25-29

25:70.10 Scope of Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-2925:70.20 Reason for Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-3025:70.30 Rights of Reaquirer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-31

CHAPTER 26 RIGHTSOF HOLDERANDDEFENCES26:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-126:20 RIGHTS AND POWERS OF HOLDER . . . . . . . . . . . . . . . . . . 26-2

26:20.10 Action in Own Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-226:20.10(1) Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-326:20.10(2) Actions by Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-326:20.10(3) Provincial Constraints on Action . . . . . . . . . . . . . . . . . . 26-3

26:20.20 Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-426:30 DEFENCES TO LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 26-6.1

26:30.10 Types of Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-6.126:30.10(1) Immediate and Remote Parties . . . . . . . . . . . . . . . . . . 26-6.226:30.10(2) Significance of Distinction . . . . . . . . . . . . . . . . . . . . . . 26-726:30.10(2)(a) Matters of Formal Validity . . . . . . . . . . . . . . . . . . 26-726:30.10(2)(b) Substantive Defences . . . . . . . . . . . . . . . . . . . . . . 26-7

26:30.20 Types of Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-826:30.30 Real or Absolute Defences . . . . . . . . . . . . . . . . . . . . . . . . . 26-926:30.30(1) Substantive Content of Defences . . . . . . . . . . . . . . . . . . 26-926:30.30(2) Effect of Real Defences . . . . . . . . . . . . . . . . . . . . . . . 26-10

26:30.40 Defects of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-1126:30.40(1) Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-1126:30.40(2) Mere Personal Defences Distinguished . . . . . . . . . . . . . 26-1126:30.40(3) Effect of Defect of Title . . . . . . . . . . . . . . . . . . . . . . . 26-1226:30.40(3)(a) Against Holder in Due Course . . . . . . . . . . . . . . . 26-1226:30.40(3)(b) Against Post-Maturity Transferee . . . . . . . . . . . . 26-12.126:30.40(3)(b)(i) Nature of the problem . . . . . . . . . . . . . . . . . 26-12.126:30.40(3)(b)(ii) Modern Canadian cases. . . . . . . . . . . . . . . . . 26-1326:30.40(3)(b)(iii) Pre-BEA case law . . . . . . . . . . . . . . . . . . . . 26-1426:30.40(3)(b)(iv) Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 26-16

26:30.40(4) Statutory Illustrations . . . . . . . . . . . . . . . . . . . . . . . . 26-1626:30.40(4)(a) Fraud and Non Est Factum . . . . . . . . . . . . . . . . . 26-1726:30.40(4)(a)(i) Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-1726:30.40(4)(a)(ii) Non est factum. . . . . . . . . . . . . . . . . . . . . . . 26-18

26:30.40(4)(b) Duress and Undue Influence . . . . . . . . . . . . . . . . 26-2126:30.40(4)(c) Illegal Consideration . . . . . . . . . . . . . . . . . . . . . . 26-2426:30.40(4)(c)(i) Remedial effect of classification . . . . . . . . . . . . 26-2426:30.40(4)(c)(ii) Meaning of illegal in this context . . . . . . . . . . 26-24.126:30.40(4)(c)(iii) Effect of illegal consideration . . . . . . . . . . . . . 26-2626:30.40(4)(c)(iv) Effect of collateral illegality . . . . . . . . . . . . . 26-26.1

26:30.40(4)(d) Negotiation in Breach of Faith . . . . . . . . . . . . . . 26-26.226:30.40(4)(e) Failure of Consideration . . . . . . . . . . . . . . . . . . 26-28.3

26:30.40(5) Bill C-305 Defences . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3126:30.50 Contractual Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3326:30.50(1) Incapacity and Lack of Authority . . . . . . . . . . . . . . . . 26-33

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26:30.50(2) Statutes of Frauds; Frustration . . . . . . . . . . . . . . . . . . 26-3326:30.50(3) Suspensive Condition. . . . . . . . . . . . . . . . . . . . . . . . . 26-3426:30.50(4) Lack of Contractual Intent . . . . . . . . . . . . . . . . . . . . . 26-3426:30.50(5) Fraud, Misrepresentation and Unconscionability . . . . . . 26-3426:30.50(6) Mistake. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3426:30.50(7) Statutory Prohibition. . . . . . . . . . . . . . . . . . . . . . . . . 26-3526:30.50(8) Failure of Consideration . . . . . . . . . . . . . . . . . . . . . . 26-3526:30.50(8)(a) Total Failure . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3526:30.50(8)(b) Partial Failure . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3626:30.50(8)(b)(i) Early history . . . . . . . . . . . . . . . . . . . . . . . . 26-3726:30.50(8)(b)(ii) Early Canadian cases . . . . . . . . . . . . . . . . . . 26-3826:30.50(8)(b)(iii) Procedural reform . . . . . . . . . . . . . . . . . . . . 26-38

26:30.50(9) Returned Items . . . . . . . . . . . . . . . . . . . . . . . . . . 26-40.126:40 SUMMARY JUDGMENT ON BILLS AND NOTES . . . . . . . 26-40.1

26:40.10 Conditions Precedent of Summary Judgment . . . . . . . . . . . 26-4126:40.10(1) The ‘‘Cash-Like’’ Quality of Negotiable Instruments . . . . 26-4226:40.10(2) Available Defences . . . . . . . . . . . . . . . . . . . . . . . . . . 26-4626:40.10(3) The Current Practice . . . . . . . . . . . . . . . . . . . . . . . . . 26-4726:40.10(4) [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-53

CHAPTER 27 GENERALDUTIES OF HOLDER27:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1

27:10.10 Application of BEA to Modern Cheque Collection Process . . . 27-227:10.20 Waiver of Holder’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . 27-3

27:20 PRESENTMENT FOR ACCEPTANCE . . . . . . . . . . . . . . . . . . 27-527:20.10 When Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-527:20.10(1) Place for Presentment . . . . . . . . . . . . . . . . . . . . . . . . . 27-627:20.10(2) Consequences of Failure. . . . . . . . . . . . . . . . . . . . . . . . 27-6

27:20.20 Requisites of Due Presentment . . . . . . . . . . . . . . . . . . . . . . 27-627:20.20(1) By Whom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-727:20.20(2) To Whom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-727:20.20(2)(a) Ordinary Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-727:20.20(2)(b) Drawee Bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . 27-7

27:20.20(3) When . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-727:20.20(3)(a) ‘‘Reasonable Time’’ . . . . . . . . . . . . . . . . . . . . . . . 27-827:20.20(3)(b) ‘‘Reasonable Hour’’ . . . . . . . . . . . . . . . . . . . . . . . 27-8

27:20.20(4) How . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-827:20.30 When Presentment Excused . . . . . . . . . . . . . . . . . . . . . . . . 27-827:20.40 Dishonour by Non-Acceptance. . . . . . . . . . . . . . . . . . . . . . 27-927:20.40(1) Effect of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-927:20.40(2) Immediate Right of Recourse . . . . . . . . . . . . . . . . . . . 27-10

27:20.50 Effect of Qualified Acceptance . . . . . . . . . . . . . . . . . . . . . 27-1027:20.50(1) Option of Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1027:20.50(2) If Taken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1127:20.50(3) If Refused . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-11

27:30 PRESENTMENT FOR PAYMENT. . . . . . . . . . . . . . . . . . . . 27-1127:30.10 When Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1227:30.10(1) Bills and Banker’s Acceptance . . . . . . . . . . . . . . . . . . . 27-1227:30.10(2) Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1227:30.10(3) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-13

27:30.20 Requisites of Due Presentment . . . . . . . . . . . . . . . . . . . . . 27-1327:30.20(1) By Whom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1427:30.20(2) To Whom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-15

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27:30.20(3) When . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1527:30.20(4) Where . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1627:30.20(5) Electronic Presentment of Official Images

of Eligible Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1627:30.30 When Delay Excused . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1727:30.40 When Presentment Dispensed With . . . . . . . . . . . . . . . . . . 27-1727:30.50 Dishonour by Non-Payment . . . . . . . . . . . . . . . . . . . . . . 27-1727:30.50(1) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1827:30.50(2) Immediate Right of Recourse . . . . . . . . . . . . . . . . . . . 27-18

27:40 NOTICE OF DISHONOUR . . . . . . . . . . . . . . . . . . . . . . . . . 27-1927:40.10 When Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-1927:40.10(1) Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2027:40.10(2) Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2027:40.10(3) Consequences of Failure. . . . . . . . . . . . . . . . . . . . . . 27-20.1

27:40.20 Requisites of Due Notice . . . . . . . . . . . . . . . . . . . . . . . . 27-20.227:40.30 When Delay Excused . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-21


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27:40.40 When Notice Dispensed With. . . . . . . . . . . . . . . . . . . . . . 27-2227:40.40(1) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-22.127:40.40(2) Batch Processing of Cheques . . . . . . . . . . . . . . . . . . . . 27-2427:40.40(3) Relations of Parties Dispensing with Notice . . . . . . . . . . 27-24

27:50 PROTEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2427:50.10 When Required or Premitted . . . . . . . . . . . . . . . . . . . . . . 27-2527:50.10(1) Acceptor and Maker . . . . . . . . . . . . . . . . . . . . . . . . . 27-2527:50.10(2) Inland Bill, Cheque or Note . . . . . . . . . . . . . . . . . . . . 27-2627:50.10(3) Foreign Bill, Cheque or Note . . . . . . . . . . . . . . . . . . . 27-26

27:50.20 Requisites of Due Protest . . . . . . . . . . . . . . . . . . . . . . . . 27-2827:50.30 When Delay Excused . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2927:50.40 When Protest Dispensed With . . . . . . . . . . . . . . . . . . . . . 27-2927:50.50 Expenses of Protest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2927:50.60 Notice of Protest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-29

CHAPTER 28 LIABILITIES OF PARTIES28:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-128:20 LIABILITY OF DRAWEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-2

28:20.10 No Liability Before Acceptance . . . . . . . . . . . . . . . . . . . . . 28-228:20.20 Contractual Duty to Accept . . . . . . . . . . . . . . . . . . . . . . . . 28-428:20.30 Assignment Distinguished . . . . . . . . . . . . . . . . . . . . . . . . . 28-528:20.40 Special Case: Late Presentment of Cheque . . . . . . . . . . . . . . 28-6

28:30 LIABILITY OF ACCEPTOR . . . . . . . . . . . . . . . . . . . . . . . . . 28-628:30.10 Tenor of Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-628:30.20 Party Primarily Liable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-728:30.30 Liability to Whom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-728:30.40 Preclusions to Deny Liability . . . . . . . . . . . . . . . . . . . . . . . 28-7

28:40 LIABILITY OF DRAWER. . . . . . . . . . . . . . . . . . . . . . . . . . 28-8.128:40.10 Statutory Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . 28-8.128:40.20 Party Secondarily Liable . . . . . . . . . . . . . . . . . . . . . . . . . . 28-9

28:50 LIABILITY OF ENDORSER . . . . . . . . . . . . . . . . . . . . . . . . 28-1028:50.10 Tenor of Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-1128:50.20 Preclusion to Deny Liability. . . . . . . . . . . . . . . . . . . . . . . 28-11

28:60 ANOMALOUS ENDORSER . . . . . . . . . . . . . . . . . . . . . . . . 28-1328:60.10 Liability by Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-1328:60.20 Anomalous Endorsement . . . . . . . . . . . . . . . . . . . . . . . . 28-1428:60.20(1) Historical Background . . . . . . . . . . . . . . . . . . . . . . . . 28-1528:60.20(2) Conditions of Liability . . . . . . . . . . . . . . . . . . . . . . . . 28-1628:60.20(2)(a) Is Notice Required? . . . . . . . . . . . . . . . . . . . . . . 28-1728:60.20(2)(b) Meaning of ‘‘Anomalous’’ . . . . . . . . . . . . . . . . . . 28-18

28:60.20(3) Accommodation Party . . . . . . . . . . . . . . . . . . . . . . . . 28-1928:60.20(4) Application of BEA to Anomalous Endorsers . . . . . . . . 28-19

28:70 ACCOMMODATION PARTIES. . . . . . . . . . . . . . . . . . . . . . 28-2028:70.10 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-2028:70.10(1) Agreement to Act as Surety. . . . . . . . . . . . . . . . . . . . . 28-2128:70.10(2) No Value Received for the Instrument . . . . . . . . . . . . . 28-22

28:70.20 Liability of Accommodation Party . . . . . . . . . . . . . . . . . . 28-2328:70.20(1) To Holder for Value . . . . . . . . . . . . . . . . . . . . . . . . . 28-2328:70.20(2) Known to Be Accommodation Party . . . . . . . . . . . . . . 28-2328:70.20(3) Dealing with Securities. . . . . . . . . . . . . . . . . . . . . . . . 28-24

28:70.30 Release of Accommodation Party . . . . . . . . . . . . . . . . . . . 28-2528:70.30(1) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-2828:70.30(2) Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-28

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28:70.30(3) Defences to Liability . . . . . . . . . . . . . . . . . . . . . . . . . 28-2828:70.40 Rights of Accommodation Party. . . . . . . . . . . . . . . . . . . . 28-2928:70.40(1) Rights Against Principal Debtor . . . . . . . . . . . . . . . . . 28-2928:70.40(2) Rights Against Co-Sureties . . . . . . . . . . . . . . . . . . . . . 28-3028:70.40(3) Rights Against Creditor . . . . . . . . . . . . . . . . . . . . . . . 28-30

28:80 TRANSFEROR BY DELIVERY. . . . . . . . . . . . . . . . . . . . . 28-30.128:90 DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-31

28:90.10 Mesure of Recoverable Damages . . . . . . . . . . . . . . . . . . . 28-3128:90.10(1) Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . 28-3228:90.10(2) Amount of the Instrument . . . . . . . . . . . . . . . . . . . . . 28-3228:90.10(3) Foreign Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-3228:90.10(4) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-3228:90.10(4)(a) Interest to Maturity . . . . . . . . . . . . . . . . . . . . . . 28-3228:90.10(4)(b) Interest After Maturity . . . . . . . . . . . . . . . . . . . . 28-3328:90.10(4)(c) Interest After Judgment . . . . . . . . . . . . . . . . . . . . 28-34

28:90.10(5) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-3428:90.20 FromWhom Recoverable . . . . . . . . . . . . . . . . . . . . . . . . 28-3428:90.30 Re-Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-35

28:100 ADMISSIBILITY OF EXTRINSIC EVIDENCE . . . . . . . . . . . 28-3728:100.10 The Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . 28-3728:100.20 Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-4128:100.30 Case Law Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-4328:100.30(1) To Show Relations of Parties. . . . . . . . . . . . . . . . . . . 28-4328:100.30(2) To Show Holder Not in Due Course . . . . . . . . . . . . . . 28-4528:100.30(3) To Impeach Consideration . . . . . . . . . . . . . . . . . . . . 28-4528:100.30(4) To Show Other Contract Defences . . . . . . . . . . . . . . . 28-4628:100.30(5) To Resolve Apparent Uncertainty . . . . . . . . . . . . . . . 28-47

28:110 LIMITATION OF ACTIONS AND PRESCRIPTION . . . . . . . 28-4728:110.10 Limitation of Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . 28-4728:110.10(1) Application of Time Limits . . . . . . . . . . . . . . . . . . . . 28-4928:110.10(2) Time Limits Personal . . . . . . . . . . . . . . . . . . . . . . . . 28-4928:110.10(3) Instruments Under Corporate Seal . . . . . . . . . . . . . . . 28-5028:110.10(4) Commencement of Period of Limitation . . . . . . . . . . . 28-5028:110.10(4)(a) Basic Rules (Rule 1) . . . . . . . . . . . . . . . . . . . . . 28-5028:110.10(4)(a)(i) Conventional provinces. . . . . . . . . . . . . . . . . 28-5128:110.10(4)(a)(ii) Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-5128:110.10(4)(a)(iii) Ontario and Saskatchewan . . . . . . . . . . . . 28-52.1

28:110.10(4)(b) Rule 2 – Bills Payable at a Future Time . . . . . . . 28-52.328:110.10(4)(c) Rule 3 – Demand Bills, Cheques and Notes . . . . . . 28-5428:110.10(4)(c)(i) Conventional provinces. . . . . . . . . . . . . . . . . 28-5528:110.10(4)(c)(ii) Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . 28-56.228:110.10(4)(c)(iii) Ontario . . . . . . . . . . . . . . . . . . . . . . . . 28-56.2a28:110.10(4)(c)(iv) Saskatchewan . . . . . . . . . . . . . . . . . . . . . 28-56.6

28:110.10(4)(d) Rule 4 – Special Cases . . . . . . . . . . . . . . . . . . . . 28-5828:110.10(4)(e) Rules 5 and 6 – Secondary Party Liability . . . . . . . 28-59

28:110.10(5) Instalment Payments . . . . . . . . . . . . . . . . . . . . . . . . 28-5928:110.10(6) Acknowledgement of Indebtedness . . . . . . . . . . . . . . . 28-60

28:110.20 Prescription (Quebec). . . . . . . . . . . . . . . . . . . . . . . . . . . 28-6128:110.30 Constitutionality of Provincial Limitations . . . . . . . . . . . . 28-6128:110.30(1) Characterization . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-6328:110.30(2) Provincial ‘‘Aspect’’ . . . . . . . . . . . . . . . . . . . . . . . . . 28-64

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CHAPTER 29 DISCHARGE29:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-129:20 PAYMENT IN DUE COURSE . . . . . . . . . . . . . . . . . . . . . . . . 29-3

29:20.10 Ordinary Bills, Cheques and Notes . . . . . . . . . . . . . . . . . . . 29-329:20.10(1) Meaning of ‘‘Payment’’ . . . . . . . . . . . . . . . . . . . . . . . . 29-329:20.10(1)(a) Payment Other Than in Money. . . . . . . . . . . . . . . . 29-329:20.10(1)(b) Necessity for Receipt . . . . . . . . . . . . . . . . . . . . . . 29-429:20.10(1)(c) Part Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-4

29:20.20 Requisites of Payment in Due Course . . . . . . . . . . . . . . . . . 29-429:20.20(1) Time of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-429:20.20(2) Person Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-529:20.20(2)(a) Payment to One with Defective Title . . . . . . . . . . . . 29-529:20.20(2)(b) Payment to Thief in Possession . . . . . . . . . . . . . . . . 29-629:20.20(2)(c) Payment to Garnishee . . . . . . . . . . . . . . . . . . . . . . 29-8

29:20.20(3) Good Faith and Absence of Notice . . . . . . . . . . . . . . . . 29-829:20.20(4) Presumption or Evidence . . . . . . . . . . . . . . . . . . . . . . . 29-8

29:20.30 Accommodation Bills and Notes. . . . . . . . . . . . . . . . . . . . . 29-929:20.40 Payment of Official Image of Eligible Bill . . . . . . . . . . . . . . 29-10

29:30 PAYMENT BY DRAWER OR ENDORSER . . . . . . . . . . . . . 29-1029:30.10 Right to Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . 29-1129:30.20 Right to Renegotiate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-12

29:40 TRANSFER TO PRIMARY PARTY AT OR AFTERMATURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-12.1

29:50 RENUNCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1329:50.10 Other Concepts Distinguished . . . . . . . . . . . . . . . . . . . . . 29-1329:50.10(1) Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1329:50.10(2) Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-14

29:50.20 Before, At or After Maturity . . . . . . . . . . . . . . . . . . . . . . 29-1529:50.30 Absolute and Unconditional Renunciation . . . . . . . . . . . . . 29-1529:50.40 Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1629:50.50 Writing or Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1629:50.60 Subsequent Holder in Due Course. . . . . . . . . . . . . . . . . . . 29-1729:50.70 Others Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-17

29:60 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1729:60.10 Evidence of Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . 29-1829:60.20 Intention to Cancel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-1929:60.30 Destruction of Eligible Bills . . . . . . . . . . . . . . . . . . . . . . . 29-21

29:70 MATERIAL ALTERATION . . . . . . . . . . . . . . . . . . . . . . . . 29-2129:70.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-2229:70.10(1) Conventional Analysis . . . . . . . . . . . . . . . . . . . . . . . . 29-2229:70.10(2) Alteration of Eligible Bills. . . . . . . . . . . . . . . . . . . . . . 29-23

29:70.20 Meaning of ‘‘Alteration’’ . . . . . . . . . . . . . . . . . . . . . . . . . 29-2329:70.30 Meaning of ‘‘Material’’ . . . . . . . . . . . . . . . . . . . . . . . . . 29-24.229:70.40 Meaning of ‘‘Apparent’’ . . . . . . . . . . . . . . . . . . . . . . . . . 29-2729:70.50 Effect of Apparent Material Alteration . . . . . . . . . . . . . . . 29-2829:70.50(1) Instrument Voided . . . . . . . . . . . . . . . . . . . . . . . . . . 29-2829:70.50(2) Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-2929:70.50(2)(a) Authorized Changes . . . . . . . . . . . . . . . . . . . . . . 29-2929:70.50(2)(b) Subsequent Endorsers . . . . . . . . . . . . . . . . . . . . . 29-30

29:70.60 Effect of Non-Apparent Material Alteration . . . . . . . . . . . . 29-3029:70.60(1) Qua Holders in Due Course . . . . . . . . . . . . . . . . . . . . 29-3029:70.60(2) Qua Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 29-3129:70.60(3) Other Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-31

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29:70.60(3)(a) Conversion of Instruments . . . . . . . . . . . . . . . . . . 29-3129:70.60(3)(b) Restitutionary Claims . . . . . . . . . . . . . . . . . . . . . 29-33

29:80 DEEMED SATISFACTION . . . . . . . . . . . . . . . . . . . . . . . . . 29-34

CHAPTER 30 ACCEPTANCE ANDPAYMENT FORHONOURANDREFERENCE INCASEOF NEED

30:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-130:20 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-1

30:20.10 Reference in Case of Need . . . . . . . . . . . . . . . . . . . . . . . . . 30-130:20.20 Acceptance for Honour . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-130:20.30 Payment for Honour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-2

30:30 CONDITIONS OF EFFECTIVE INTERVENTION. . . . . . . . . . 30-230:30.10 Acceptance for Honour and Reference in Case of Need. . . . . . 30-230:30.20 Payment for Honour Under Protest. . . . . . . . . . . . . . . . . . . 30-3

30:40 EFFECT OF INTERVENTION . . . . . . . . . . . . . . . . . . . . . . . 30-3

CHAPTER 31 LOSTANDDESTROYED INSTRUMENTS31:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-131:20 RECOVERY OF LOST INSTRUMENT. . . . . . . . . . . . . . . . . . 31-131:30 OBTAINING A DUPLICATE INSTRUMENT. . . . . . . . . . . . . 31-2

31:30.10 Instruments Subject to This Section. . . . . . . . . . . . . . . . . . . 31-231:30.10(1) Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-231:30.10(1.5) Bank Drafts and Money Orders . . . . . . . . . . . . . . . . . 31-331:30.10(2) Certified Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-431:30.10(3) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-4.131:30.10(4) Loss of Eligible Bills . . . . . . . . . . . . . . . . . . . . . . . . . . 31-5

31:30.20 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-631:30.30 Onus of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-6

31:40 ACTION ON LOST INSTRUMENT . . . . . . . . . . . . . . . . . . . . 31-631:40.10 Meaning of ‘‘Lost or Destroyed’’ . . . . . . . . . . . . . . . . . . . . 31-731:40.20 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-831:40.20(1) Against Party Primarily Liable . . . . . . . . . . . . . . . . . . . 31-831:40.20(2) Certified Cheque . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-9

31:40.30 Performance of Holder’s Duties . . . . . . . . . . . . . . . . . . . . . 31-9

CHAPTER 32 BILLS IN SETS32:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-132:20 OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-1

CHAPTER 33 CONFLICTS OF LAWS33:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-133:20 SCOPE OF THE CONFLICTS RULES . . . . . . . . . . . . . . . . . . 33-233:30 FORMAL VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-3

33:30.10 Characterization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-533:30.20 Anomalous Situations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-533:30.30 Check 21 Act Substitute Checks . . . . . . . . . . . . . . . . . . . . . 33-7

33:40 INTRINSIC VALIDITY (INTERPRETATION AND LEGALEFFECT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-9

33:40.10 Pre-BEA Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-933:40.20 The Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-10

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33:40.20(1) Foreign Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-1033:40.20(2) Inland Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-15

33:40.30 What the Law Ought to Be . . . . . . . . . . . . . . . . . . . . . . . 33-1533:50 HOLDER’S DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-17

33:50.10 Jurisprudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-1833:50.20 Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-1833:50.30 Montage v. Irvani . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-2033:50.40 What the Law Ought to Be . . . . . . . . . . . . . . . . . . . . . . . 33-23

33:60 FOREIGN CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-2333:70 MATURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-2533:80 OTHERMATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-25

33:80.10 Capacity of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-2633:80.20 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-2633:80.30 Limitation of Actions and Prescription. . . . . . . . . . . . . . . . 33-2733:80.40 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-27

CHAPTER 34 CHEQUES34:10 INTRODUCTION: DISTRIBUTION OF ISSUES . . . . . . . . . . . 34-134:20 DEFINITION AND FORMAL VALIDITY . . . . . . . . . . . . . . . 34-2

34:20.10 Cheque or Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-234:20.20 Bank Cheques or Bank Drafts . . . . . . . . . . . . . . . . . . . . . . 34-334:20.30 Government ‘‘Cheques’’ . . . . . . . . . . . . . . . . . . . . . . . . . 34-4.134:20.40 Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-4.134:20.45 Credit Card Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-4.234:20.50 Meaning of ‘‘Bank’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-4.234:20.60 Meaning of ‘‘Drawn’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-534:20.70 Payable on Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-634:20.80 Post-Dated Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-634:20.80(1) Use in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-734:20.80(2) Negotiability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-834:20.80(3) Stop Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-934:20.80(4) Payment by Drawee. . . . . . . . . . . . . . . . . . . . . . . . . . 34-1034:20.80(5) Limitation/Preference Period. . . . . . . . . . . . . . . . . . . . 34-1134:20.80(6) Other Post-Dated Items . . . . . . . . . . . . . . . . . . . . . . . 34-1134:20.80(6)(a) Post-Dated Certification . . . . . . . . . . . . . . . . . . . 34-1134:20.80(6)(b) Double-Dated Items . . . . . . . . . . . . . . . . . . . . . . 34-12

34:20.90 Stale Dated Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-1334:20.100 $25 Million Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-14

34:25 OFFICIAL IMAGES OF CHEQUES . . . . . . . . . . . . . . . . . . . 34-1434:25.10 Statutory Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 34-1434:25.20 Implementing Action of Canadian Payments Association . . . 34-1634:25.30 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-1634:25.30(1) Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-16.134:25.30(2) Eligible Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-1734:25.30(3) Official Image and Image Printout . . . . . . . . . . . . . . . . 34-1734:25.30(4) Electronic Deposit of Official Image . . . . . . . . . . . . . . 34-18.234:25.30(4)(a) Remote Deposit by Corporate or Government

Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.2c34:25.30(4)(b) Remote Deposit by Individuals . . . . . . . . . . . . . 34-18.2h

34:25.40 Dealings with Official Image . . . . . . . . . . . . . . . . . . . . 34-18.2o34:25.50 Electronic Presentment . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.334:25.55 Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.534:25.58 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.6

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34:25.60 Presumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.634:25.60(1) Authenticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.634:25.60(2) Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.6

34:25.70 Legal Equivalence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.734:25.80 Admissibility of Official Image . . . . . . . . . . . . . . . . . . . . 34-18.934:25.90 Destruction of Originals and Immaterality Thereof . . . . . . 34-18.934:25.90(1) Authority and Duty to Destroy Original . . . . . . . . . . . 34-18.934:25.90(2) Immateriality of Destruction of Original . . . . . . . . . 34-18.10a

34:25.95 Failure to Destroy Original . . . . . . . . . . . . . . . . . . . . 34-18.10a34:25.100 Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.10a34:25.100(1) Issues with Image . . . . . . . . . . . . . . . . . . . . . . . 34-18.10b34:25.100(2) Issues with Original. . . . . . . . . . . . . . . . . . . . . . 34-18.10c

34:25.110 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.10f34:25.120 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.10g

34:30 APPLICATION OF THE BEA . . . . . . . . . . . . . . . . . . . . 34-18.10h34:30.10 Application of BEA to Cheques . . . . . . . . . . . . . . . . . 34-18.10h34:30.20 Difficulties of Interpretation . . . . . . . . . . . . . . . . . . . . 34-18.10i34:30.20(1) Archaic Terms and Concepts. . . . . . . . . . . . . . . . . . 34-18.10i34:30.20(2) Practical Differences . . . . . . . . . . . . . . . . . . . . . . . 34-18.11

34:30.30 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.1234:40 PROTECTION OF COLLECTING BANKS . . . . . . . . . . . . 34-18.1234:50 PRESENTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.13

34:50.10 Truncation and Electronic Presentment . . . . . . . . . . . . . 34-18.1334:50.10(1) Statutory Authorization . . . . . . . . . . . . . . . . . . . . . 34-18.1334:50.10(2) [Removed] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-18.1434:50.10(3) Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . 34-18.14

34:50.20 Delay in Presentment of Cheque . . . . . . . . . . . . . . . . . . . . 34-1934:50.20(1) Limited Application of BEA, s. 84(2) . . . . . . . . . . . . . . 34-1934:50.20(2) Reasonable Time in this Context . . . . . . . . . . . . . . . . . 34-2934:50.20(3) Stale Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-3234:50.20(3)(a) Certified Cheques . . . . . . . . . . . . . . . . . . . . . . . 34-32.134:50.20(3)(b) Uncertified Cheques . . . . . . . . . . . . . . . . . . . . . . 34-3434:50.20(3)(b)(i) Return by drawee . . . . . . . . . . . . . . . . . . . . . 34-3434:50.20(3)(b)(ii) Negotiability . . . . . . . . . . . . . . . . . . . . . . . . 34-34

34:50.20(4) Nature of Instrument. . . . . . . . . . . . . . . . . . . . . . . . . 34-3434:50.20(5) Post-Dated Cheques . . . . . . . . . . . . . . . . . . . . . . . . . 34-3534:50.20(6) Bank Drafts and Money Orders. . . . . . . . . . . . . . . . . . 34-36

34:60 TERMINATION OF BANK’S AUTHORITY . . . . . . . . . . . . . 34-3634:60.10 Countermand (Stop Payment) . . . . . . . . . . . . . . . . . . . . . 34-3634:60.10(1) Method of Communication. . . . . . . . . . . . . . . . . . . . . 34-3734:60.10(2) Authority to Countermand . . . . . . . . . . . . . . . . . . . . . 34-3934:60.10(3) Misdescription of Countermanded Cheques . . . . . . . . . . 34-4034:60.10(3)(a) The Standard of Care for Customers . . . . . . . . . . . 34-4034:60.10(3)(b) The Canadian Cases . . . . . . . . . . . . . . . . . . . . . . 34-4234:60.10(3)(c) The Standard of Care for Banks . . . . . . . . . . . . . . 34-43

34:60.10(4) Notifying Other Branches . . . . . . . . . . . . . . . . . . . . . . 34-4534:60.10(4)(a) The General Rule . . . . . . . . . . . . . . . . . . . . . . . . 34-4534:60.10(4)(b) MICR Addresses . . . . . . . . . . . . . . . . . . . . . . . . 34-4534:60.10(4)(c) Legal Status of Branches . . . . . . . . . . . . . . . . . . . 34-4634:60.10(4)(d) Policy Considerations . . . . . . . . . . . . . . . . . . . . . 34-48

34:60.10(5) Timely Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-4834:60.10(6) Effect of Countermand. . . . . . . . . . . . . . . . . . . . . . . . 34-5034:60.10(7) Countermand of Certified Cheques . . . . . . . . . . . . . . . 34-52

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34:60.10(7.5) Countermand of Trust Cheques . . . . . . . . . . . . . . . . 34-5234:60.10(8) Restitution for Paying Bank . . . . . . . . . . . . . . . . . . . . 34-5334:60.10(9) Abuse of Countermand . . . . . . . . . . . . . . . . . . . . . . . 34-53

34:60.20 Notice of Drawer’s Death . . . . . . . . . . . . . . . . . . . . . . . . 34-5434:60.30 Other Terminating Events . . . . . . . . . . . . . . . . . . . . . . . . 34-5534:60.30(1) Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-5534:60.30(1)(a) Meaning of ‘‘Banker’’ . . . . . . . . . . . . . . . . . . . . . 34-5634:60.30(1)(b) Duty to ‘‘Ascertain’’ . . . . . . . . . . . . . . . . . . . . . . 34-5634:60.30(1)(c) Undischarged Bankrupts . . . . . . . . . . . . . . . . . . . 34-57

34:60.30(2) Attaching Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-5834:60.30(3) Incapacity of Customer . . . . . . . . . . . . . . . . . . . . . . . 34-58

34:70 CERTIFICATION OF CHEQUES. . . . . . . . . . . . . . . . . . . . . 34-5834:70.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-5834:70.20 Not Legal Tender or Cash Substitute . . . . . . . . . . . . . . . . . 34-6034:70.30 History of Development . . . . . . . . . . . . . . . . . . . . . . . . . 34-6034:70.40 Formal Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-6034:70.40(1) Method of Certifying . . . . . . . . . . . . . . . . . . . . . . . . . 34-6234:70.40(2) On the Instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . 34-63

34:70.50 Transactional Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . 34-6434:70.50(1) Delivery of Certificate . . . . . . . . . . . . . . . . . . . . . . . . 34-6434:70.50(2) Authority of Certifying Bank Staff . . . . . . . . . . . . . . . . 34-6534:70.50(3) Time of Certification . . . . . . . . . . . . . . . . . . . . . . . . . 34-6634:70.50(4) Bearer Cheque . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-6634:70.50(5) Post-Dated Certified Cheques . . . . . . . . . . . . . . . . . . . 34-6734:70.50(6) Countermand of Certified Cheques . . . . . . . . . . . . . . . 34-6734:70.50(7) Effect of Drawer’s Death or Bankruptcy . . . . . . . . . . . . 34-6734:70.50(8) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-69

34:70.60 Legal Foundation for Bank Liability . . . . . . . . . . . . . . . . . 34-6934:70.60(1) Notional Re-Deposit by Novation . . . . . . . . . . . . . . . . 34-6934:70.60(2) Estoppel by Representation of Validity . . . . . . . . . . . . . 34-7034:70.60(3) Certification as Acceptance. . . . . . . . . . . . . . . . . . . . . 34-7134:70.60(3)(a) The Arguments For . . . . . . . . . . . . . . . . . . . . . . 34-7134:70.60(3)(b) The Arguments Against. . . . . . . . . . . . . . . . . . . 34-74.234:70.60(3)(b)(i) Discharge of drawer in some cases . . . . . . . . . 34-74.234:70.60(3)(b)(ii) Differences in formalities . . . . . . . . . . . . . . . 34-74.334:70.60(3)(b)(iii) Statutory preclusions of acceptor . . . . . . . . . . 34-7534:70.60(3)(b)(iv) Notice of death of drawer . . . . . . . . . . . . . . . 34-7634:70.60(3)(b)(v) Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-77

34:70.60(4) Collateral Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 34-7934:70.60(5) New Proposal for Law of Certified Cheques. . . . . . . . . . 34-8034:70.60(5)(a) The Principle . . . . . . . . . . . . . . . . . . . . . . . . . . 34-80.134:70.60(5)(b) The New Theory In Practice. . . . . . . . . . . . . . . . . 34-8534:70.60(5)(c) Applying the New Theory – Defences of Bank . . . . . 34-8734:70.60(5)(c)(i) Contract defence of drawer . . . . . . . . . . . . . . . 34-8734:70.60(5)(c)(ii) Real defence of drawer. . . . . . . . . . . . . . . . . . 34-8834:70.60(5)(c)(iii) Contract defence of bank . . . . . . . . . . . . . . . 34-8834:70.60(5)(c)(iv) Real defence of bank . . . . . . . . . . . . . . . . . . 34-8934:70.60(5)(c)(v) Defect of title of holder . . . . . . . . . . . . . . . . . 34-89

34:70.70 Legal Effects of Certification . . . . . . . . . . . . . . . . . . . . . . 34-9034:70.70(0.5) Person Requesting Certification . . . . . . . . . . . . . . . . 34-9134:70.70(1) Certification for Holder . . . . . . . . . . . . . . . . . . . . . . 34-92.134:70.70(1)(a) Presentment for Certification . . . . . . . . . . . . . . . 34-92.134:70.70(1)(b) Discharge of Drawer. . . . . . . . . . . . . . . . . . . . . 34-92.1

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34:70.70(1)(c) Loss of Certified Cheque by Holder . . . . . . . . . . . 34-92.234:70.70(1)(d) Property in Funds . . . . . . . . . . . . . . . . . . . . . . . 34-9334:70.70(1)(e) Countermand After Certification. . . . . . . . . . . . . . 34-9434:70.70(1)(f) Notice of Death of Drawer . . . . . . . . . . . . . . . . . . 34-9434:70.70(1)(g) Restitution for Bank . . . . . . . . . . . . . . . . . . . . . . 34-95

34:70.70(2) Certification for Drawer. . . . . . . . . . . . . . . . . . . . . . . 34-9734:70.70(2)(a) Acceptance of Cheque . . . . . . . . . . . . . . . . . . . . . 34-9734:70.70(2)(b) No Discharge of Drawer . . . . . . . . . . . . . . . . . . . 34-9834:70.70(2)(c) Loss of Certified Cheque by Drawer. . . . . . . . . . . 34-98.134:70.70(2)(d) Property in Funds . . . . . . . . . . . . . . . . . . . . . . . 34-9934:70.70(2)(e) Countermand After Certification. . . . . . . . . . . . . 34-100

34:70.70(3) Certification by Others. . . . . . . . . . . . . . . . . . . . . . . 34-10134:70.80 Miscellaneous Matters . . . . . . . . . . . . . . . . . . . . . . . . . 34-10234:70.80(1) Refusal to Certify . . . . . . . . . . . . . . . . . . . . . . . . . . 34-10234:70.80(2) Action After Dishonour . . . . . . . . . . . . . . . . . . . . . . 34-10234:70.80(3) Property in Cheque . . . . . . . . . . . . . . . . . . . . . . . . . 34-10234:70.80(4) Forgery of Payee’s Endorsement . . . . . . . . . . . . . . . . 34-10334:70.80(5) Material Alteration . . . . . . . . . . . . . . . . . . . . . . . . . 34-10334:70.80(5)(a) Non-Apparent Alteration by Drawer After

Certification . . . . . . . . . . . . . . . . . . . . . . . . . 34-10334:70.80(5)(b) Apparent Alteration After Certification . . . . . . . . 34-10434:70.80(5)(c) Raised Sum: Non-Apparent Alteration Before

Certification . . . . . . . . . . . . . . . . . . . . . . . . . 34-10534:70.80(5)(d) Apparent Alteration Before Certification . . . . . . . 34-105

34:70.80(6) Insolvency of Certifying Bank . . . . . . . . . . . . . . . . . . 34-10634:70.80(7) Transfer of Funds to Bank of Canada. . . . . . . . . . . . . 34-106

34:80 CROSSED CHEQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-10734:80.10 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-10734:80.20 Formal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 34-10834:80.30 Materiality of Crossing . . . . . . . . . . . . . . . . . . . . . . . . . 34-10834:80.40 Payment of Crossed Cheques . . . . . . . . . . . . . . . . . . . . . 34-10934:80.50 Customer Without Title . . . . . . . . . . . . . . . . . . . . . . . . 34-109

CHAPTER 35 PROMISSORYNOTES35:10 DEFINITION AND FORMAL VALIDITY . . . . . . . . . . . . . . . 35-1

35:10.10 Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-135:10.20 Promise to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-235:10.30 Other Similar Instruments Distinguished . . . . . . . . . . . . . . . 35-335:10.30(1) Certificates of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 35-335:10.30(2) Bank Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-435:10.30(3) IOUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-535:10.30(4) Bearer Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-535:10.30(5) Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-735:10.30(6) Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 35-735:10.30(7) Grid Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-7

35:10.40 Other Points of Form . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-8.135:10.40(1) In Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-8.135:10.40(2) One Person to Another . . . . . . . . . . . . . . . . . . . . . . . 35-1035:10.40(3) Signed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1035:10.40(4) Engaging to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1035:10.40(5) On Demand, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1035:10.40(6) A Sum Certain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1035:10.40(7) In Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-11

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35:10.40(8) To or to the Order of . . . . . . . . . . . . . . . . . . . . . . . . . 35-1135:10.40(9) Specified Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1135:10.40(10) Bearer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-11

35:10.50 Inland and Foreign Notes . . . . . . . . . . . . . . . . . . . . . . . . 35-1135:20 TRANSACTIONAL VALIDITY . . . . . . . . . . . . . . . . . . . . . . 35-11

35:20.10 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1235:20.20 Joint or Joint and Several Liability . . . . . . . . . . . . . . . . . . 35-1235:20.20(1) Plurality of Makers . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1235:20.20(2) Common Law Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1335:20.20(3) BEA, s. 179 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1335:20.20(4) Partnership Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-1435:20.20(5) Case Law Examples. . . . . . . . . . . . . . . . . . . . . . . . . . 35-1435:20.20(6) Proper Law to Determine Meaning of Concepts . . . . . . . 35-1535:20.20(6)(a) The Constitutional Law Problem. . . . . . . . . . . . . . 35-1535:20.20(6)(b) The Substantive Issues . . . . . . . . . . . . . . . . . . . . 35-18

35:20.30 Other Points of Transactional Validity . . . . . . . . . . . . . . . . 35-2035:20.30(1) Incomplete Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2035:20.30(2) Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2035:20.30(3) Authority to Sign . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2035:20.30(4) Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2035:20.30(5) Contract Defences. . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2135:20.30(6) Renewal Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2135:20.30(7) Consumer Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-21

35:30 LIEN NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2135:40 MERGER IN SECURITY AGREEMENT . . . . . . . . . . . . . . . 35-23

35:40.10 Examples of the Problem. . . . . . . . . . . . . . . . . . . . . . . . . 35-2335:50 CLOSE CONNECTION BETWEEN PAYEE

AND HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-2735:50.10 Facts Establishing Close Connection . . . . . . . . . . . . . . . . . 35-2835:50.20 Applies to Both Lender and Vendor Credit . . . . . . . . . . . . . 35-3235:50.30 Not Limited to ‘‘Consumer’’ Cases . . . . . . . . . . . . . . . . . . 35-3235:50.40 Supplements Part V . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-3335:50.50 Application in Quebec. . . . . . . . . . . . . . . . . . . . . . . . . . . 35-34

35:60 HOLDER’S DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-3535:60.10 Time for Presentment for Payment . . . . . . . . . . . . . . . . . . 35-3535:60.10(1) Demand Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-3535:60.10(1.5) Delayed Demand Notes . . . . . . . . . . . . . . . . . . . . . . 35-3635:60.10(2) Time Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-36.135:60.10(3) Unendorsed Notes . . . . . . . . . . . . . . . . . . . . . . . . . 35-36.135:60.10(4) Endorsed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-36.1

35:60.20 Reasonable Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-3735:60.20(1) The Ordinary Case . . . . . . . . . . . . . . . . . . . . . . . . . . 35-3735:60.20(2) Collateral or Continuing Security. . . . . . . . . . . . . . . . . 35-38

35:60.30 Overdue Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4035:60.40 Failure to Present on Time. . . . . . . . . . . . . . . . . . . . . . . . 35-4135:60.50 Place of Presentment of Note . . . . . . . . . . . . . . . . . . . . . . 35-4135:60.50(1) History and Scope of Provision . . . . . . . . . . . . . . . . . . 35-4235:60.50(2) Meaning of ‘‘Place’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4335:60.50(3) Notation in Note or Memorandum . . . . . . . . . . . . . . . 35-4335:60.50(4) Payable Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4435:60.50(5) Payable at a Particular Place . . . . . . . . . . . . . . . . . . . . 35-4435:60.50(6) Method of Presentment . . . . . . . . . . . . . . . . . . . . . . . 35-4635:60.50(7) Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-46

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35:60.60 Protest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4735:60.70 Other Duties of Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 35-47

35:70 LIABILITY OFMAKER . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4835:70.10 Meaning of ‘‘Maker’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4835:70.20 Engagement of Maker. . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4935:70.30 Primary Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4935:70.35 Defences of Maker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4935:70.40 Consumer Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-4935:70.50 Preclusions of Maker . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-50

35:80 APPLICATION OF BEA TO NOTES. . . . . . . . . . . . . . . . . . . 35-5035:80.10 Primary Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-50.135:80.20 Distinctions Between Maker and Acceptor . . . . . . . . . . . . . 35-5135:80.30 Illustrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-51

CHAPTER 36 CONSUMER BILLSANDNOTESACT36:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-136:20 DEFINITIONS AND FORMAL REQUIREMENTS . . . . . . . . . 36-2

36:20.10 Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-336:20.20 Not a Cash Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-336:20.30 Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-436:20.40 Not for a Business Purpose . . . . . . . . . . . . . . . . . . . . . . . . 36-536:20.50 Business Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-636:20.60 Nature of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-636:20.70 Meaning of ‘‘Bank’’ in This Context . . . . . . . . . . . . . . . . . . 36-6

36:30 TRANSACTIONS WITHIN THE SCOPE OF THE PART . . . . . 36-736:30.10 ‘‘In Respect of’’ a Consumer Purchase . . . . . . . . . . . . . . . . . 36-736:30.20 Arm’s Length . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-736:30.30 Scope of Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-11

36:40 MARKING AND ITS EFFECT ON HOLDER . . . . . . . . . . . . 36-1336:40.10 Item Voided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-1436:40.20 Defence or Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-1436:40.30 Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-1536:40.40 Agreements to the Contrary . . . . . . . . . . . . . . . . . . . . . . . 36-1636:40.50 Proposed Effect of Bill C-305 . . . . . . . . . . . . . . . . . . . . . . 36-17

36:50 OFFENCE RELATING TO UNMARKEDINSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36-17

CHAPTER 37 DEPOSITORY BILLSANDNOTESACT37:10 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1

37:10.10 Raison D’Etre of the DBNA . . . . . . . . . . . . . . . . . . . . . . . 37-237:20 RELATIONSHIP OF DBNAWITH PROVINCIAL LAW . . . . . 37-3

37:20.10 DBNA and OBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-337:20.20 DBNA and USTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-537:20.20(1) Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-537:20.20(2) USTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-637:20.20(3) New Conceptual Approach. . . . . . . . . . . . . . . . . . . . . . 37-737:20.20(4) Scope of Application of DBNA and USTA . . . . . . . . . . . 37-737:20.20(5) Cases Applying the New Approach . . . . . . . . . . . . . . . 37-8.4

37:30 LEGISLATIVE HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . 37-8.637:40 CONSTITUTIONAL VALIDITY . . . . . . . . . . . . . . . . . . . . . 37-8.737:50 INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-10

37:50.10 Statutory Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-10

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37:50.10(1) ‘‘Acceptor’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1037:50.10(2) ‘‘Clearing House’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1037:50.10(3) ‘‘Depository Bill’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1137:50.10(4) ‘‘Depository Note’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1137:50.10(5) ‘‘Drawer’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1137:50.10(6) ‘‘Endorser’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1237:50.10(7) ‘‘Issue’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1337:50.10(8) ‘‘Maker’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1437:50.10(9) ‘‘Participant’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1537:50.10(10) ‘‘Party’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1537:50.10(11) ‘‘Person’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1637:50.10(12) ‘‘Transaction’’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-17

37:50.20 Meaning of ‘‘Deposit’’ . . . . . . . . . . . . . . . . . . . . . . . . . . 37-1737:50.30 Payable to a Clearing House . . . . . . . . . . . . . . . . . . . . . . 37-1737:50.40 Act Binding on Her Majesty. . . . . . . . . . . . . . . . . . . . . . . 37-1837:50.50 Interpretation in Pari Materia with BEA? . . . . . . . . . . . . . . 37-18

37:60 FORMAL VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2137:60.10 Depository Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2137:60.10(1) Unconditional Order . . . . . . . . . . . . . . . . . . . . . . . . . 37-2237:60.10(1)(a) Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2237:60.10(1)(b) Unconditionality – Sufficiency of Trust Assets. . . . . 37-2337:60.10(1)(c) Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . 37-2437:60.10(1)(d) Sales to U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2437:60.10(1)(d.1) Promise of Payment by Partnership &c. . . . . . . . . 37-2437:60.10(1)(e) Non-Conforming Instruments. . . . . . . . . . . . . . . 37-24.1

37:60.10(2) Writing and Signature . . . . . . . . . . . . . . . . . . . . . . . . 37-2537:60.10(2)(a) Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2537:60.10(2)(b) Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-26

37:60.10(3) Terms of Instruments. . . . . . . . . . . . . . . . . . . . . . . . . 37-2737:60.10(4) Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-2737:60.20 Depository Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-28

37:70 TRANSACTIONAL VALIDITY . . . . . . . . . . . . . . . . . . . . . . 37-2937:70.10 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-2937:70.20 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3037:70.30 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3137:70.30(1) Transfers and Deliveries . . . . . . . . . . . . . . . . . . . . . . . 37-3137:70.30(1)(a) Novel Approach. . . . . . . . . . . . . . . . . . . . . . . . . 37-3137:70.30(1)(b) Under the USTA . . . . . . . . . . . . . . . . . . . . . . . . 37-33

37:80 LIABILITIES OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . 37-3437:80.10 Acceptor and Maker. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3537:80.20 Drawer and Endorsers . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3637:80.20(1) Variation by Contract . . . . . . . . . . . . . . . . . . . . . . . . 37-3837:80.20(1)(a) Rights of CDS . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3837:80.20(1)(b) Rights of Parties . . . . . . . . . . . . . . . . . . . . . . . . 37-38

37:80.30 Defences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-3937:80.30(1) Secure Environment . . . . . . . . . . . . . . . . . . . . . . . . . 37-3937:80.30(2) Forgery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-40

37:90 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-4037:100 REQUISITE ACTIONS UPONMATURITY . . . . . . . . . . . . . 37-41

37:100.10 Holders’ Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-4137:100.20 CDS’ Representative Interest. . . . . . . . . . . . . . . . . . . . . . 37-42

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