In reasons by the court released July 12, 2010, the Ontario Court of Appeal held the Bank of Montreal was liable to the plaintiff, a client of the bank, for losses arising from a forged cheque drawn on the clients account with the bank. The court gave effect to s48(1) of the Bills of Exchange Act R.S.C. 1985, cB.4 which provides “where a signature on a bill of exchange is forged, or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative…”

The court upheld the trial judge in finding that the bank’s Verification Clause did not protect the bank, since, construed strictly and in accordance with the doctrine of contra preferentem it did not apply to forged cheques because the honouring of a forged cheque did not constitute an “error, irregularity or omission” within the meaning of those terms as used in the Verification Clause.

Relying on the “objective evidence of the factual matrix underlying the negotiation of the contract” the court interpreted the Verification Clause not to relive the bank for liability for encashment of forged cheques, which is “simply not a bill of exchange that does not conform with the requisite formalities….an invalid cheque for want of proper authorization”

Citation: S.N.S. Industrial Products Limited v Bank of Montreal, 2010 ONCA 500

David Keith Alderson LL.B, LL.M

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