What if the buyer’s deposit cheque bounces on closing day?

A cheque that bounces is a bill that has been dishonoured. The federal Bills of Exchange Act defines a cheque as a bill drawn on a bank, payable on demand (s. 165(1)). Closing-day timing makes the problem urgent, but the first questions are the usual ones. Who holds the cheque, what does the agreement say, and what has been put in writing?

Notice of dishonour

Subject to the Act, when a bill is dishonoured by non-payment, notice of dishonour must be given to the drawer and each endorser, and any drawer or endorser not given notice is discharged (s. 95(1)). To be valid, notice must be given not later than the juridical or business day next following the dishonouring, by or on behalf of the holder or a liable endorser (s. 96). Notice may be given in writing or by personal communication (s. 97(1)), and a written notice need not be signed (s. 98(1)). The Act also excuses delay in some circumstances and dispenses with notice in others, including waiver and, as regards the drawer, a countermanded payment (ss. 104 to 107), so have a lawyer check whether an exception applies.

What the agreement says

The agreement itself sets what a failed deposit means, so confirm the following. Is payment of the deposit a condition of the agreement staying in force? Is a failed deposit a default, with a notice-and-cure period? Can you refuse to close or end the agreement? How must replacement funds arrive, for example by bank draft, wire or a lawyer’s trust account? Ask your lawyer whether to hold back documents or control of the business until funds are confirmed. Our guide to closing day walks through the steps.

Time limits to sue

Ontario’s Limitations Act, 2002 says that unless it provides otherwise, a proceeding shall not be commenced after the second anniversary of the day on which the claim was discovered (s. 4). British Columbia’s Limitation Act sets a 2-year period from discovery of the claim, subject to that Act. Other provinces have their own Acts. Keep the cheque, the bank’s notice and your own dated notes.