The Substantial Differences Between Canada and the US in Handling Cheque (Check) Fraud Claims Implications for Insurers
January 9th, 2005
In Canada, “check” is spelled “cheque”; and cheques are, of course, generally written in Canadian dollars and drawn on Canadian banks.
Those are not, however, the only differences between Canadian and US law and banking practices relating to cheques. There are several key substantive differences between Canadian and US law of cheques, particularly the law relating to forgeries on cheques. Insurers need to be aware of these differences in writing policies, underwriting risk, and evaluating claims.
II. Canada’s cheque clearing system
A cheque is simply a kind of bill of exchange that is drawn on a bank. Cheques are thus governed by the Bills of Exchange Act. In addition, the process by which cheques are cleared and settled between banks is provided for in the rules of the Canadian Payments Association.
The Bills of Exchange Act and the Canadian Payments Association are discussed briefly below.
1. Bills of Exchange Act
Bills of exchange have been used for hundreds of years to facilitate commerce. In an era before electronic funds transfers, bills of exchange provided a simple and effective way to provide for payment of a debt in a far away place, or to provide for the repayment of borrowed money.
The Bills of Exchange Act is a codification of the common law of bills of exchange. The United Kingdom passed its Bills of Exchange Act in 1882, and Canada followed suit with very similar legislation in 1889. The Canadian act has been little amended since. Though the language of the Bills of Exchange Act is more reminiscent of Trollope and Gallsworthy than of modern commerce, and though Canadians have embraced electronic payment systems, bills of exchange continue to be used in local and international commerce. In particular, millions of cheques are still written every day…
 Bills of Exchange Act , R.S.C. 1985, c. B-4, s. 165 (Can.).
 For a discussion of the history of the “law merchant”, the common law relating to bills of exchange, and the Bills of Exchange Act , see Crawford and Falconbridge, Banking and Bills of Exchange , 8 th ed. 1986, §4701-4704. The common law and law merchant (a branch of the common law) continue to apply to bills of exchange: Bills of Exchange Act , s. 9.