Written by: Irvin Schein.

The recent Court of Appeal decision in Oak Incentives Group Inc. v. Toronto Dominion Bank brings up an important point about the duty that banks owe to their customers to deliver accurate information.  In this case, the information in question involved the nature of a deposit into the customer’s account. 

The customer, Oak Incentives Group Inc., was a distributor of consumer appliances.  It received an unusually large order of televisions from a new customer and required payment to be made by wire transfer.

In ordinary circumstances, the bank is not responsible to ensure that deposits made into a customer’s account are genuine.

Funds were deposited into Oak’s account by the customer.  Oak informed the employees of its bank, then called the Toronto Dominion Bank, that it was requiring a wire transfer from the customer and asked if such a transfer would be secure.

The bank employees confirmed to Oak that wire transfers were indeed secure but failed to mention that the new customer had actually deposited funds into Oak’s account by way of a regular cheque. 

Oak shipped the goods, and the cheque was later discovered to be counterfeit.  Oak sued the bank for negligence in the advice that it had given. 

The court concluded that in ordinary circumstances, the bank is not responsible to ensure that deposits made into a customer’s account are genuine. 

In this case, however, the bank was told that Oak expected the funds to be delivered by wire transfer and the bank was asked if that was going to be a secure method of payment.  If it had done so, it would not have been liable for anything (although its customer might not have been pleased).  On the other hand, had the bank indicated that the funds had come in by wire transfer, which was not the case, there is no doubt that the bank would have been liable. 

The facts in this case fell between those two extremes.  Here, the bank’s employees actually answered the question honestly and correctly.  Wire transfers are a secure method of payment.  However, as the employees knew that Oak expected the funds to come in by wire transfer, the court held that the bank had a responsibility to specifically advise Oak that this particular deposit had not come in that way.  Having failed to do so, resulting in a complete loss to Oak, the bank was held liable for the entire amount that should have been paid to Oak together with interest and costs. 

Presumably, had Oak not specified to the bank that the payment was to come in by wire transfer, the result would have been different.  This case illustrates the importance of both the care which must be exercised when dealing with new customers in unusual circumstances, and the importance of sharing as much information as possible with one’s bank when payment terms are in issue.