Can Court Examine Buyers’ Bank Statements to Assess Validity of Personal Cheque as Deposit?

In a recent case called Preiano v. Cirillo, the buyers were interested in purchasing the sellers’ home. They submitted a $25,000 personal cheque to the sellers’ real estate agent, advising that it would be replaced with a certified cheque once the sellers accepted the agreement. The real estate agent held onto the cheque, and did not attempt to deposit it.

The next day, the sellers did accept the agreement, which by its terms required the buyers to submit their deposit within the next 24 hours. It also included a “time is of the essence” clause (which in law obliges the parties to complete their part of the bargain strictly within the times stipulated, otherwise the agreement will be considered breached).

However, the buyers submitted the certified cheque almost two hours late: it was tendered just under 26 hours after the seller accepted, and not within 24 hours as required. Still, the sellers waited until six days before the closing date to advise that, due to the missed deadline, they considered that there was no valid agreement. They offered to return the buyers’ $25,000 deposit.

When the matter initially went to court to settle the dispute, a motion judge dismissed the buyers’ action for specific performance of the agreement.

The buyers successfully appealed. The Court of Appeal found the motion judge had wrongly concluded that the agreement had lapsed because of the buyers’ failure to submit the deposit on time. This error derived from the judge’s finding, based on bank statements, that the buyers had insufficient funds in to cover the $25,000 personal cheque at the time it was tendered. The motion judge had therefore concluded that the cheque was “not capable of yielding funds upon negotiation,” if it had been presented to the bank.

The Appeal Court concluded that the motion judge had gone too far in these conclusions, at least based on the evidence. Simply because the buyers admitted that the bank statement was authentic did not mean they also admitted to having insufficient funds to cover the personal cheque. As the Court observed:

There is no evidence that the bank would not have honoured the cheque, nor is there evidence in the record as to the [buyers’] financial capacity or their arrangements with the bank. There is evidence that within two days they were able to provide a bank draft in the appropriate amount.

Having overturned the motion judge’s ruling on the insufficiency of the buyers’ deadline-compliant personal cheque, there was no longer a need to address the impact of the “time is of the essence” clause.

The action was sent back for a full trial, with the buyers being allowed to amend their claim to provide clearer circumstances surrounding the negotiation of the agreement and the delivery of the deposit. See: Preiano v. Cirillo, 2017 ONCA 615.