Sally Styles was the trusted book-keeper at Manor Windsor Realty (MWR). Trusted, but, as it turned out, dishonest: she defrauded the company of over $400,000 by paying to her own account cheques that had been signed in advance by one of the two required MWR signatories. The fraud was eventually detected and Styles convicted, but she had declared bankruptcy and MWR could recover nothing from her. MWR sued its bank, alleging that it should never have negotiated the fraudulent cheques: Manor Windsor Realty Ltd v The Bank of Nova Scotia, 2011 ONSC 4515 [Link available here].
The bank countered with the customer agreement that MWR had signed, pointing to the clauses requiring MWR to have fraud controls in place (which it really didn’t), verify monthly statements and report any discrepancies or errors (which it also failed to do, except towards the end of the fraudster’s career). Another clause specifically excluded the bank’s liability for fraudulent cheques, even where it failed to verify signatures.
MWR was bound by its agreement. While its principals had not actually read the agreement, they were men of business and did not need to have onerous terms brought specifically to their attention. The agreement was not ambiguous. Even had the bank been at fault, MWR’s claim was to a large extent statute-barred. Its recovery was limited to $7,800 arising from cheques which MWR had promptly reported to the bank as fraudulent.