The topics in the Dial-A-Law series provide general information on legal issues within the Province of Alberta. The purpose of this topic is to inform you of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.
This topic discusses what may happen when cheques are written on a bank account with insufficient funds.
Cheques Written with Knowledge of Non-Sufficient Funds (NSF)
It is an offence is the Criminal Code of Canada to write a cheque knowing that there is not enough money in the account to cover it.
This offence is categorized as ‘obtaining something by false pretence’. A false pretence is a statement that a fact is true, or has been true in the past, where the person making the statement knows the fact is not true. This statement can be made verbally or in writing. In the case of a bad cheque, it is presume that the item or service that the cheque was paying for was obtained by false pretence. This presumption means that a Crown prosecutor does not need to prove that the person knew there was not enough money in their account for the cheque to clear.
A person is expected to know the amount in their bank account within reason. It would be up to that person to show a court that they had reasonable grounds to believe that the cheque would clear if it was cashed within a reasonable period of time after it was written.
After a recipient deposits a cheque, it typically takes a few days for their bank to determine that the cheque writer’s bank account has NSF. Once the recipient’s bank determines that the writer`s account has NSF the recipient’s bank will withdraw the deposited funds out of the recipient’s bank account. The recipient will be charged a fee for attempting to cash the NSF cheque. The NSF cheque will then be returned to the recipient and stamped as an NSF cheque; the NSF cheque then belongs to the recipient.
It is not an offence to write a post-dated cheque from a bank account with insufficient funds. This is because the statement refers to a future time, which is not within the definition of a false pretence. However, if the person knew their account was overdrawn and wrote a post-dated cheque, knowing it would not clear, it is possible that the person could be charged with fraud.
If a person wrote a bad cheque for an item or service that was valued at less than $5,000.00, a Crown prosecutor can proceed with either an indictable offence or a summary conviction.
- If a person is charged with a summary conviction, the penalty can be a fine of up to $5,000.00, or 6 months in prison (or both).
- If a person is charged with an indictable offence, the penalty is up to 2 years in prison.
If a person wrote a cheque with NSF for an item or service that was valued at more than $5,000.00, this is an indictable offence and the penalty is up to 10 years in prison.
A bank can extend privileges to cover an overdraft or may transfer funds from one account to another. For example, a person could make arrangements with their bank for an overdraft limit to cover cheques written over the amount of money in the account. Interest is charged on the amount you use on your overdraft; it is like a short-term loan. You should contact your bank regarding any of these matters.
Small Claims Court
If the amount that an NSF cheque was written for is worth suing for in Provincial Court, please refer to the Dial-A-Law regarding Small Claims. A person may be able to negotiate with the person who wrote the NSF cheque, and collect the debt without suing.
When negotiating for payment of a debt, the following strategies are recommended;
- Make all demands for payment, and outline the grounds for such demand in writing;
- If any agreement is reached between the parties, ensure that the agreement is in writing;
- Do not return a NSF cheque to the person who wrote it until the negotiated payment has been received;
- When receiving a payment, ensure that it is by way of cash, money order, or certified cheque.
Dial-A-Law is a Calgary Legal Guidance public service project funded in part by the Alberta Law Foundation.