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The topics in the Dial-A-Law series provide general information on a wide variety of legal issues in the Province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation.
This topic discusses what may happen when cheques are written on a bank account with non-sufficient funds.
You may be charged with an offence under the Criminal Code of Canada if you write a cheque when you know that there is not enough money in the account to cover the cheque. You may be prosecuted by summary conviction or by indictable conviction. For convictions by summary conviction, the fine may be up to $5,000 or 6 months in jail or both. Penalties for indictable convictions are usually much more severe.
The criminal offence is the obtaining of credit by false pretense. Generally, a false pretense is when you state some fact is true, now or has been in the past, when you know the fact is not true and someone else relies on the statement. The statement can be made by word or in writing. In this instance, when you write a cheque you represent as a matter of fact that there are funds in your bank account against which the cheque can be drawn.
There is no offence for writing a postdated cheque because the statement refers a future time and that circumstance is not covered by the definition of a false pretense. However, if there are circumstances which indicated that you knew your account was overdrawn and would not meet a postdated cheque, it is possible that a charge of fraud might be laid against you. The Crown prosecutor must always prove beyond a reasonable doubt that you intended to make the false representation in order to obtain the goods. The bank keeps careful records of your account and if your bank account is closed for any reason, the bank will usually inform you in writing. You are expected to know the state of your account within reason.
Sometimes the bank may extend you privileges to cover an overdraft. For example, you may make arrangements with the bank for an overdraft limit to cover cheques written over the amount of money you deposit into your account. Interest is charged on the amount you use on your overdraft; it is like a short-term loan. Sometimes, the bank may transfer funds from one account to another. You should contact your bank regarding these matters.
If someone has given you cheque for payment and it was returned to you as an NSF cheque, the bank will withdraw the amount that you showed as a deposit. You will also have to pay for any shortfall resulting from the NSF cheque. The returned cheque belongs to you and you should keep it as evidence should you decide to sue for debt.
You may be able to collect the debt without suing. If you can find the person who wrote the cheque, demand immediate payment and make your demand in writing. If you come to some agreement, make sure it is in writing as well. Do not return the NSF cheque to the person who wrote it until you have been paid in cash, money order or certified cheque. You may also want to collect the extra costs of the NSF cheque such as bank charges. If the cheque is for an amount that is worth suing in the Civil division of the Provincial Court, you may want to listen start an action to collect on the cheque.