Mr. McLeod, who owed taxes, held two accounts with the appellant ("Trustco") - an account he held jointly with another person, and a trust account for his law practice. Mr. McLeod wrote cheques out to himself drawing on the trust account, and deposited them in the joint account. Although the Minister had issued a s. 224(1) requirement that Trustco pay its liabilities to the Receiver General instead of Mr. McLeod, Trustco transferred the funds from the trust account to the joint account in accordance with the cheques.
The Minister had conceded at trial that its s. 224(1) requirement did not apply to funds paid into or out of the joint account. The decision turned on whether Trustco was ever liable to make a payment to Mr. McLeod. A 4-3 majority found that it was not. In processing the cheques, Trustco was acting in two capacities - as the bank on which the cheques were drawn, and as the bank to which the cheques were deposited. Trustco had no liability to Mr. McLeod in either of these capacities. Deschamps J. stated (at para. 40):
A cheque operates neither as an assignment of funds in the hands of the payee nor as an assignment of funds in the hands of the drawee. It is a document by means of which a customer orders his or her banker to pay funds the banker owes to the customer to a person or to the order of that person out of the account specified on it. In and of itself, a cheque imposes no obligation on a drawee bank to the payee.
Trustco was not liable to pay Mr. McLeod in his capacity as drawer either. If Trustco had failed to pay the amount specified on the cheques to the recipient from the trust account, then it would be liable to pay Mr. McLeod damages for breach of their trust account contract. Because Trustco did pay, it did not become liable.