The simple post-dated cheque can be used to great advantage. This advantage was demonstrated in Contract Air Compressors Inc. v. A.W. Service Industries Inc., an unreported 2000 decision of the Ontario Superior Court of Justice.
No Cheque, No delivery
The vendor supplied compressors to the purchaser’s customer, the ultimate end user. It insisted on receiving a post-dated cheque for the contract amount of $109,000 before installing the compressors. The purchaser complied.
The purchaser then stopped payment on the cheque claiming that there were problems with the compressors and that its customer held the purchaser responsible. The vendor sued on the cheque and the purchaser claimed set-off as a defence and reiterated the same claims by way of a counterclaim.
The claims of the purchaser were not liquidated and were not in the nature of a debt. They were therefore not legal set-offs. They were, however, equitable set-offs in that they arose out of the same transaction from which the debt arose and were closely inter-related to the debt claimed by the vendor.
However, the judge, after reviewing the jurisprudence, concluded that equitable set-off was not available as a defence to an action on a bill of exchange, such as a post-dated cheque. Consequently, the purchaser had no defence to the action on the cheque and the judge granted judgment in the action.
A judge has discretion under the Rules to stay enforcement of a judgment in an action, pending the determination of a defendant’s counterclaim. The purchaser submitted that the judge should do so in this case.
The judge concluded that $55,000 of the counterclaim was so tenuous as to raise no genuine issue for trial. She did conclude that counterclaims worth $54,000 had some merit.
She decided that she would stay enforcement on $54,000 of the judgment amount but only if the purchaser paid that money into court. To do otherwise would put the vendor in the same position as if it had never received the post-dated cheque and sued only for breach of contract. The vendor therefore received security for its claim and was in a far better position having insisted on the post-dated cheque than had it not done so.
Ensure that your clients realise that a post-dated cheque means something. If they want to be able to assert a claim for breach of contract for inferior goods or services, without paying the contract money first, they should not give that cheque. Tell them: “just say no.”