John holds two accounts at the Bank. His first account (called his ‘Number 1 Account’) has a credit balance of $20, 000 and his second account (called his ‘Number 2 Account’) is overdrawn in the sum of $5, 000. The Bank has written John a general letter asking when he expects to be in a position to reduce his overdraft. John draws a cheque for $18, 000 on his Number 1 Account in order to pay a particularly large expense. He is surprised and annoyed when the Bank dishonors this cheque. He is particularly annoyed that the Bank did not even pay him the courtesy of letting him know that the cheque would be dishonored. John seeks your advice as to whether the Bank is entitled in law to dishonor his cheque in this way.

Advise John whether the Bank is entitled in law to dishonor John’s cheque in this way. In your answer, you must cite the relevant case law and legal principles which support your conclusion.

Answer rating: 100% (QA)

Ans The right to setoff is a common banking practice that is fol... View the full answer