This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 143.— A cheque payable to " Samuel Smith or order" is endorsed:
" Pay to the order of Bank........
" Deposited to credit of........
" Samuel Smith."
Can the bank on which it is drawn legally refuse payment unless the endorsement is guaranteed by the depositing bank ?
Answer.—This is in our opinion a restrictive endorsement under section 35, Bills of Exchange Act, but so far as any dealing with the item is governed by the " Rules respecting Endorsements " a guarantee is unnecessary. Under section 7 of the Rules the deposit by the collecting bank makes the latter a guarantor of the endorsement.
The legal rights of the parties are, however, not touched by these Rules. Under sub-section 3 of section 35, Bills of Exchange Act, the endorsee ,in this case would appear to have a right to receive payment of the bill, and to sue any party whom his endorser could have sued. We are therefore of opinion that the drawee bank cannot legally refuse payment.