This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 180.— John Jones gives a cheque on the Bank of Montreal, Toronto, payable to C. Smith or order. Mr. Smith presents the cheque for payment, but refuses to put his name on the back. Can the bank, who know him to be Mr. C. Smith, refuse to cash the cheque without his endorsement?
Answer.—We are of the opinion that bank on which a cheque is drawn, is entitled to have the payee's endorsement placed on the same before paying it, to serve as a receipt of acquittance for the money. We base this view on the well understood practice of banks, which amounts, we think, to a contract with the customer, (a) that it will pay out money received for credit of a current account, as the customer may instruct, provided it receives a proper discharge for the payment, and (b) that it will furnish the customer with a proper voucher for any money paid on his account.
Looked at in either way it is clear that a cheque needs to be endorsed by the payee in order that the voucher may be in itself a complete document. The case differs altogether from that of an ordinary debtor who is bound to find his creditor and pay him the debt, and is not entitled to a receipt, but must himself preserve such evidence as he can of the payment. The bank is not under any liability to the person presenting the cheque and whatever contract exists with the drawer is certainly on the lines presented above.