This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 189.— The payee of a cheque drawn to order endorses it and presents for payment. Can the banker rightfully apply the funds upon an overdue note he holds of the payee's ?
What if the payee claims that funds for cheque are not his own?
Would the drawer have any grounds for objecting', or legal remedy against the banker for so treating his cheque?
Answer.—In Question 188 we replied to the first portion of the above question, under the advice of counsel, and undertook to deal with the remaining clause later on. This we now do.
The right of the drawer of a cheque having funds at his credit, is to have the bank pay his cheque on presentation, and should the bank refuse to do so without proper excuse, the drawer would have ground for action against the bank, and would be entitled to recover substantial damages to be assessed by a jury, without proving actual damage as the result of the refusal to pay the cheque. If what took place between the bank and the payee of the cheque amounted to a refusal of payment, we think the drawer could complain and that the bank would be liable for damages for this refusal. Whether the bank refused or did not refuse to pay the cheque, would be a question of fact to be decided upon on the circumstances.
With reference to the position of the payee as against the drawer of the cheque the decisions are reasonably clear. Prima facie the cheque is not given nor accepted as payment of a debt. It is a mere order on the bank to pay, and if not honoured the debt remains, and the payee can sue the drawer for it. But there is of course nothing to prevent the drawer and the payee agreeing that the cheque should be taken as payment, and if it were so taken the debt would be discharged, and in such a case if the cheque should be dishonoured, the payee's remedy is upon the cheque only and not upon the debt. If the bank refused to pay the cheque and if there were no agreement that it was accepted in payment of the debt, then the payee could sue the drawer of the cheque for the debt.
Such a state of facts could be imagined which would amount to payment of the cheque so far as the drawer is concerned, and which would entitle the bank to retain the money and set it off as against the debt owing to it by the payee; for instance, if the teller actually counted out the money and told the payee that it was the money for the cheque, and if the payee assented to this appropriation. But for practical purposes the inference which would no doubt be drawn by a court or jury in nine cases out of ten would be that the payee had not assented to the appropriation and that payment of the cheque had in effect been refused.