This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 198.— A, who was the holder of a cheque signed by B, payable to bearer, notifies the drawee bank that he has lost said cheque and wishes payment stopped.
By section 74 of the Bills of Exchange Act, the bank's duty to pay it terminated by countermand of payment.
(1) Must not this countermand be given by maker alone?
(2) If the bank refuses payment on the notification not to pay, received from a person said to be the holder, can the maker have an action against the bank ?
(3) If the bank pays, for want of a proper order from maker, can the holder in good faith, have an action against the bank?
Answer.—The countermand of payment referred to in section 74 of the Bills of Exchange Act is clearly a countermand by the customer. If the bank refuses payment on the notification of someone not the customer, and if it should turn out that the person presenting the cheque was a holder in due course, the maker would have an action against the bank for refusing payment of his cheque, as the maker would be liable upon the cheque to the holder in due course. If the bank pays the cheque to a holder in due course, the original holder would have no action against the bank, as the cheque has, as between him and the subsequent holder in due course, ceased to be his property. If, however, the bank paid to a person who was not a holder in due course, under such circumstances as would disentitle it to say that the cheque was paid in good faith, then the original holder of the cheque could claim from the bank its value in an action of trover for conversion of the cheque.
The receipt of such a notice from a person claiming to be the holder would undoubtedly put the bank upon enquiry as to the rights of the person presenting the cheque, and the bank should satisfy itself that he is really a holder in due course.