This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 209.— A bank receives on deposit from another bank a cheque drawn upon it by a customer, and enters the deposit at the credit of the other bank in the latter's passbook. After entering the credit, but before three o'clock of the same day, the paying bank discovers that the cheque is not good and wishes to charge it back to the depositing bank. Has it the right to rescind the credit which has been given? The transaction takes place at a small office where the teller, who took the deposit, should have known or been able to ascertain at once the state of the customer's account ?
Would the position be different in a large office where the teller, who received the deposit and passes the cheque, might not know for some time whether or not there were funds for it?
Answer.—The case of a cheque drawn on the same bank in which it is deposited differs from the case of a cheque drawn on another bank. In the one case the holder of the cheque when presenting it is entitled to know at once whether it is good or not, and his recourse against the drawer and endorser depends upon the cheque being dishonoured on presentation and upon notice of the dishonour being properly given. If the presentation for deposit can be considered a presentation for payment (and we think it should be so considered), the question arises, has the cheque been honoured by credit for it being given in the depositor's book? If so, then the holder has lost his remedy against the drawer and endorser, as he cannot properly notify them that the cheque has been dishonoured and the bank cannot, after changing his position in this way, repudiate the credit. Prima facie this would, we think, be the position, and the principles explained in the River Platte Bank v. Bank of Liverpool case would apply. We think, however, that if it were clearly shown that by universal custom, or by agreement with the customer, the presentation for deposit entitled the bank, as the drawee of the cheque, to take a reasonable time to consider whether to pay the cheque or not, and in the meantime to credit the amount in the depositor's book, then the bank would not be prevented from subsequently, and within the reasonable time, refusing payment, as the entry in the book would not, in such a case, be treated as honouring the cheque in a way to prevent the holder from giving notice of dishonour if payment were afterwards refused.