This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 247.— An account is opened in the following name, "John Smith, in trust for Springtime Fire Brigade." In accordance with the rules of the Fire Brigade, all cheques have to be countersigned by W. Brown, chief. Smith draws a cheque to his own order for the balance of the account without Brown's countersignature. Is the bank justified in refusing this cheque until countersigned? What is its position if it should pay it without Brown's signature ?
Answer.—It is not apparent from the statement in what way or for what purpose the by-laws have been communicated to the bank, but it would seem clear that the facts justify the bank in refusing to pay without Brown's signature ?
The bank's position if it pays the cheque without Brown's signature would depend on the circumstances. If it could be shown that the deposit was made and held upon the special contract that cheques upon it should bear Brown's signature as well as Smith's, we think it would be difficult for the bank to escape liability for practically joining Smith in a breach of his trust. It seems needless to say that it is unwise to take a deposit without having it made quite plain on whose order it is to be repaid.