This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 293.— Do you, or do you not, think that the simple endorsement by a bank of any deposit receipts passing through its hands guarantees all previous endorsements? 1 think it does, but the point is often disputed.
Answer.—The endorsement on deposit receipts of the ordinary non-negotiable form are not endorsements in the sense of the Bills of Exchange Act, and do not necessarily involve the consequences which an endorsement on a bill of exchange carries with it. The practical effect of such an endorsement as described by our correspondent is no doubt very much the same. If a bank cashes its deposit receipt, which has come through the hands of another bank and is endorsed by the latter, it would have a right to demand a return of the money should it appear that the bank receiving it had, as against the owner of the receipt, no right to receive it. The depositing bank receives the money on the implied representation that it has a right to collect the amount.
Similar questions arise with respect to a cheque which has been paid by the bank on which it has been drawn.
Endorsements on cheques do not bring the parties under the contract of endorsement with the bank on which the cheque is drawn. The drawee is not a holder for value in due course when the cheque is paid, but a bank can recover the money from the party to whom it has been paid if, as a matter of fact, the party to whom it was paid had not a good title. His liability is not that of an endorser, but simply of a party who has received money under circumstances entailing upon the liability to refund it. The case of Ryan v. Bank of Montreal (12 Ont. Reports, p. 39, and 14 Appeal Reports, Ontario, p. 553), and the cases therein cited, contain much information respecting the principles involved.