This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 306.— A sight draft on one of our customers, accepted by him payable at our office, is presented when due and marked good. When it comes in from the bank holding it next morning, we find that it is payable to " M------Hotel Co'y," and endorsed (presumably on behalf of the hotel company) "J. S------," but without anything to show that the signature is so intended. (1) Have we a right to send back the item as being improperly endorsed? (2) If so, what is the position of the bank holding it? They cannot protest, as the bill is a day overdue. The bill had passed through the hands of another bank before coming into their hands. (3) Should we take any notice of the instructions of our customer not to pay it on such endorsement ?
Answer.— (1) You have a right to refuse payment of the bill unless properly endorsed, and such an endorsement as you describe is not sufficient. (2) The holder to whom you return the bill need not protest it to protect himself. It is not a case where the bill is dishonoured for non-payment, but where the acceptor has in effect given the undertaking of his bank that the item will be duly paid, when presented with the proper endorsement. The holder should send it back to the bank from which it was received, and the latter is bound to return the money, if any, which it has received from the item. If the bank has received value for the item to which its title is disputed, it must establish the title, or return the money. (3) We do not think your customers have any right to object to your paying the item. If you pay on an endorsement to which they object, their only remedy would be to sue you, and in course of the proceedings establish the fact that you had not paid the money to the proper party. If they did this, the bank to which you paid it would have to reimburse you.
Question 307.— (1) What does the following signify to the bank on whom a cheque is drawn when on local cheques, as regards former endorsements? For Deposit Only.
Through.............. Clearing House
Feb. 19th, 1896. To the credit of the Bank ............
(2) Would a bank be justified in refusing to pay a cheque made payable to John Smith and endorsed " John F. Smith," with the above stampunder Mr. Smith's name, without a guarantee of endorsement? Could a bank demand that the endorsement be guaranteed?
Answer.— (1) As to the effect of the common form of stamped endorsements of banks on cheques passed through the clearing house, the reply to Question 293 covers all that we could say. Under the law, as understood here, the presentation by any bank of an item for payment by the bank on which it is drawn involves an implied representation that it has the right to collect the amount, and if any of the prior endorsements should prove to be forged or unauthorized, so that as a matter of fact it had not the right to receive the amount, it would be bound to pay it back. The recent judgment in London and River Platte Bank v. Bank of Liverpool, is, however, very disturbing, and, if not reversed on appeal, will entirely change what is supposed to be the position of the law on this point.
(2) A bank is not bound to, and we think should not, pay a cheque drawn in favour of " John Smith" or order and endorsed " John F. Smith," for the reason that the endorsement is irregular. It follows that if the bank is willing to cash the cheque, it has a right to ask whatever guarantee it thinks proper.