This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 32.— A customer of a chartered bank in Coboconk has a cheque for $50,000 on another chartered bank in Lindsay. He wishes to take up a note in the Coboconk bank. Upon tendering the cheque he is informed that there will be $50 exchange, whereupon he goes to Lindsay, draws the cash in notes of the Lindsay bank and tenders them in payment of the note. Can the Coboconk bank refuse to take them? Or can it exact a charge that would reimburse it for the express charges to the nearest point of redemption for the Lindsay bank's notes? If the Coboconk bank cannot make a charge it is bound to be at a loss. If it had cashed the cheque at par it would have been out two or three days' interest; by not cashing it at par it is out the interest and express charges.
Answer.—The bank is not bound to accept any money in payment of a note, except such gold coin as comes within the terms of the Currency Act, notes of the Dominion Government, commonly known as legal tenders, or its own notes. It is therefore, as a matter of legal right, in a position to exact whatever charge it may choose to ask, as a condition of its accepting payment by cheque on another bank, or by notes of another bank.
Question (submitted in continuation of the subject of the above question and answer).—If bank notes are redeemable at par all over Canada, by arrangement at specific points and by courtesy or mutual agreement wherever a bank has a branch or there is a branch of a chartered bank, how could a charge be exacted or the notes be refused without breaking through this arrangement ? Suppose they had been deposited instead of offered in payment of a note, I do not see what is to prevent any bank being loaded up with a lot of other bank notes on which it will have to pay express. If the rule applies to small accounts why not to large ones?
Answer.—-In answering the previous question we had, of course, reference entirely to the legal point involved; but we would think it very much to be regretted indeed that banks should take the position of refusing the notes of other banks offered in payment of debts, when the same are presented in a reasonable way and are legitimately in the hands of the party presenting them. Probably if a case occurred where, to get rid of uncurrent notes requiring transportation to a distance, any bank should pay out such notes knowing that they were to be tendered to another bank in payment of a debt, the latter would be quite justified in refusing to take them except at a discount.
We are not aware that there is any mutual agreement between the banks that they will unconditionally redeem the notes of other banks at all points. This is undoubtedly the practice, and it would be unfortunate if anything should happen to break it; but, on looking at the matter simply from the legal standpoint, the bank need not take on deposit notes of other banks if it chooses to refuse them, and it is not bound to take any money that is not legal tender in payment of a debt. If it waives its legal rights, and accepts notes of other banks on which it has to pay express charges, this must be regarded as done because the practice fits in with the common interests of all the banks.