This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 336.— A cheque for $100 drawn by Jno. Smith, of Ottawa, payable to his own order, is presented by him at a bank for payment. Although not personally known at the bank, yet the bank knew that Jno. Smith, of Ottawa, is worth thousands of dollars. Mr. Smith is informed that the bank will cash his cheque provided he can be identified by someone known at the bank. He returns with Mr. Jones, of Hamilton, a well-known business man, who states that he knows Jno. Smith, of Ottawa, and that he is possessed of considerable means, and then Mr. Jones writes under Mr. Smith's endorsement the words, " Identified by Thos. Jones." The bank cashes the cheque, forwards it to Ottawa, from whence it is returned unpaid, and it turns out that the drawer was not the wealthy Jno. Smith, of Ottawa, and that Mr. Jones was mistaken, there being several Jno. Smiths, of Ottawa. Can the bank, having paid the cheque on Mr. Jones' identification of Mr. Smith, recover from Mr. Jones?
Answer.—Under the circumstances mentioned, Mr. Jones was not, we think, liable to the bank in any way, unless his act was fraudulent. If he believed the Jno. Smith, whom he introduced to be the wealthy Ottawa man of that name, and in good faith made that representation to the bank, thereby inducing the bank to cash the cheque, he would clearly not be liable. The point is very fully discussed in Derry v. Peck, before the House of Lords, where these propositions are stated by Lord Herschell: First, in order to sustain an action in such a case there must be proof of fraud and nothing short of that will suffice. Second, fraud is proved when it is shown that a false representation has been made, (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.