This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 408.— An account is passed by a town council and a cheque issued in regular form. Before presentation, the bank receives verbal instructions from one of the councillors to stop payment of the cheque, and subsequently, similar instructions purporting to come from the town treasurer are received by telephone. On presentation of the cheque for payment, the treasurer is called up by telephone and denies having given any instructions regarding the cheque. Would not the bank incur liability for damages if payment were refused, there being sufficient funds at credit of the account ?
Answer.—A municipal councillor has no authority to countermand payment of cheques issued by the treasurer of a municipality, and if his instructions were acted upon without reference to the treasurer it is possible that the bank would be liable in any action by the corporation for damages, although this liability would not be a serious matter if it could be shown that the bank had taken precautions to safeguard its customer's interests. Proper precaution would, we think, involve in the case instanced an immediate communication with the treasurer on receipt of the councillor's message, or, if this was not done, confirmation by letter of the telephone message purporting to come from the treasurer.