This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 412.— The A Co. and the B Co., the first having headquarters in Canada, the latter in the United States, are really one and the same corporation, with the same shareholders, officers and directors, acting on each side of the boundary line under different charters. The A Co. keep an account with us.
On 30 Jan., '97, the A Co. deposited with us a cheque for $2,500 drawn on an American bank in G., by the B Co., which cheque was made "payable in New York exchange." We mailed this on same day to our agents in G., but as there was no mail out until Monday, 1st February, it did not reach them until 3rd. The cheque was presented and a New York draft of the American bank given in payment. The draft was immediately forwarded to New York, but before payment could be obtained the American bank suspended. The draft was then returned to our agents, forwarded by them to us, and charged by us to the A Co.'s account. The company's manager objected to this course, claiming that the American bank had paid the cheque, and that therefore the company were no longer liable to us. What are our rights ?
Answer.—We find it difficult to answer this question definitely, since the item to which the enquiry relates, which is drawn in, and payable in the United States, is by its terms made payable in New York exchange. We do not know what the precise effect of this condition is, but we should take it to mean that the document is not, properly speaking, a cheque at all, as it is not an order for the payment of money, but an order for the delivery to the party named of a draft on New York. Under our law the item would therefore probably not come within the Bill of Exchange Act. If it were payable " with exchange on New York," that would imply payment in money with a certain allowance for the difference in the exchange between the point where it is payable and New York, and such a cheque is specially brought within the Bills of Exchange Act by sec. 9 (d).
Assuming that what we have said as to the nature of the document is correct, we should suppose that you have no remedy against anybody except the failed bank.
It seems to us quite clear that recovery cannot be had from the customer. You gave him value for an order on an American bank, which order the latter bank literally complied with; that is, they delivered to your agent a draft on New York, which the latter accepted, apparently without any reservation, in satisfaction of the order or cheque.
The only party against whom you could have any claim whatever would seem to be your agents at 6., and from the information furnished in the question we think that you would have no claim on them, for the course of your business with them, as suggested in the enquiry, indicated that they were authorized—by implication if not expressly—to take payment of such items in drafts of the drawee bank on their New York bankers. If so, they performed their duty as agents fully, and are under no responsibility. If, however, in accepting the draft of the American bank, which was dishonoured, they did something that you did not authorize them to do, they might be responsible. The terms in which the cheque is made payable would, however, seem to us to be against this.
The question is not affected in any way by the fact that the drawers of the cheque and the customers from whom you received it, are corporations owned by identically the same shareholders. This does not make them any the less distinct corporate bodies in the eyes of the law.
Your rights against the failed bank and the drawer of the cheque would be governed by the laws of the State in which the failed bank is domiciled and they might give you a better claim than would exist here. On that point we cannot advise.