This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 424.— A makes note in favour of B. B endorses same and waives protest, etc. At maturity B has to pay note and the bank places their " paid " stamp on the back of the note over B's endorsement. B afterwards circulated the note apparently as cash, and eventually (three or four years after maturity) has been called upon to pay same but refuses. Is he still liable as endorser?
Answer.—The payment by B is not a payment of the note so as to extinguish all liability upon it, and evidence would be admissible to show that the stamp "paid" meant paid or retired by the endorser only. If B himself, as the question states, afterwards negotiated the note, there could be no question that he would be liable as endorser, but the holder would of course take it subject to the equities which might attach to the note as an overdue note when he became the holder. See section 36, sub-section 2, and section 37 of the Bills of Exchange Act.