This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 14.— A bank has discounted for A. a note endorsed by B. A. assigns to B. a mortgage to secure him for his endorsement, which mortgage B. subsequently assigns to the bank as collateral security to the note. At its maturity A. requests the bank to renew it, holding the mortgage as security and releasing B. Would the bank have a valid security in the mortgage under the circumstances, and would B. have any claim on or interest in the mortgage?
Answer.—B. would have no claim if he were released from his liability as endorser. Whether the bank's security would be good would depend on the nature of the assignments to B. and the bank. If it had been assigned to B. expressly to indemnify him against his liability as endorser then the assignment would cease to have any effect as soon as this liability came to an end, and the bank could not hold the mortgage by virtue of any rights derived from this assignment. It might have a valid claim because of its agreement with A., but in order to make the matter right the latter, whose property the mortgage is, should by proper instrument, confirm the bank's right to hold it as security.
Alteration of a Bill—Completion of a Bill.
Question 15.—If a cheque is presented to a bank by a third party, signed by the depositor in blank, and accompanied by the pass-book, the party presenting it stating that he was authorized to fill out the cheque for the amount of the balance, would the bank be justified in paying over the balance, on the cheque filled up by him, or by the bank at his request?
Answer.—This is, of course, not an alteration, but comes under section 20 of the Act, which authorizes any person in possession of a bill which is wanting in any material particular to fill up the omission, provided this is done within a reasonable time, and strictly in accordance with the authority given.
In the case referred to the bank in paying the cheque would be protected if the authority given by the drawer to the person drawing the cheque empowered him to fill in the amount. If this should prove not to be within that authority, the cheque could not be charged to the customer's account.
Whether the bank should take the responsibility in any particular instance is a question of expediency. No doubt in the vast majority of cases the transaction would be perfectly regular, and the surrounding circumstances generally make the bank's course clear, but if it pays such a cheque it pays on the faith of the representations made by the party presenting it, and takes the risk of any fraud that may be involved.