This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 177.— Supposing an assignment for the benefit of creditors were made by a firm, say John Smith & Co. Would the endorsement of this firm, which is commercially dead, be a discharge to the bank cashing a cheque payable to the firm's order? Would it not be necessary to have the endorsement of the assignee?
Answer.—We assume that the assignment by the firm worked a dissolution of the partnership. The law is well settled that the dissolution of a firm operates as a revocation of the authority of each partner to bind the other by new contracts, etc.; but this statement must be modified with respect to the authority of the partners to arrange, liquidate and settle the affairs of the firm. As an assignment by the firm would vest in the assignee the ownership of the assets, he only has authority to wind up the business, by collecting the assets.
It must be borne in mind that the assignee is assignee only of the assets of the firm; he does not represent the firm generally, nor has he power to use its name unless expressly authorized to do so by the assignment or by some statute. If the cheque be given for a debt due to the firm the receipt of the money by the assignee and his endorsement of the cheque would probably for all practical purposes end any question as to the sufficiency of the endorsement.
But this practical question must not be confounded with the legal question involved. The assignee (unless expressly authorized as already mentioned) would have no power to endorse the firm's name, and the endorsement of his own name would not answer the order of the drawer of the cheque. The drawer's direction is to pay to the order of the firm. We do not think that, under the circumstances indicated in the question, the cheque could be treated as payable to a fictitious or non-existing person, and, in the absence of express authority from the other partners, we think that the endorsement of the name of the firm by one partner would not be technically sufficient; it would require the endorsement of each member, or of some one authorized by each member to endorse the dissolved firm's name.
As indicated above, the question would not be likely to arise if the money got into the proper hands. It would be more likely to arise if the cheque were presented, not by the assignee, but by some other person claiming title through the previous endorsement.