This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 178.— Do you approve of paying cheques drawn to order bearing in lieu of the payee's endorsement the following : " Deposited to the credit of account of (the payee), endorsement guaranteed. John Smith, Manager, Bank of A."
If the payee should afterwards dispute the payment, would the above form any protection ?
Answer.—Such a statement written on the back of the cheque is of course not an endorsement in the proper sense, but may be regarded as the receipt of the Bank of A., with a declaration that they have credited the amount to the party entitled to receive payment. This does not comply with the terms of the customer's order, and it is clear that if the payee did not approve of it, he could repudiate the act of his bankers, and in that event the paying bank would doubtless have to recognize his claim, but would be entitled to look to the Bank of A. for protection.
As a practical question the chances of trouble are exceedingly remote, nevertheless, we do not think the practice can be regarded as a satisfactory one, and it should be resorted to as rarely as possible. We would also think it better that the writing should purport to be an endorsement, even though this is unauthorized, by the use of such phrase as this: " For John Brown, the Bank of A., John Smith, Manager." This would not constitute a regular endorsement under the rules, as the authority of the person signing is not, and in the nature of things could not be, indicated. It should, therefore, be guaranteed under section 8 of the Rules. A guarantee, however, is scarcely necessary from the point of view of fixing the liability of the collecting bank. A bank which undertakes to endorse on behalf of a customer implies that it has authority to do so, and is responsible if the endorsement is repudiated.