This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 38.— By what authority in law do some banks and the Receiver-General's assistants pay torn or mutilated notes sent them for redemption, at less than the full amount ?
Answer.—We do not know of any authority for the practice mentioned respecting the redemption of mutilated notes, but it is reasonable and all banks which issue notes are interested in its maintenance as a matter of self-protection. The promissory note of a bank is in law very much the same as any other promissory note, and in case of its destruction, in whole or in part, the holder would theoretically have the same right to recover as if it were the promissory note of a private person. If he brought suit in such a case he would have to satisfy the court as to the facts and provide suitable indemnity. The provision of indemnity in connection with missing parts of a bank note is, however, difficult if not impossible, and because of this the practice has grown up of allowing a proportionate amount for the portion of the bill which is presented for redemption. It is reasonable, and it might be difficult to establish even at law a larger claim.