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A collecting banker is one who undertakes to collect the amount of a cheque for his
customer from the paying banker. A banker is under no legal obligation to collect cheques,
drawn upon other banks for a customer. But, every modern banker performs this duty,
because, no customer will be satisfied merely with the function of payment of cheques
alone. Moreover, in the case of crossed cheques, there is no other alternative to collect the
cheques except through some banker. In rendering such services, a banker should be
careful, because he is answerable to a number of persons with whom he has no contractual
relationship and any negligence or carelessness on his part may land him in difficulties.
The banker would be regarded as a “holder for value” under the following circumstances:
I. If banker allows its customer to draw money against the cheque or part of it in cash
or in account before it is cleared.
II. If any open cheque is accepted and its value is paid before collection.
III. If the cheque is expressly paid to reduce that amount of an overdraft before the
cheque is collected and the proceeds thereof is credited to the perspective accounts.
The collecting banker should verify the correctness or regularity of the endorsements on
the order cheques: For example:
a. If the collecting banker fails to note that the endorser has not signed his name
in the same manner or spelling as appears in the name of the payee (or
endorsee), the endorsement will be held irregular.
b. If two or more endorsements on a cheque are in the same hand writing, their
genuineness may be easily doubted and enquiry should be made. Failure to do
so will constitute negligence on the part of the banker, and
c. If the banker does not verify the authenticity of the authority of the person
who signs per procurator, he will be held negligent.
The following are the few instances in which a collecting banker will be liable for
conversion:
i. Where banker has collected, without enquiry, for the private account of an
official, cheques payable to company of the official or to him/her in official
position and endorsed by the official on his/her company’s behalf.
ii. Where the banker collects without making an enquiry, cheques made payable to a
partnership for the partner’s account.
iii. Failure to obtain reference on opening an account and then collecting a cheque to
which the customer had no title.
iv. Where a banker collects a cheque crossed “Account Payee” for someone other
than the payee.