We have seen that the general relation between the banker and his customer is that of debtor and creditor, but the minor duties usually undertaken by the former are manifold and manysided, and the legal relations between the two are consequently complex.

When a banker accepts a deposit from a customer with which to open a current account on the terms usually adopted by bankers, he enters into an implied contract to repay the amount in the manner directed by the customer. He engages to honour cheques drawn upon the account, and if he pays away any of the money against the wishes of his customer, whether through fraud or misrepresentation or through an error, he is, speaking generally, liable to the customer for wrongful conversion, except in those cases where he is protected by statute.

But the drawee banker, that is to say, the banker paying a cheque drawn upon himself, is only liable to his customer and not to any third party. If a banker wrongfully dishonours a customer's cheque, he is not directly liable to the holder of the cheque, but only to his customer, and the holder can only compel payment of the cheque or obtain damages for the error through the drawer of the cheque.

The banker's authority for parting with money held at the disposal of his customer, is the latter's cheque, and he must, except where specially protected, take the consequences of acting upon an irregular document. For instance, if the drawer's signature is forged and the banker fails to detect the forgery he cannot debit the customer with the amount. If he pays a cheque before the date which it bears, or pays a bill before the date of maturity, he can only debit his customer on or after the date of the document, not before. He must pay the cheque or bill to the person named in the document, or to some other person to whom the document has been negotiated by endorsement and delivery, except in the case of instruments payable to bearer. The evidence of such proper payment is the endorsement of the payee or endorsee. But special protection is afforded to the banker paying cheques drawn upon himself, by s. 60 of the Bills of Exchange Act, 1882, which is as follows: "When a bill payable to order on demand is drawn on a banker, and the banker on whom it is drawn pays the bill in good faith and in the ordinary course of business, it is not incumbent on the banker to show that the indorsement of the payee or any subsequent indorsement was made by or under the authority of the person whose indorsement it purports to be, and the banker is deemed to have paid the bill in due course, although such indorsement has been forged or made without authority."

This section is of the utmost importance to the paying banker, as it protects him from the legal consequences of paying a cheque with a forged or unauthorised endorsement. It must be noted, however, that the endorsement must at least "purport" to be that of the payee or endorsee, that is to say, it must be on the face of it correct, and the section does not protect a banker paying on an endorsement differing in spelling from that of the person named in the instrument, or otherwise manifestly irregular.

Secondly, it must be noted that the section applies only to bills drawn on a banker payable to order on demand, that is to say, cheques. Under the terms of the Finance Act of 1853, the protection probably applies also to drafts or orders upon a banker, which are, technically speaking, not cheques according to the definition in the Bills of Exchange Act, but it certainly does not apply to bills of exchange accepted payable at a bankers, and the banker paying such bills with a forged or unauthorised endorsement will be liable to the acceptor for wrongful conversion.

The position of a paying banker is well defined and fairly comfortable, but that of the banker who collects a cheque drawn upon another banker either for a customer or for a third party is both complex and full of responsibility. In the absence of statutory protection, the collecting banker is in the same position as any other individual who changes a cheque to oblige a friend or in the course of business. He may be a "bona fide holder for value," or he may be a mere agent for collection, but he cannot be both.

A bona fide holder for value or holder in due course is defined by s. 29 (1) of the Bills of Exchange Act, 1882, as "A holder . . . who has taken a bill (a), complete and regular on the face of it, under the following conditions; namely,

"(a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact:

"(b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it."

The position of a holder in due course is a strong one. He holds the bill "free from any defect of title of prior parties," and he can "enforce payment against all parties liable on the bill."

But if the collecting banker relies on his position as a holder for value, there is a weak spot which often invalidates his position. No one can acquire the rights of a holder in due course of a bill (which term includes a cheque) on which a previous endorsement is forged or unauthorised. No title whatever can be acquired through a forgery. In most cases, however, in which a banker collects a bill or cheque with a forged endorsement, his right against his customer is practically worthless, and he may therefore be accountable to the true owner for the amount.