Suppose a banker opens an account with a man who is practically a stranger to him, and collects for him a cheque on which the customer has forged the endorsement. The customer withdraws his balance and decamps. The banker cannot, because of the forgery, rely upon his position as a holder in due course, and in the absence of any other defence he is liable to the true owner of the cheque.

(a) The word "bill" as used here includes a cheque.

But if the banker is not a bona fide holder for value he may rely upon the protection given to him as a mere agent for collection by s. 82 of the Bills of Exchange Act, 1882, which runs as follows:

"Where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself, and the customer has no title or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment."

The Revenue Act of 1883, s. 17, extends the operation of this clause to "any document issued by a customer of any banker, and intended to enable any person or body corporate to obtain payment from such banker of the sum mentioned in such document" provided it is crossed, but, with this exception, this section applies only to crossed cheques, and it has recently been held that the crossing must be placed on the cheque before it reaches the collecting banker's hands. Bills other than cheques, and open cheques are excluded altogether from the operation of this clause.

Secondly, the crossed cheque must be collected for a customer. In the recent case of Capital and Counties Bank v. Gordon, [1903] A. C. 240, it was decided that if a banker credits his customer's account with the amount of the cheque as cash immediately upon receipt of it, and then proceeds to collect it, he collects it not for his customer but for himself, his own position being that not of an agent for collection, but of a holder for value. Since it is the almost universal practice of bankers to treat, at all events, cheques payable in London in this manner, and in many cases also cheques payable in the country, it will be seen that this decision deprives the collecting banker in the majority of cases of the protection ostensibly afforded by the section quoted above (p. 128), the banker is forced to stand or fall by the validity of his position as a holder in due course.

There is a further limitation to the position of a holder in due course, that is, in the case of crossed cheques which are marked "not negotiable." This addition to the crossing of a cheque does not prevent the cheque from being negotiated, but the person taking such a cheque "shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had."

The position of the collecting banker is therefore as follows:

(1) He may be a bona fide holder for value of the cheque or bill which he is collecting, having given his customer value for the cheque or bill by crediting his account with the amount previous to collection. The banker cannot claim to be a bona fide holder for value unless he has given value for the cheque and his claim is defeated by the existence of a forged or unauthorised endorsement of any previous party, or by the existence of the words "not negotiable," if the document is a crossed cheque.

(2) If he is not a holder in due course, he can, in the case of crossed cheques only, plead the protection afforded to the banker collecting such cheques for his customer by s. 82 of the Bills of Exchange Act, 1882, but a cheque is collected for a customer within the meaning of the Act, only when it is collected before the customer's account is credited with the amount.

(3) If the collecting banker is neither a holder in due course nor protected by s. 82, he must stand or fall by the validity of his customer's title. If his customer has no title or a bad title to the bill or cheque, the banker cannot acquire a good title, and will be liable to the true owner of the cheque or bill; his only recourse will be, in the majority of cases, against his own customer.

So much for the relations of banker and customer in the ordinary operations of paying and collecting bills and cheques: the relationship is partly that of agent and principal, partly of debtor and creditor. But this is not the only form of relation between banker and customer. In a bank advertisement a paragraph in something like the following terms will often be noticed: "The Lombard Bank will take charge of Foreign and Colonial Bonds, etc., and will detach and collect the coupons as they fall due, passing the interest to the credit of customers as received."

In this case the banker stands in the relation of trustee as well as agent for his customer. He acquires no property in the securities so lodged with him for safe custody. Where a banker discounts a bill for a customer, he becomes the legal owner of the bill; he buys it, and only has a possible right of recourse against his customer through the latter's endorsement, should the other parties to the bill fail to meet it. But in the case of securities lodged for safe custody, the position of the banker is different; he must neither sell nor pledge them, and must be prepared at any time to hand back the identical securities deposited. Should he convert them to his own use, he becomes criminally liable.

The only right which a banker may acquire over such securities is what is called a banker's lien. A lien is a right to retain valuables until all debts due by the owner to the holder have been discharged; a right of sale is not given by a lien. Bankers have, "by implication of law," a general lien over all securities deposited with them in their capacity as bankers, unless there is a special contract over-riding the general lien. This general lien attaches to all bills, cheques and other negotiable instruments deposited with a banker for collection. It probably does not attach to securities deposited simply for safe custody, but if the customer instructs the banker to cut off and collect coupons on bonds, this is generally thought sufficient to bring the bonds under the banker's lien, since it then becomes the banker's duty so to collect the coupons, and the bonds may therefore be held to be in his possession for that purpose. If, however, a customer deposits share warrants or certificates with his banker for safe custody, and at the same time gives an authority for the dividends to be paid direct to the bank for the credit of his account, it is doubtful whether the general lien attaches, as such certificates are not in the possession of the banker as a banker: he incurs no obligation with respect to them, and holds them not because it is part of his duty towards his customer, but because it is the usual custom to do so.