London City & Midland Bank , 1 K.B. 242 C.A.).
The collection of crossed cheques for a customer being virtually incumbent on a banker, qualified immunity is accorded him in so doing by sec. 82, a final exposition of which was given by the House of Lords in London City & Midland Bank v. Gordon (1903), A.C. 240. To come within its provisions, the banker must fulfil the following conditions. He must receive the cheque from, and the money for, a customer, i.e. a person with whom he has definite and existing business relations (see Great Western Ry. Co. v. London & County Bank , A.C. 414). He must take the cheque already crossed generally or specially to himself. His own crossing under sec. 77 is absolutely inefficacious in this connexion. He must take the cheque and receive the money in good faith and without negligence. Negligence in this relation is the omission to exercise due care in the interest of the true owner, not necessarily the customer. To avoid this disqualification of negligence, the banker must see that the endorsements, where necessary, are ostensibly correct; he must satisfy himself of the authority where an endorsement is per procuration; he must not take for private account a cheque which on its face indicates that the holder is in possession of it as agent, or in an official capacity, or for partnership purposes (Hannan's Lake View Central Ld. v.
Armstrong & Co., 16 Times L.R. 236; Bevan v. National Bank, 23 Times L.R. 65); he must not take a cheque marked "account payee" for an account other than that indicated (Bevan v. National Bank). It is further demonstrated by the Gordon case that the banker only secures protection so long as he is acting strictly as a conduit pipe, or as agent for the customer. If he put himself in the position of owner of the cheque, he no longer fulfils the condition of receiving the money only for the customer. In the Gordon case, adoption of the not uncommon practice of crediting cheques as cash in the bank's books before the money was actually received was held equivalent to taking them as transferee or owner, and to debar the bank from the protection of sec. 82. The anxiety and inconvenience caused to bankers by this unexpected decision was ultimately removed by the Bills of Exchange (Crossed Cheques) Act 1906, which enacts that a banker receives payment of a crossed cheque for a customer within the meaning of sec. 82 of the Bills of Exchange Act 1882, notwithstanding that he credits his customer's account with the amount of the cheque before receiving payment thereof.
Apparently the scope of this act must be confined to its immediate object, and it does not affect the relations and rights between the banker and his customer or parties to the cheque arising from such crediting as cash. For instance, the customer, in the absence of agreement to the contrary, may at once draw against cheques so credited, while the banker may still debit the customer with the amount of the cheque if returned unpaid, or sue the drawer or indorser thereon.
The protection to the collecting banker is in no way affected by the cheque being crossed "not negotiable," or by the nature of the fraud or crime by which the cheque was obtained by the customer or any previous possessor, although there are dicta which have been interpreted in the contrary sense. Nor does the fact that the customer is overdrawn deprive the banker of the character of a collecting agent, unless the cheque be definitely given and taken in reduction of such overdraft. Where the conditions requisite for protection exist, the protection covers not only the receipt of the money, but all operations usual in business and leading up to such receipt, on the basis of the customer's title being unimpeachable. The provisions of the crossed cheques sections of the Bills of Exchange Act 1882 are extended to dividend warrants by sec. 95 of that act, and to certain orders for payment issued by a customer of a banker by sec. 17 of the Revenue Act 1883, as before stated. But the wording of the Bills of Exchange (Crossed Cheques) Act 1906, specifying as it does cheques alone, appears to exclude documents of both these classes from its operation.
With regard to the orders for payment, inasmuch as the same section which brings them within the crossed cheques sections expressly provides that they shall not be negotiable, a banker would probably be protected only in taking them from the specified payee, though this distinction has been ignored in some recently decided cases.
Where a banker incurs loss through forgery or fraud in circumstances Fraud. not covered by statutory protection, his right to relief, if any, must depend on general principles. He cannot charge his customer with payments made on a forgery of that customer's signature, on the ground either that he is presumed to know such signature or that the payment is unauthorized. But if the customer has accredited the forgery, or, having knowledge or reasonable ground for belief that it has been committed, has failed to warn the banker, who has thereby suffered loss or prejudice, the customer will be held estopped from disputing the banker's right to debit him with the amount (Vagliano v. Bank of England , A.C. 107; McKenzie v. British Linen Co. 6 A.C. 82; Ewing v. Dominion Bank , A.C. 806). The doctrine of the fictitious person as payee may also exonerate a banker who has paid an order bill to a wrongful possessor. Payment on a forgery to an innocent holder is payment under mistake of fact; but the ordinary right of the payor to recover money so paid is subordinated to the necessity of safeguarding the characteristics of negotiability.
Views differ as to whether the recovery is precluded only where the opportunity of giving notice of dishonour is lost or prejudiced by delay in reclaiming payment, or whether mere possibility of damage is sufficient (cf. London & River Plate Bank v. Bank of Liverpool , 1 Q.B. 7, and Imperial Bank of Canada v. Bank of Hamilton , A.C. 49).