When you hear about the collecting banker, what does it mean or signify to you?
A banker who collect teller or cash deposits or maybe cheques? On this post I will be explaining who is collecting banker, and also its duties.
Who is collecting banker
To put it in a simpler way or explanation, a collecting banker is the banker who receives his customer’s cheques and other instrument, delivers them to the drawee banker and receives the proceeds or otherwise for onward transmission to her customer’s account.
Let’s move onto the duties of collecting banker.
Duties of collecting banker
One of the duties of a banker is to act as an agent for the clearing of cheques and other instruments that the customer may deposit with her, for credit to the customer’s account and in carrying out this function.
The bank is thus referred to as the collecting banker.
The duties of the collecting banker includes the followings;
1. Acts as an agent to the customer
This is one major duties, acting as an agent to it’s customers. This includes the collection of proceeds of cheques and other instruments like the bills.
2. It is the duty of a collecting banker to use his or her skills in discharging their responsibility to it’s principal.
These are the major duties of collecting banker.
Liabilities of a collecting banker
A collecting banker’s liability could take two forms namely;
- Breach of contract: This could be by his failure to use its skill and care. Example, loss of clearing instrument, failure to give notice of dishonour, delay in presenting clearing instrument, etc.
- Conversion: This occurs when a banker collects instrument for a party who does not have right to it.
In a collecting banker, conversion implies denying the true owner the benefits of what rightly belongs to him.
For example, in the case of Hollins V Fowler, it was held that any person who, however, innocently, obtains, possession of goods which includes cheques of a person who has been deprived of them, and disposes of them whether for his own benefit or that of any other person is guilty of conversion.
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Protection to collecting banker
A collecting banker will defend itself if it is able to;
- Set up itself as a holder in due course
- Claim statutory protection.
Holder In Due Course
By section 29 (1) BEA 1990, a holder in due course is a person who has taken a bill, complete and regular on the face of it, under the following conditions;
- 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.
- That he took the bill in good faith and for the value and that at the time the bill was negotiated to him he had no choice of any defect in the title of the person who negotiated it.
In collecting banker, it is clear from the above provision that for one to be a holder in due course, the instrument must be negotiated to him.
This is why a payee can never rank or claim to be a holder in due course. The instrument is drawn payable to him and not negotiated.
When a collecting banker is claiming holder in due course, it implies that it will be collecting cheques on its own behalf and not on behalf of the customer.
Situation like this will arise;
- Where cheque is issued to the bank in payment for specific services. Example, establishment of letters of credit.
- Where cheque is for reduction of loan or overdraft, etc.
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Satutory protection in collecting banker
Section 77 (2) BEA 1990 states that where a banker in good faith and without negligence;
1. Receives payment for a customer of a prescribed instrument to which the customer has no title or a defective title
2. Having credited the customer’s account with the amount of such a prescribed instrument, receives payment of the instrument for himself.
The Collecting banker does not incur any liability to the true owner of the instrument by reason only of his having received payment of it.
The collecting banker is not to be treated for the purpose of this subsection as having been negligent by reason only of his failure to concern himself with the absence of or irregularity in, endorsement of a prescribed instrument of which the customer in question appear to be the payee.
For a collecting banker to enjoy the protection of this subsection, it must collect for;
- A customer
- In good faith
- Without negligence
Without negligence in the Act is defined to mean “without want of reasonable care in reference to the interest of the true owner”. This was also the decision in Hannan’s Lakewise Central Ltd V Armstrong Cot (1900).
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Some negligence cases
In a collecting banker, negligence implies want of care as would have been expected for a reasonable man to exercise in the circumstances.
Most instances of negligence against the bank is traced to;
- Opening of account
- The running of the account
- A few other areas
A bank or a collecting banker is deemed negligence if it collects cheques into savings account without reference.
In the case of Joseph V bank of America (1978), a cheque arossed stated “Account payee not negotiable” was issued to a partnership firm.
The cheque was endorsed by a partner to one of the partnership creditors who had an account with the bank while the mandate of partnership account is “All parties to sign cheques”.
The collecting banker collected the cheque and credited the creditor’s account with its proceeds. Endorses and endorser have account in the same bank.
The bank was held liable for negligence for receiving the cheque against a partner’s endorsement as against all parties.
A bank or the collecting banker will be quilty of negligence if she delays to notify his customer of the return of his cheque for collection. In the case of Nwandu V Co-operative Bank of E/Nig Ltd (1981).
In the same vein, where the bank fail to notify a customer of the return of his cheques for collection and the customer’s account happen to be overdrawn pursuant to the negligence.
The bank or the collecting banker is precluded from demanding repayment from the customer, rather it should credit the customer’s account with the face of the cheque as decided in ACB V Emeribe (1980).
A bank or a collecting banker is guilty of negligence if it collects into a private account, cheques drawn payable to a partnership.
For example, in the case of Barker V barclays bank (1955) just as it will be negligent if it collects without inquiry, cheques other than salaries especially of large sums, payable to one of the signatories to the account.
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Difference between a paying banker and collecting banker
The paying banker or you can say the paying bank also known as the drawee bank is the bank on whom a cheque is drawn to.
While the collecting banker is the banker who receives his customer’s cheques and other instrument, delivers them to the drawee banker and receives the proceeds or otherwise for onward transmission to her customer’s account.