Liabilities Of A Paying Banker | Protection To Paying Banker And Collecting Banker
When paying a customer’s cheque on a customer’s account that has been assigned by him/her, usually as a security for the customer’s debt, the bank will refuse to pay cheques drawn on that account.
Bankers are faced with the liability of always conforming with contracts binding the banking business, few of the liabilities of a paying banker that the bank and it’s workforce can face include Breach of contract, defamation etc.
- Breach of contract – breach of contract as a liabilities of a paying banker arises if a paying banker fails to perform his duties to pay cheques and to advise him (customer) properly on the fate of his unpaid cheques, among others, the customer can claim damages for financial losses arising from the breach of contract.
- Defamation – Where a banker returns his customer’s cheques wrongly, the customer can claim that it has reduced his image and his personal rating in the business industry. The liabilities of a paying banker can arise as he can be sue and the customer can claim damages on such grounds. If the customer is a professional trader he is entitled to recover the loss, which he suffered as result of dishonor of his cheques, a reasonable compensation for the damages of his credibility. it is the paying banker rights and duties to always satisfy its customer, irrespective of the customer’s account balance. a non trading customer is only entitled to normal damages for defamation. The paying banker can also be sued for negligence when he fails to exercise care in carrying out duties. A banker that pays a post dated cheque or a stopped cheque has reduced the balance on the customer’s account because of negligence. Other cheques drawn by the customer, which he intended to pay before but stopped or post dated cheques may be wrongfully dishonored. The paying banker therefore has to pay for damages caused to the customer.
Protection Of The Paying Banker
In as much as there are liabilities of a paying banker, the paying should also be protected from shady customers. A paying banker has some statutory protection both under the bills of Exchange Act Of 1958 and that of 1964. Both legislations are the international version of the English bills of Exchange Acts of 1882 and the English cheque Act of 1957.
The Position OF A Collecting Banker
The term “collecting of cheque” or to “collect a cheque” means to receive the value of a cheque made payable to another person on his behalf. For instance, you are a customer of Bank of America, and you keep accounts with one of the Bank Of America outlets in New York. You receive a cheque made payable to you (as a payee) from one of your customers, who keep account with Synchrony bank in Washington DC, Instead of travelling from New York to collect the value of the cheque at Washington DC, you can go ahead and pay in the cheque into your account with Synchrony bank in New York.
Note that Synchrony bank is not the drawee of the cheque, but only keeps account for you, the payee. a collecting banker can be in the position of an agent or a holder of a cheque.
Paying Banker And Collecting Banker As An Agent Example
By Paying in that Bank of America cheque in your account with the Synchrony Bank, to collect the value of the cheque for you and credit your account with the proceeds. When Synchrony ba k collects the value of that cheque, they have only acted as your agent. This is one of the duties that a banker performs for their customers on a daily basis as a part of the banker customer relationship, although it can come as one of the liabilities of a paying banker.
The collecting baker usually a banker to the payee or endorsee of a cheque. We can also define a collecting banker as the banker to whom the value of a cheque is being released for onward payment to his customer who has earlier deposited the cheque into an account in his bank.
The Liabilities Of A Paying Banker/Collecting Banker As A Holder For Value
Banks usually collect cheques on behalf of their customers for the credit of the customer’s account. However, there are four cases in which a banker can receive the proceeds of a cheque as the banker’s own property, in the capacity of a holder for value or a holder in due course.
Thus, the collection of cheque can be made on two bases. The first is to collect the cheque only as an agent and credit the value to the customer’s account. This is the one recognized as collection for a customer. Alternatively, the bank can collect a customer’s cheque for banker’s own benefit as a holder.
The four cases in which a bank can collect the proceed of a customer’s cheque in it’s own capacity as a holder for value, and possibly in due course are as follows;
- Cheques paid against uncleared effect
- Cheques paid in specifically to settle an advance
- Cheques held in Lien
- Cheques drawn on other banks but paid by collecting banker
The essence of a banker establishing himself as holder for value is that there may be a situation where the bank may not be able to defend itself in court, as a precautions to be taken by the paying banker, it may not claim the protection offered to collecting bankers by section 2 of the Bills of Exchange Act 1964. In such a case, if the bank establishes itself as a holder for value, he acquires the rights to sue all parties to the bill to recover his money. As we have discussed the liabilities of a paying banker as a holder in due in course in the proceeding posts.