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Cheques: protection of banker
 

 

Where a banker in good faith and in the normal course of business pays a cheque drawn on himself and the endorsement does not appear to be irregular, he will not normally incur any liability if thc cheque is irregularly endorsed. The bank is not expected to know the signatures of its customers' creditors. This protection does not apply if the cheque is paid outside hours or if crossings or other instructions are not observed. So far as the collecting banker is concerned, if he collects thecheque for a person and that person has in fact no right to the money, he will not be liable to the true owner when he has acted in good faith and without negligence. The person for whom he collects must be a customer, that is a person with an account at the bank. The banker could be liable if he opened an account for a person not known to him and without good references. Negligence is a matter of interpretation: a banker would be negligent in collecting a cheque for an employee when the cheque is made out to the firm, even where it appears to be endorsed.

Reference: The Penguin Business Dictionary, 3rd edt.