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Originally appearing in Volume V03, Page 353 of the 1911 Encyclopedia Britannica.
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ENGLISH LAW AFFECTING BANKS AND THEIR CUSTOMERS Issue of Notes.—The legislation which culminated in the Bank Charter Acts of 1844 and 1845 secured to the Bank of England the absolute monopoly of the note issue within the city of London and a 3-m. radius. Outside that radius, and within 65 m. of the city, there is a concurrent right in banks, consisting of six or less than six persons, established before 1844, and issuing notes at that date; beyond the 65-m. radius the privilege may be exercised by all banks established before 1844, and then issuing notes, who have not since lost their right to do so by bankruptcy, abandonment of business, or temporary suspension of issue. According to some authorities, the effect of 20 and 21 Vict. cap. 49, sec. 12 [re-enacted Companies Consolidation Act 1908, sec. 286 (d)] was to sanction the increase in the constitution of any bank issuing notes outside the 3-m. and within the 65-m. radius from six to ten persons without affecting the power to issue notes. The rule as formulated above is, however, that enunciated by Bowen J. in Capital and Counties Bank v. Bank of England, 1889; 61 L.T. 516. The increase in the number of joint-stock banks and the gradual absorption of the smaller and older concerns have had the effect of minimizing the output of notes other than those issued by the Bank of England, and, as exemplified by the case of The Attorney-General v. Birkbeck, 12 Q.B.D. 57, it would seem impossible to devise any scheme by349 which the note-issuing power of an absorbed bank could be continued to the new or amalgamated body. But a bank having the right would not necessarily lose it by absorbing other banks (Capital and Counties Bank v. Bank of England). Foreign banks may establish branches in Great Britain on complying with the regulations imposed on them by the Companies Consolidation Act 19o8, but cannot apparently issue notes, even though payable abroad. Deposit Business.—The term " bank of deposit " gives a mistaken idea of the real relation between banker and customer. So long ago as 148 it was decided by the House of Relation Lords in Foley v. Hill, 2 H. of L. 28, that the real between relation between banker and customer was that of banker and debtor and creditor, not in any sense that of trustee customer. and cestui que trust, or depositee and depositor, as had been formerly supposed and contended. The ordinary process by which a man pays money in to his account at his banker's is in law simply lending the money to the banker; it fixes the banker with no fiduciary relation, and he is in no way responsible to the customer for the use he may make of the money so paid in. And as being a mere debt, a customer's right to recover money paid in is barred on the expiration of six years by the Statute of Limitations, if there has been no payment meantime on account of principal or interest, and no acknowledgment sufficient to bar the statute (Pott v. Clegg, 16 M. & W. 321). Such a state of affairs, however, is hardly likely to arise, inasmuch as, in the absence of specific appropriation, earlier drawings out are attributed to the earlier payments in, as in the ordinary case of current accounts, and so the items on the credit and debit side cancel each other. An apparent exception to this system of appropriation exists in cases where a man wrongfully pays into his own account moneys held by him in a fiduciary capacity. In such circumstances he is presumed to have drawn out his own moneys rather than those affected by the trust, and so long as the account is in credit, any balance will be attributed to the trust money. As between contending claims to the money, based on different breaches of trust, the ordinary rule of appropriation will apply. It has often been suggested that the only method of with-drawing money from a banker is by cheque, that the presentation of a cheque is a condition precedent to the liability of the banker to repay. This is not so; such Cheques. a view being inconsistent with the cases establishing the effect of the Statute of Limitations on money left in a banker's hands, and with the numerous cases in which a balance at a bank has been attached as a simple and unconditional debt by a garnishee order, as, for instance, in Rogers v. Whiteley, 1892, A.C. 118. The banker's position with regard to cheques is that, superadded to the relation of debtor and creditor, there is an obligation to honour the customer's cheques provided the banker has a sufficient and available balance in his hands for the purpose (Foley v. Hill). If, having such funds in his hands, the banker dishonours a cheque, he is liable to the customer in substantial damages without proof of actual injury having accrued (Rolin Steward, 14 C.B. 595). Where several cheques are presented simultaneously and the available balance is insufficient to pay all, the banker should pay as many as the funds will cover, and is not bound to discriminate between particular cheques. It would seem a legitimate condition that a cheque should be drawn in the ordinary recognized form, not in one raising any question or doubt as to its validity or effect. Cheques drawn to " wages or order," " petty cash or order," or the like, are common, and are sometimes regarded as payable to bearer. Such payees are not, however, " fictitious or non-existent persons," so as to render the cheques payable to the bearer under sec. 7, subs. 3 of the Bills of Exchange Act 1882, nor can such payees endorse. Some banks refuse to pay such cheques, and it is conceived they are justified in so doing. Money paid in so shortly before the presentation of the cheque that there would not have been time to pass it through the books of the bank would not be treated as available for drawing against. If a person have an account at one branch of a bank, he is not entitled to draw cheques on another branch where he has either no account or is overdrawn, but the bank has, as against the customer, the right to combine accounts. at different branches and treat them as one account (Garnet v. Al'Ewen, L.R. 8 Ex. ro), Funds are not available so long as a garnishee order, founded on a judgment against the customer, is pending, since it attaches all moneys on current account irrespective of the amount of the judgment (Rogers v. Whiteley). The very questionable practice of post-dating cheques has been the source of considerable doubt and inconvenience to bankers. The use of such documents enables the drawer to obtain the results of a bill at a fixed future Hate without the expense of a regular bill-stamp. But the Bills of Exchange Act 1882,sec. 13,subs.1, provides that " a bill is not invalid by reason only that it is ante-dated or post-dated, or that it bears date on a Sunday." The banker cannot therefore refuse to pay a cheque presented after the apparent date of its issue on the ground that he knows it to have been post-dated. On the other hand, he is entitled and indeed bound to refuse payment if such a cheque is presented before the apparent date of its issue (Morley v. Culverwell, 7 M. & W. at p. 178). Revocation of authority to pay a cheque must come to the banker's conscious knowledge and be unequivocal both in terms and method of communication. He is not bound to act on an unconfirmed telegram (Curtice v. London City & Midland Bank [1908], 1 K.B. 293). The banker's authority to pay cheques is terminated by the death, insanity or bankruptcy of the customer, or by notice of an available act of bankruptcy committed by him. The banker is bound to observe secrecy with respect to the customer's account, unless good cause exists for disclosure, and the obligation does not cease if the account becomes overdrawn (Hardy v. Veasey, L.R. 3 Ex. 107). In England a cheque is not an assignment of funds in the banker's hands (Bills of 'Exchange Act 1882, sec. 53). The holder of the cheque has therefore no claim on the banker in the event of payment being refused, his remedy being against the drawer and endorser, if any. On this section is also based the custom of English bankers not to pay part of the amount of a cheque where there are funds, though not sufficient to meet the whole amount. The section does not apply to Scotland, where it would seem that the bank is bound to pay over what funds it has towards satisfaction of the cheque. A banker is entitled to hold paid cheques as vouchers until there has been a settlement of account between him and the customer. The entries in a pass-book constitute prima facie evidence against the banker, and when returned by the customer without comment, against him; but the proposition that such return constitutes a settlement of account has been much disputed. Indeed where forgery is the ground of repudiation of a cheque, no dealings or omissions of the customer with regard to the pass-book would seem to preclude him from objecting to being debited and throwing the loss on the banker (Kepitigalla Rubber Co. v. National Bank of India, 25 Times L.R. 402). As against the banker, however, credit entries in the pass-book cannot be disputed if the customer has altered his position in reliance thereon, and cheques drawn against an apparent balance must be honoured (Holland v. Manchester & Liverpool District Bank, 25 Times L.R. 386). The rule by which the holder of a cheque has no direct recourse against the banker who dishonours it, holds good even where the banker has before issue marked the cheque as good for the amount, such marking not amounting to an acceptance by the banker. As between banker and banker, however, such marking or certifying probably amounts to a binding representation that the cheque will be paid, and, if done by request of the drawer, the latter cannot subsequently revoke the authority to pay. In certain circumstances, marking at the instance of the person presenting the cheque for payment may amount to an under-taking by the banker to hold the money for his benefit (In rein perfect good faith and derived no benefit from the operation. Payment of an open cheque, payable to hearer either originally or by endorsement, is, however, in all cases a good payment and discharge (Charles v. Blackwell, 2 C.P.D. at p. 158). Limited protection in other cases has been extended by legislation to the banker with regard to both payment and collection of cheques, usually on the principle of counterbalancing some particular risk imposed on him by enactments primarily designed to safe-guard the public. By sec, 19 of the Stamp Act 1853, the banker paying a draft or order payable to order on demand, drawn upon him, was relieved from liability in the event of the endorsement having been forged or unauthorized. This enactment was not repealed by the Bills of Exchange Act 1882, and, in London City & Mid-land Bank v. Gordon (1903), A.C. 240, was held to cover the case of drafts drawn by a branch of a bank on its head office. Sec. 6o of the Bills of Exchange Act 1882 extends like protection to the banker in the case of cheques, the definition of which therein as " bills drawn on a banker payable on demand " debars drafts of the above-mentioned description. Such definition, involving the unconditional character of the instrument, also precludes from the protection of this section the documents now frequently issued by corporations and others, which direct bankers to make payments on a specific attached receipt being duly signed (London City & Midland Bank v. Gordon). Sec. 17 of the Revenue Act 1883, however, applies to these documents the crossed cheques sections of the Bills of Exchange Act 1882 (see Bavius, Jr., & Sims v. London & South-Western Bank [19001, i Q.B. 270), while denying them the position of negotiable instruments, and a banker paying one of them crossed, in accordance with the crossing and in the absence of any indication of its having been transferred, could probably claim immunity under sec. 80. The Bills of Exchange Act 1882 contains no direct prohibition against a banker paying a crossed cheque otherwise than in accordance with the crossing, but if he do so he is liable to the true owner for any loss suffered by him in consequence of such payment (sec. 79), and is probably unable to charge his customer with the amount. A banker paying a crossed cheque in accordance with its ostensible tenor obtains protection under sec. 8o and the proviso to sec. 79. Questions have arisen as to the bearing of the crossed cheques sections when a crossed cheque drawn on one branch of a bank is paid in for collection by a customer at another branch; but the transaction is so obviously a legitimate and necessary one that either by the collecting branch maybe regarded as a separate bank for this purpose, or sec. 79 may be ignored as inapplicable (Gordon v. London City & Midland Bank [1902], 1 K.B. 242 C.A.). The collection of crossed cheques for a customer being virtu-ally 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 [1901], 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 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 Beaumont [1902], 1 Ch. p. 895). A banker either paying or collecting money on a cheque to which the person tendering it for payment or collection has no title or a defective title is prima facie liable to the true owner for conversion or money had and received, notwithstanding he acted 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 in-convenience 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 de-finitely 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* 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 not covered by statutory protection, his right to relief, Fraud. 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 [1891], A.C. 107; M'Kenzie v. British Linen Co. 6 A.C. 82; Ewing v. Dominion Bank [1904], 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 safe-guarding 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 b` River Plate Bank v. Bank of Liverpool[1896], r Q.B. q, and Imperial Bank of Canada v. Bank of Hamilton [r9o3], A.C. 49). Cases have frequently arisen where the carelessness of a customer in filling up cheques has enabled a person to fraudulently increase the sum for which such cheques were originally drawn. In Colonial Bank of Australasia v. Marshall [1906], A.C. 559, the judicial committee of the privy council held that the affording such facilities for forgery was no breach of the customer's duty to his banker, and that the latter was not entitled to debit the customer with more than the original amount. As before stated, the customer's dealings with the pass-book cannot, in the present state of the authorities, be relied on as debarring him from disputing unauthorized payments appearing therein. The payment of bills accepted payable at the bank is not, like the payment of cheques, an essential obligation of the banker, and the risk involved is enhanced by the fact that the Custody of banker must pay or refuse payment at once, no interval valuables. being allowed for verification of endorsements. The abolition or modification of the practice has frequently been advocated, but it is one of the facilities which competition compels bankers to extend to their customers. On the same basis stands the receipt of a customer's valuables for safe custody. The question of the banker's responsibility for the loss of goods so deposited with him was raised, but not decided, in an action brought by Mrs Langtry against the Union Bank of London in 1896. Certain jewels belonging to her had been delivered up by the bank to an unauthorized person on a forged order. The case was settled; but bankers being desirous to ascertain their real position, many legal opinions were taken on the point, and after consideration of these, the Central Association of Bankers issued a memorandum, in which they stated that the best legal opinion appeared to be that a distinction must be drawn between cases in which valuables were by mistake delivered to the wrong person and cases in which they were destroyed, lost, stolen or fraudulently abstracted, whether by an officer of the bank or some other person. That in the former case the question of negligence did not arise, the case being one of wrongful conversion of the goods by a voluntary act for which the bank was liable apart from any question of negligence. That, in the second case, that of loss or theft, the banker, being a gratuitous bailee, would only be liable if he had failed to use such care as an ordinary prudent man would take of valuables of his own. The latter rule is practically that laid down in Giblin v. MacMullen, L.R. 2 P.C. 318, but in estimating the amount of care to be taken by the banker, the nature of the goods, if known or suspected, and the exceptional means of protection at the disposition of bankers, such as strong-rooms, must be taken into consideration. Methods of obviating both classes of risk by means of special receipts have frequently been suggested, but such receipts do not appear to have come into general use. Theoretically, bankers are supposed to refuse accounts which are either expressedly or are known to be trust accounts. In practice, however, it is by no means uncommon to Trustees. find accounts opened with a definite heading indicating the fiduciary capacity. In other cases, circumstances exist which affect the banker with notice of that capacity. In either case, however, the obligation to honour the customer's cheque is the predominant factor, and the banker is not bound or entitled-to question the propriety or object of the cheque, unless he has very clear evidence of impending fraud (Gray v. Johnston, L.R. 3 H. of 14. 1). Even though the banker have derived some personal benefit from the transaction, it cannot be impeached unless the banker's conduct amount in law to his being party or privy to the fraud, as where he has stipulated or pressed for the settlement or reduction of an ascertained overdraft on private account, which has been effected by cheque on the trust account (Coleman v. Bucks & Oxon Union Bank [1897], 2 Ch. 243). A banker is entitled, in dealing with trust moneys,known to be such, to insist on the authority of the whole body of trustees, direct and not deputed, and this is probably the safest course to adopt. Scarcely larger responsibility devolves on Joint Stock Banks appointed custodian trustees under the Public Trustee Act 1.go6, a remunerative position involving custody of trust funds and securities, and making and receiving payments on behalf of the estate, while leaving the active direction thereof in the hands of the managing trustees. Other incidents of the ordinary practice of banking are the discounting of bills, the keeping of deposit accounts, properly Bill-dls- so called, and the making of advances to customers, counting. either by way of definite loan or arranged overdraft. So far as the discounting of bills is concerned, there is little to differentiate the position of the banker from that of any ordinary bill-discounter. It has been contended, however, that the peculiar attribute of the banker's lien entitled him to hold funds of the customer against his liability on current discounted bills. This contention was ultimately disposed of by Bowen v. Foreign & Colonial Gas Company, 22 W.R. 740, where it was pointed out that the essential object of a customer's discounting bills with his banker was to feed the current account, and that a possible liability constituted no set-off against an existing debt. Whether a particular bill has been taken for discount or collection is a question of fact. As in the payment of bills, so in the collection of them, there is no statutory protection whatever for the banker; as against third parties he can only rely either on the customer's title or his own as a holder for value, if no forged endorsement intervene and he can establish a consideration. A deposit account, whether at call or on fixed notice, does not constitute any fiduciary relation between the depositor and the banker, but merely a debt due from the latter to the former. It has been suggested that cheques can be drawn against deposit account on call, and, though a banker might safely honour such a cheque, relying, if necessary, on his right of lien or set-off, there appears no legal right in the customer to enforce such payment. Deposit receipts given by bankers are exempt from stamp duty, even though they contain an undertaking with respect to payment of principal and interest. They are clearly not negotiable instruments, but it is difficult to deduce from the cases how far dealings with them may amount to an equitable assignment of the moneys they represent. Probably deliberate definite transfer, coupled with endorsement, would confer an effective title to such moneys. Where, as is not uncommon, the form of deposit note includes a cheque, the banker could not refuse to pay were the cheque presented and any superadded formalities complied with. There is no obligation on a banker to permit his customer to overdraw, apart from agreement express or implied from course of business. Drawing a cheque or accepting a bill payable at the banker's which there are not funds to meet is an implied request for an overdraft, which the banker may or may not comply with. Interest is clearly chargeable on overdrafts whether stipulated for or not. There is no direct authority establishing this right in the banker, and interest is not usually recoverable on mere debts, but the charge is justifiable on the ground of the universal custom of bankers, if not otherwise. The charging of compound interest or interest with periodical rests has been supported where such system of keeping the accounts has been brought to the notice of the customer by means of the pass-book, and not objected to by him, but in the present attitude of the courts towards the pass-book some further recognition would seem necessary. Such system of charging interest, even when fully recognized, only prevails so long as the relation of banker and customer, on which it is founded, continues in force; the taking a mortgage for the existing debt would put an end to it. The main point in which advances made by bankers differ from those made by other people is the exceptional right pos-Lien. sessed by bankers of securing repayment by means of the banker's lien. The banker's lien is part of the law merchant and entitles him, in the absence of agreement express or implied to the contrary, to retain and apply, in discharge of the customer's liability to him, any securities of the customer coming into his possession in his capacity as banker. It includes bills and cheques paid in for collection (Currie v. Misa, r A.C. 564). Either by virtue of it, or his right of set-off, the banker can retain moneys paid in by or received for the credit of the customer, against the customer's debt to him. Goods deposited for safe custody or moneys paid in to meet particular bills are exempt from the lien, the purpose for which they come to the banker's hands being inconsistent with the assertion of the lien. The existence of the banker's lien entitles him to sue all parties to bills or cheques by virtue of sec. 27, subs. 3 of the Bills of Exchange Act, and to the extent of his advances his title is independent of that of the previous holder. Moreover, the banker's lien, though so termed, is really in effect an implied pledge, and confers the rights of realization on default pertaining to that class of bailment. But with regard to the exercise of his lien, as in many other phases of his relation to his customer, the banker's strict rights may be curtailed or circumscribed by limitations arising out of course of business. The principle, based either on general equity or estoppel and independent of definite agreement or consideration, requires that when dealings between banker and customer have for a reasonable space of time proceeded on a recognized footing, the banker shall not suddenly break away from such established order of things and assert his strict legal rights to the detriment of the customer. By the operation of this rule, the banker may be precluded from asserting his lien in particular cases, as for instance for an over-draft on one account against another which had habitually been kept and operated on separately. It equally prevents the dishonouring of cheques in circumstances in which they have hitherto been paid independent of the actual available balance. Restrictions arising from course of business can of course be put an end to by the banker, but only on reasonable notice to the customer and by providing for outstanding liabilities under-taken by the latter in reliance on the continuance of the pre-existing state of affairs (see Buckingham v. London & Midland Bank, 12 Times L.R. 70). As against this, the banker can, in some cases, fortify his position by appeal to the custom of bankers. The validity of such custom, provided it be general and reason-able, has frequently been recognized by the courts. Any person entering on business relations with a banker must be taken to contemplate the existence of such custom and implicitly agree that business shall be conducted in accordance therewith. Practical difficulty has been suggested with regard to proof of any such custom not already recognized in law, as to how far i.. can be established by the evidence of one party, the bankers, unsupported by that of members of the outside public, in most cases impossible to obtain. It is conceived, however, that on the analogy of local custom and the Stock Exchange rules, such outside evidence could be dispensed with, and this is the line apparently indicated with relation to the pass-book by the court of appeal in Vagliano's case (23 Q.B.D. at p. 245). The unquestionable right of the banker to summarily debit his customer's account with a returned cheque, even when unindorsed by the customer and taken by the banker in circumstances constituting him a transferee of the instrument, is probably referable to a custom of this nature. So is the common practice of bankers to refuse payment of a so-called " stale " cheque, that is, one presented an unreasonable time after its ostensible date; although the fact that some banks treat a cheque as stale after six months, others not till after twelve, might be held to militate against the validity of such custom, and lapse of time is not included by the Bills of Exchange Act among the matters working revocation of the banker's duty, and authority to pay his customer's cheque. Indirectly, this particular custom obtains some support from sec. 74 (2) of the Bills of Exchange Act, although the object of that section is different. That section does, however, import the custom of bankers into the reckoning of a reasonable time for the presentation of a cheque, and with other sections clears up any doubts which might have arisen on the common law as to the right of the holder of a cheque, whether crossed or not, to employ his banker for its collection, without imperilling his rights against prior parties in case of dishonour. On dishonour of a cheque paid in for Deposit accounts. Overdrafts and advances. collection, the banker is bound to give notice of dishonour. Being in the position of an agent, he may either give notice to his principal, the customer, or to the parties liable on the bill. The usual practice of bankers has always been to return the cheque to the customer, and sec. 49, subs. 6 of the Bills of Exchange Act is stated to have been passed to validate this custom. Inasmuch as it only provides for the return of the dishonoured bill or cheque to the drawer or an endorser it appears to miss the case of a cheque to bearer or become payable to bearer by blank endorsement prior to the customer's. Where a bank or a banker takes a mortgage, legal or equitable, or a guarantee as cover for advances or overdraft, there is nothing necessarily differentiating the position from that of any other mortgagee or guaranteed party. It has, however, fallen to banks to evoke some leading decisions with respect to the former class of security. In London Joint Stock Bank v. Simmons ([1892], A.C. 201) the House of Lords, professedly explaining their previous decision in Sheffield v. London Joint Stock Bank, 13 A.C. 333, determined that negotiable securities, commercial or otherwise, may safely be taken in pledge for advances, though the person tendering them is, from his known position, likely to be holding them merely as agent for other persons, so long as they are taken honestly and there is nothing tangible, outside the man's position, to arouse suspicion. So again in Lloyd's Bank v. Cooke [1907], r K.B. 194, the bank vindicated the important principle that the common law of estoppel still obtains with regard to bills, notes and cheques, save where distinctly annulled or abrogated by the Bills of Exchange Act, and that therefore a man putting inchoate negotiable instruments into the hands of an agent for the purpose of his raising money thereon is responsible to any one taking them bona fide and for value, although the agent may have fraudulently exceeded and abused his authority and the case does not fall within the provisions of the Bills of Exchange Act. With regard to guarantees, the main incidents peculiarly affecting bankers are the following. The existence of a guarantee does not oblige the banker to any particular system Qaaran- of keeping the account. So long as it is not unfairly tees. manipulated to the detriment of the guarantor, there is no obligation to put moneys paid in, without appropriation, to the guaranteed rather than to the unguaranteed account, and on the termination of a guarantee, the banker may close the account, leaving it to be covered by the guarantee, and open a new one with the customer, to which he may devote payments in, not otherwise appropriated. Where by its nature or terms a continuing guarantee is revocable either summarily or on specified notice, difficult questions may arise on such revocation as to the banker's duty and obligations towards the customer, who has probably incurred liabilities on the strength of the credit afforded by the guarantee. Although the existence of a guarantee does not bind the banker to advance up to the prescribed limit, he could not well, on revocation, immediately shut off all facilities from the customer without notice, while subsequent purely voluntary advances might not be covered by the guarantee. These contingencies should therefore be fully provided for by the guarantee, particularly the crucial period of the pendency of notice.

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