When a collecting banker acts as an agent of the customer, he credits the latter’s account with the amount of the cheque after the proceeds of the cheque are actually collected from the drawee banker. The customer can draw the amount after his account is credited with the proceeds. In such a case, banker acts as an agent of his customer and does not get better title to the cheque than that of the customer. If the title of the customer is defective, the banker will run the risk of being liable to the true owner if it collects the cheque. If the cheque collected by the banker does not belong to his customer, the banker will be liable for ‘conversion of money’ or in other words, for illegally interfering with the rights of the true owner of the cheque.
As an agent of the customer, the collecting banker is a mere “conduit pipe to receive payment of the cheque from the bank on which it is drawn and holds the proceeds at the disposal of the customer.” Like any other agent, the banker has to perform his duties diligently for the customer who has paid in his cheques. If he delays or does not exercise the normal skills expected, he will be liable to his customer. It has been held that the reasonable time would be presenting the cheque within one day after the receipt thereof where the cheque is drawn on a bank in the same place, or forwarding or presenting it on the day following the receipt thereof where the cheque is drawn on a bank in another place. After the expiry of reasonable time, the customer paying in the cheque for collection is entitled to presume that it has been collected and the proceeds thereof credited to his account.