A collecting banker is holder for value if he gives the value of the cheque in any form to its customer before collecting the proceeds of the cheque deposited by the latter. He does not remain an agent of the customer, but becomes the owner of the cheque in his own right since he has paid value for it, and has acquired the ownership right in good faith. In such a situation, the banker is called holder for value and he is also the holder in due course.
According to Paget, a banker becomes an holder for value in the following ways:
(a) by lending further on the strength of the cheque;
(b) by paying the amount of the cheque or part of it in cash or in account before it is cleared;
(c) by agreeing that the customer may draw before the cheque is cleared;
(d) by accepting the cheque in avowed reduction of an existing overdraft;
(e) by giving cash over the counter for the cheque at the time it is deposited in for collection.
In the above circumstances, the banker becomes the holder for value. Further, if he proves that he gave value for a cheque in good faith, he will be able to resist any claim by the true owner provided that
(a) the cheque was not tainted with forgery,
(b) he had no notice of any previous dishonour or of any defect in the title of his customer,
(c) the cheque was not crossed ‘not negotiable’
(d) the cheque was not overdue for the purpose of negotiation, and
(e) the cheque was regular on the face of it in all respects.
If the cheque is dishonored, the collecting banker can use all the previous parties after giving them the notice of dishonor. The banker undertakes a risk also when he acts as a holder for value. He will be in a difficulty if last, but one endorsement proves to be a forged one. The banker will be liable to the true owner of the cheque. However, he can recover the amount from his customer.