States courts, which in a matter of general commercial law would not follow the state decisions, a bank would not be justified in paying, after notice of the depositor's death, any check but a certified or accepted one. For if the bank in either case pays the check, the personal representative may, after demand, sue the bank. At law the bank would have no defense, although in equity it would, no doubt, be subrogated to the payee's original claim.

§ 139. Insolvency of depositor.- The effect of an assignment for the benefit of creditors by the depositor is to transfer the deposit as any assignment would transfer it. The right of the bank to appropriate the depositor's account will be considered in the next section. Whatever the bank pays before notice of the assignment will be, of course, a good payment. Where statutory systems of insolvency prevail that would invalidate preferences secured prior to an application in bankruptcy, it would appear to be a reasonable rule that the bank's payments of checks would be good up to the time of receiving notice of the application in bankruptcy, unless the statute should provide that any transfer by the insolvent after an act of bankruptcy was forbidden.3 In the latter case the bank ought to refuse to pay unaccepted checks as soon as it receives any notice of an act of bankruptcy, unless in those states where the holder can sue, where the bank could not safely refuse to pay if the check had been presented, nor can it safely refuse even then, because the United States courts will refuse to recognize the rule. There 1 Laclede Bank v. Schuler, 120 But even in the states which recogU. S. 511. nize the presentment of the check as giving the right to sue, the United States courts in bankruptcy must refuse to recognize the state rule. 3 The English statute, 12 and 13 Vict., ch. 106, § 133, so provides.

2 Under the new bankruptcy law of the United States a fraudulent conveyance, or a written recognition of insolvency, or an application, or an assignment for creditors, are all acts of bankruptcy, and it is very questionable if the bank ought not to refuse unaccepted, or in some states unpresented, checks, after notice of an act of bankruptcy.

4 See the last section for those states, note 9. Fourth Nat. Bank v. City Nat. Bank, 68 Ill. 398. But Chambers v. Northern Bank, 5 Ky. Law R. 123, holds that the drawing

are a number of statutes against preferences whose effect is to render an assignment of a deposit, after the depositor has become insolvent, void." Therefore, a bank in such states could not recognize an assignment after notice of insolvency, and ought not to recognize an unaccepted check, or in a few states possibly an unpresented check; but even if the check be presented, the trustee of the bankrupt can recover the payment in the United States court.

§ 140. Bank applying deposit to its own claim.— It is a recognized principle in banking law that a bank has the right to apply the general deposit of the depositor to the payment of the bank's unsecured claims against the depositor. The nature of the claim of the bank may be either a matured or an unmatured debt, an unliquidated claim for damages, and even a right to recover for a fraud, and the rights of the bank vary somewhat in the cases with the nature of the claim. But one rule is unvarying the claim must be really and in fact the property of the bank,' and in the next place the deposit must legally and equitably belong to the depositor. Even though the bank has no notice that the deposit belongs to some one else than the depositor, it cannot appropriate the deposit for a debt of the ostensible depositor, unless it has been misled, or has suffered an injury or given credit upon the strength of the apparent ownership,3 and then

of the check prevails over the petition in bankruptcy, which does not revoke check even if the bank had notice.

5 Stone v. Dodge, 96 Mich. 514; Van Dyke v. McQuade, 85 N. Y. 616; In re Hamilton, 26 Oreg. 579. Contra, Moseby v. Williamson, 5 Heisk. 278. And compare Johnston v. Humphrey, 91 Wis. 76. This rule applies to national banks. Venango Nat. Bank v. Taylor, 56 Pa. 14. A different provision is noticed in Bank of Pennsylvania v. Spangler, 32 Pa. 474.

1 Stetson v. Exchange Bank, 7 Gray, 425.

2 Lawrence v. Bank of Republic, 35 N. Y. 320; Tobey v. Manufacturers' Nat. Bank, 9 R. L. 236; National Bank v. Insurance Co., 104 U. S. 54; Walker v. Manhattan Bank, 25 Fed. R. 247; Union Stock Yards Bank v. Gillespie, 137 U. S. 411; Clemmer v. National Bank, 157 Ill. 206; Coote v. Bank of United States, 3 Cranch, C. C. 95.

3 Dougias v. First Nat. Bank, 17 Minn. 35; Armstrong v. National Bank, 53 Iowa, 752; Anderson v.

only to the extent to which it has suffered injury. But if the bank has a claim against the true owner of the deposit, it may apply the deposit though standing in another name. It makes no difference how the claim arises, whether it be against the depositor alone or against himself and wife," or against him as indorser or guarantor of a matured note, provided the maker or principal debtor is insolvent. But if the debt is fully secured the bank may not apply the deposit,' unless there be a special agreement to that effect. If the unsecured debt be matured there is no doubt of the bank's right to make the application. It is said to be the law by a number of decisions that are not able to give any reasonable excuse for their existence, that the bank cannot apply the deposit of the individual depositor upon the debt of the firm of which he is a member; but the better view of the

Market Nat. Bank, 1 N. Y. Supp. 136; Davis v. Panhandle Nat. Bank, 29 S. W. R. 926; Wood v. Boylston Bank, 129 Mass. 358; Cady v. South Omaha Nat. Bank, 46 Neb. 756. Contra, Boettcher v. Colorado Nat. Bank, 15 Colo. 16. Compare Burtnett National Bank, 38 Mich. 430.

4 Garnett Bank v. Bowen, 21 Kan. 354; Falkland v. National Bank, 84 N. Y. 145. See also Hatch v. Fourth Nat. Bank, 147 N. Y. 184. Contra, Citizens' Bank v. Alexander, 120 Pa. 476.

5 Haydon v. Alton Nat. Bank, 29 Ill. App. 458. But it is held that if a note is joint and several the bank cannot apply the deposit of one maker. Merchants' Bank v. Evans, 9 W. Va. 373; Dawson v. Real Estate Bank, 5 Ark. 283; Long Island Bank v. Townsend, Hill & D. Supp. 204. These cases are not sound. See note 9, infra.

6 Ex parte Howard Nat. Bank, 2 Low. 487. Contra, National Bank v. Proctor, 98 Ill. 558, as to note not

due. Compare Appeal of Farmers' Bank, 48 Pa. 57; National Bank v. Gormley, 2 Walk. (Pa.) 493; Newbold v. Patrick, 25 Pitts. Leg. J. (N. S.) 299. But Mechanics' Bank v. Seitz, 150 Pa. 632, seems to be in accord, while First Nat. Bank v. Shreiner, 110 Pa. 188, denies the right as to a guarantor, but not an indorser.

7 Schuler v. Israel, 120 U. S. 506; Farmers' Bank v. McFerran, 11 Ky. Law R. 183.

8 See cases in preceding notes and Commercial Bank v. Hughes, 17 Wend. 94; Blair v. Allen, 3 Dill. 101; National Bank v. Hill, 76 Ind. 223. The application is to be made on the last day of grace. Home Nat. Bank v. Newton, 8 Ill. App. 563.

9 Watts v. Christie, 11 Beav. 546; International Bank v. Jones, 119 Ill. 407; Raymond v. Palmer, 41 La. Ann. 425; Adams v. National Bank, 113 N. C. 332. See note 5, supra.

law is that it can.10 If the unsecured debt is not matured, the great weight of authority and the reason of the rule of equitable set-off permits the application of the deposit, provided the depositor be insolvent." But death is not equivalent to insolvency; yet if the depositor died insolvent 12 the application can of course be made to unmatured and unsecured indebtedness.13 In Pennsylvania, if the debtor dies insolvent, there is no set-off, but if he died solvent his deposit may be set off. The reason for the rule stated above is that the bank has a lien superior to all other claims.15 This is simply a general business usage crystallized into a rule of law. But some courts wrongly deny the right to apply upon an unmatured indebtedness as against an attachment 16 or against an assignment." Unliquidated demands may be set off against the deposit,18 and so may a claim to recover for fraud. The fact that checks are outstanding does not deprive the bank of its right; 20 but in those states which recognize the right of the holder to sue upon the check after

10 Eyrich v. State Bank, 67 Miss. 60. 11 Schuler v. Israel, 120 U. S. 506; Demmon v. Boylston Bank, 5 Cush. 194; Georgia Seed Co. v. Talmage, 96 Ga. 254; Fidelity Co. v. Merchants' Nat. Bank, L. R. A. 108, and note; Flour Co. v. Merchants' Bank, 90 Ky. 225; Trust Co. v. National Bank, 91 Tenn. 336; Citizens' Bank v. Kendrick, 92 Tenn. 437. But contra, National Bank v. Proctor, 98 Ill. 558. This last decision is incomprehensible.

12 Jordan v. National Bank, 74 N. Y. 467.

13 Ford v. Thornton, 3 Leigh, 753; Knecht v. Savings Inst., 2 Mo. App.

563.

14 Farmers' Bank Appeal, 48 Pa. 57; Bosler v. Exchange Bank, 4 Pa. 32: National Bank v. Shoemaker, 11 Wkly. Notes Cas. 215.

16 Manufacturers' Nat. Bank v. Jones, 2 Penny. 377. Contra, Schuler v. Israel, 120 U. S. 506.

17 Oatman v. Batavian Bank, 77 Wis. 501. This is one of the most absurd opinions in all the books. The court says counsel, in his brief, cites certain cases, and then the court puts those cases in the opinion. There are ten cases cited, but only one is in point, and that is Beckwith v. Union Bank, 9 N. Y. 211, which is no longer authority. 18 Ex parte Howard Nat. Bank, 2 Low. 487. Contra, Irvine v. Dean, 93 Tenn. 346.

19 Andrews v. Artisans' Bank, 26 N. Y. 298. For set-off in peculiar cases, see Clark v. Northampton Bank, 160 Mass. 26; National Bank v. Greene, 45 N. J. Eq. 546.

20 Georgia Seed Co. v. Talmage, 96

15 Ford v. Thornton, 3 Leigh, 695. Ga. 254.

presentation, no set-off exists in favor of the bank as against a bona fide holder of the check; 21 and in other states it is held that the right of set-off does not exist as against bona fide check-holders, whether the bank's claim is matured or unmatured.22 There is no soundness in either rule. The bank may apply the deposit upon any of the depositor's debts. of its own that it pleases; but if it has received a deposit under a specific direction or agreement as to its disposition, it will be bound by the direction or agreement," and this direction need not be in writing.25 The application of a general deposit, if applied without notice of a valid adverse claim, can be justified in certain cases. Collections made and properly credited are deposits, when mingled with the funds. of the bank, and are applicable by the bank as deposits.27

§ 141. Duty of bank to apply deposit. It is a wellknown principle of law that any dealing between the creditor and the principal debtor — and one case holds any concealment of a relation between the creditor and the principal debtor1- prejudicial to the indorser or guarantor of the contract, without the assent or concurrence of the surety, releases the latter. The bank having a lien upon

21 Fourth Nat. Bank v. City Bank, 68 Ill. 398; Merchants' Nat. Bank v. Ritzinger, 20 Ill. App. 27.

22 Fidelity Trust Co. v. Merchants' Bank (Ky.), 9 L. R. A. 108; Zeile v. German Sav. Inst., 4 Mo. App. 401, which latter case is no longer an authority. The Illinois cases are express that as against a bona fide check-holder the bank must have applied the deposit before presentation of the check. Niblack v. Park Nat. Bank, 169 Ill. 517. This ruling is of course wrong, because it gives the check-holder a better right than the drawer of the check; it is simply another illustration of the wild result of the rule that says a check is an assignment.

23 Commercial Nat. Bank v. Henninger, 105 Pa. 496.

24 Straus v. Tradesmen's Bank, 36 Hun, 451, 122 N. Y. 379; United States Bank v. Macalister, 9 Pa. 475; Packing Co. v. First Nat. Bank, 69 Miss. 700.

25 Case last cited.

26 McEwen v. Davis, 39 Ind. 109; Allen v. Brown, 39 Iowa, 330; note 3 to this section.

27 Muench v. Valley Bank, 11 Mo. App. 144.

1 Jungk v. Reed, 8 Utah, 49. The author reported this case, and then thought, and still thinks, it wrongly decided upon the whole issue.