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 v. 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

9

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 IIL 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.19 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, 9 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; 23 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. The application of a general deposit, if applied without notice of a valid adverse claim, can be justified in certain cases.26 Collections made and properly credited are deposits, when mingled with the funds of the bank, and are applicable by the bank as deposits.27

25

§ 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.

the deposit for its claims, and having the opportunity to protect the surety, ought in justice to do so. The situation of the surety is certainly altered to his disadvantage, unless he assents. But some courts admit this right in the surety,2 while other deny it.3 The courts of Pennsylvania have become involved in a singular net of conflicting dicta and decisions upon this question. The cases will be found in the note. The duty, however, does not exist as regards the acceptor of a bill of exchange, whether the deposit exists at the date of the maturity of the bill or is deposited afterwards. Wherever there is an agreement taking a particular security out of the course of general dealing between the bank and the depositor, the surety cannot complain that his rights are prejudiced.' But it will be seen that the same result is achieved where a deposit exists, in a few cases, by

2 Dawson v. Real Estate Bank, 5 Ark. 283; German Nat. Bank v. Foreman, 138 Pa. 474; Mechanics' Bank v. Seitz, 150 Pa. 632; McDowell v. Wilmington Bank, 1 Harr. 369; Pursifall v. Pineville Bank, 30 S. W. R. 203; Faulkner v. Cumberland Valley Bank, 14 Ky. Law R. 923; Armstrong v. Warner, 49 Ohio St. 376. This latter case holds that the surety upon a note on the insolvency of the bank is entitled to the principal's deposit as a set-off against the note.

3 Wilson v. Dawson, 52 Ind. 513; Voss v. Germ. Am. Bank, 83 Ill. 599; Third Nat. Bank v. Harrison, 10 Fed. R. 243; Teconic Bank v. Johnson, 21 Me. 426; National Bank v. Smith, 66 N. Y. 271; and see the Pennsylvania cases in the next

note.

4 People's Bank v. Legrand, 103 Pa. 309, held if deposit insufficient it need not be applied, but gave indorser maker's right of set-off. First Nat. Bank v. Shreiner, 110 Pa. 188,

held that subsequent deposits, if insufficient, need not be applied; but Commercial Bank v. Henninger, 105 Pa. 496, and Germ. Nat. Bank v. Foreman, 138 Pa. 474, held that if the deposit was sufficient at the date of the maturity of the bill, it must be applied. But Mechanics' Bank v. Seitz, 150 Pa. 632, and First Nat. Bank v. Peltz, 176 Pa. 513, decide that the deposit must be sufficient at the maturity of the debt, and must be to the credit of the person primarily liable. It may be possible to induce some other court to accept these distinctions.

5 Flournoy v. National Bank, 79 Ga. 810.

6 Citizens' Nat. Bank v. Carson, 32 Mo. 191.

7 Mahaiwe Bank v. Peck, 127 Mass. 298; but Germ. Nat. Bank v. Foreman, 138 Pa. 474, denies the rule where the deposit remains a general deposit. See Wilson v. Dawson, 52 Ind. 513.

giving to the surety, where the drawer is insolvent, a set-off based upon his apparent subrogation to the rights of the depositor as they existed, presumably, at the date of the maturity of the claim.

8

§ 142. Right of bank to apply deposit on other demands. If a note be made payable at a bank, it has been said, without good reason, that the bank has no authority to pay it out of the maker's deposit without a direction to do so. But this rule is subject to the qualification, in those states which hold it, that if there is a custom to that effect known to the maker the bank may do so. If the deposit is made for the purpose of paying a particular note, the bank may so apply, unless before payment it is notified not to do so. As we have seen, such a deposit does not become necessarily the property of the person for payment of whose note it is deposited. A certification of a note payable at the bank is the same as the certification of a check. If payment be made of such a note by the bank, even though the

8 Armstrong v. Warner, 49 Ohio St. 376; Van Wenke Gin Co. v. Citizens' Bank, 89 Tex. 147. The last case is clearly wrong; the drawer was not insolvent. It practically holds that non-residence is equivalent to insolvency where the acceptor seeks to hold the bank for non-application of the drawer's deposit. See notes 5 and 6, supra.

1 Wood v. Merch. Trust Co., 41 Ill. 267; Ridgely Nat. Bank v. Patton, 109 Ill. 479. The case of Home Nat. Bank v. Newton, 8 Bradw. 563, does not establish a different rule in Illinois. It is considered at 1 Daniel, Neg. Inst. 326a, as doing so, but that is a total mistake, because the note in question was to the bank itself. Grissom v. Comm. Nat. Bank, 87 Tenn. 350. But the better rule is that it can. Riverside Bank v. First Nat. Bank, 74 Fed. R. 276 (an

able court); Ætna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 88; Indig v. Bank, 80 N. Y. 100; Griffin v. Rice, 1 Hilt. 184; Frances v. People's Bank, 1 Ohio N. P. 281. But if the bank pays, it may set the note off against the deposit. Bedford Bank v. Acoam, 125 Ind. 584; but Grissom v. Comm. Nat. Bank, 87 Tenn. 350, is contra. See § 173, post.

2 Grissom v. Comm. Nat. Bank, 87 Tenn. 350. But this is a general usage that every sane person ought to be held to know.

3 Bedford Bank v. Acoam, 125 Ind. 584.

4 Etna Nat. Bank v. Fourth Nat. Bank, 46 N. Y. 82. And see note 15 to § 136, ante.

5 Riverside Bank v. First Nat. Bank, 74 Fed. R. 276, and cases therein cited.