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. 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. Cumber land 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 III. 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, 105 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.

7Mahaiwe 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.

§ 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.3 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 IIL. 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); Etna 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.

bank acted under a clear mistake as to the state of the depositor's account, it is final. But payment through a clearing-house is provisional only, and may be rescinded on the ground of mistake."

§ 143. Payment by the bank of deposit.-The duty of the bank to its depositor is in some way to make payment. We have indicated certain methods by which this is done, as, for instance, by payment to the true owner, by payment to the assignee, by payment to the depositor's creditor under legal process, by payment to the personal representative, by payment to itself in discharge of its own claims, and by payment upon other claims payable at the bank. But there are other methods of paying, such as by remittances, and finally by payments upon checks. A remittance to a distance is said to be at the risk of the depositor. Generally the depositor gives his own check to the bank, and the bank remits the amount, or he simply deposits a sum to be transferred, getting a draft. In either case, at whose risk is the transfer? is a vexed question. But it would seem that if the bank itself undertakes to remit it must bear the loss,2 but if the remitter purchases a draft upon the other bank which he himself sends, the draft is not payment until it is paid itself.3 Com

6 Riverside Bank v. First Nat. Bank, supra, and cases therein cited.

7 Nat. Ex. Bank v. National Bank of North America, 132 Mass. 147. But see § 158, post.

1 Jung v. Second Ward Sav. Bank, 55 Wis. 364. This case seems to be the only known instance where a court was so deluded as to hold that payment to a forger upon a forged indorsement was actual payment of the deposit where the depositor was not to blame. The court cited as its authority Graves v. Am. Ex. Bank, 17 N. Y. 205, which exactly contradicts the opinion.

2 Cutler v. Am. Ex. Nat. Bank, 113 N. Y. 593. See Weedsport Bank v. Park Bank, 41 N. Y. 561. The point is as to when the transaction is complete so that the funds are really transmitted and put to the credit either of the transmitter or the person designated by him.

3 But this proposition is denied in Ex parte Jones, 77 Ala. 330, to the extent that the depositor having taken a draft ceases to be a depositor, and if the draft is not paid cannot rescind and claim to be a depositor. But if the bank had been guilty of a fraud, the rule would be different. Compare Hogue v. Edwards, 9 Bradw. 148,

8

ing now to the payment by the bank itself through the medium of checks, the engagement of the bank to its depositor is to pay the deposit, if it is not a time deposit, upon demand, and there can be no default until a demand is made." A check upon the bank duly presented is a demand. The bank can only refuse to pay the deposit (1) when it has not sufficient credit to the drawer to pay the whole check;7 (2) when it has notice of the fact that the deposit does not belong to the drawer; (3) when it is put upon inquiry as to the fact that funds deposited, but known to the bank to be trust funds, either by the form of the deposit or in some other way, are being misappropriated; but a deposit deposited by the trustee to himself as trustee must be paid out on the check of the trustee; 10 and if the deposit is to the credit of some one as agent, and the bank knows or ought to know who is principal, it cannot pay on the check of the agent; but it is said if nothing appears as to the principal the bank may pay on the check of the agent; 12 (4) when it has notice of an assignment or has accepted or certified checks to the

263. This case is a very peculiar one. The holder of a check obtained a draft for his check, which was payable in exchange. A remedy was refused the holder under the Illinois rule because the check was not payable in money. But the court recognizes that the checkholder still has a claim upon the drawer of the check. See note 30, § 147, post.

4 Ward v. Johnson, 95 Ill. 215. 5 Girard Bank v. Bank of Penn Township, 39 Pa. 92.

• But it is not the only form of a demand. Citizens' Bank v. Harrison, 127 Ind. 128.

7 Coates v. Preston, 105 Ill. 470; Pabst Brewing Co. v. Reeves, 42 Ill. App. 154. Contra, Bromley v. Comm. Nat. Bank, 9 Phila. 522. But the bank may agree to pay pro tanto.

9

11

Dana v. Third Nat. Bank, 95 Mass. 445.

8 See § 134, ante.

9 See $$ 135, 136, ante.

10 Ihl v. St. Joseph Bank, 26 Mo. App. 129. But see Munnerlyn v. Augusta Bank, 88 Ga. 333. But bank is bound if it has agreed to apply trust money to individual debt of the trustee. Sayre v. Weil, 94 Ala. 466. See § 135, ante, note 14. 11 See § 135, ante, notes 8 and 9. 12 Patterson v. Marine Bank, 130 Pa. 419; Citizens' Bank v. Alexander, 120 Pa. 476; Lockhaven Bank v. Mason, 95 Pa. 113; German Bank v. Himstedt, 42 Ark. 62. The language, but not the actual decision, in Honig v. Pacific Bank, 73 Cal. 464, is contra. And see § 135, note 8, ante, which states the better rule.

amount of the deposit; 13 (5) when it has notice of a lien upon the deposit; 14 (6) when it has notice of the death of the depositor; 15 (7) when it has notice of the insolvency of the depositor; 16 (8) when it has itself appropriated or has a valid lien upon the deposit for a claim paid to itself or to some one else." The above cases constitute the exceptions to the necessity for payment by the bank when it has funds to the credit of the depositor. Otherwise the bank is estopped to dispute its depositor's title," nor can it set up any illegality in the method by which the depositor acquired the moneys deposited. Where the bank, however, has notice of an adverse claim, it may exact indemnity as a condition of paying the check.20 If there are separate accounts the bank must regard these separate funds." The fact that the original deposit was in notes taken as cash, which have depreciated in value, makes no difference, though there be a custom to the contrary; the bank must bear the loss in the case of a general deposit. It must pay the check in current funds,23 but if the money has been confiscated by the government it has

13 See § 146, notes 14 and 15, and § 150. The certification takes so much money from the depositor's account. It is an assignment to the bank.

14 See § 137. ante.

15 See § 138, ante.

16 See § 139, ante.

17 See SS 140, 141, ante.

18 Citizens' Bank v. Alexander, 120 Pa. 476; Martin v. Minnekahta Bank, 7 S. D. 263.

Paine, 43 Ill. 432. But payment in treasury notes is good where the state law requires the deposit to be paid in gold and silver. Reynolds v. Bank of State, 18 Ind. 467. The legal tender cases affirmed this ruling. Custom cannot prescribe a legal tender different from that fixed by law. Thompson v. Riggs, 5 Wall. 663; Marine Bank v. Chandler, 27 Ill. 525. General deposits are payable in current funds. Gumbel

19 Porter v. Sher. Co. B'g Co., 40 v. Abrams, 20 La. Ann. 568; Fort Neb. 274. v. Bank of Cape Fear, 61 N. C. 417;

20 Starr v. York Nat. Bank, 55 Pa. Ruffin v. Orange Co. Comm'rs, 69 364. N. C. 498. Deposit of Confederate

21 Voight v. Lewis, Fed. Cas. No. notes not a deposit of money. Fos16,989.

22 Marine Bank v. Chandler, 27 Ill. 525. See Chicago Marine Co. v. Carpenter, 28 Ill. 360; Osgood v. McConnel, 32 Ill. 74; Willets v.

́ter v. Bank of New Orleans, 21 La. Ann. 338. Contra, Dabney v. Bank of State, 3 S. C. 124, as to the value deposited.

23 Marine B'k v. Chandler, 27 Ill. 525.