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.1 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,2 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.4 There 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.4 It makes no difference how the claim arises, whether it be against the depositor alone or against himself and wife,5 or against him as indorser or guarantor of a matured note, provided the maker or principal debtor is insolvent.6 But if the debt is fully secured the bank may not apply the deposit,7 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.8 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;9 but the better view of the 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.11 But death is not equivalent to insolvency; yet if the depositor died insolvent12 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.14 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 attachment16 or against an assignment.17 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 presentation, no set-off exists in favor of the bank as against a bonafide holder of the check;21 and in other states it is held that the right of set-off does not exist as against hona 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,24 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.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

1 Laclede Bank v. Schuler, 120 U. S. 511.

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.

But even in the states which recognize the presentment of the check as giving the right to sue, the United States courts in bankruptcy must refuse to recognize the state rula

3 The English statute, 12 and 13 Vict, ch. 106, Sec. 133, so provides.

4 See the last section for those states, note 9. Fourth Nat. Bank v. City Nat. Bank, 68 I1L 898. 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.5 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.