As we have already seen, the insolvency of a bank revokes its power as to a collection.1 The principle applies also as between banks which are in correspondence as to a collection in remitting the proceeds.2 If the person liable upon the paper has paid the collection to the collecting bank, or to one of its correspondents or sub-correspondents, the owner of the collection is in the following situation in a case of insolvency: If it be the initial bank which becomes insolvent, with the funds of collection having reached it, he is a general creditor or a special depositor, as his contract of collection or course of dealing may determine.3 If the proceeds have not been received by the initial bank, he is fully protected against any payment to it by a correspondent bank;4 for if the correspondent bank tries to remit by credit to the insolvent bank, the credit is wholly nugatory as to the owner, whether the correspondent bank had notice of the insolvency or not.5 If it does actually remit the proceeds in the form of money or a draft, the insolvent bank or its receiver or assignee becomes a trustee for the owner.6 But the owner is exposed to the danger, if his indorsement to the initial bank was for tion against the initial bank if it has notice. Louisiana Ice Co. v. State Nat. Bank, 1 McGloin, 181.

1 See Sec. 174, ante, and Evansville Bank v. Germ. Am. Bank, 155 U. S. 556.

2 See the last case cited 3 See Sec. 133, ante,

4 Evansville Bank v. Germ. Am. Bank, 155 U. S. 556; Beal v. National Ex. Bank, 55 Fed. R 894, 5 U. S App. 376; National Ex. Bank v. Beal, 50 Fed. R 355; Bank of Clarke Co. v. Gilman,152N. Y. 634; Peck v. First Nat. Bank, 43 Fed. R 357. The case of Ayres v. Farmers' Bank, 79 Mo. 421, is wrong on this point; and Castle v. Corn Ex. Bank, 148 N. Y. 122, is wrong because the initial bank was insolvent and the secondary bank credited it, even after knowledge of the fact The opinion misses this point and is otherwise lamentably feeble and inconclusive. Branch v. U. S. Nat. Bank, 70 N. W. R 34, is correct on the principle.

5 Evansville Bank v. Germ. Am. Bank, 155 U. S. 556.

6 In re Armstrong, 33 Fed. R 405; Beal v. Somerville, 50 Fed. R 647; Commercial Nat. Bank v. Armstrong, 148 U. S. 50; Fifth Nat. Bank v Armstrong, 40 Fed. R 46. The case of First Nat. Bank v. Armstrong, 39 Fed. R 231, was wrongly decided. Anheuser-Busch Ass'n v. Clayton, 56 Fed. R 759, recognizes the rule. The insolvent bank having received the proceeds by credcredit or general, and the correspondent had no other notice, that the correspondent bank may hold the proceeds for the initial bank's debt to it, which it could do only when it had given credit on this particular paper or has a lien by agreement or a course of dealing.7 If the primary bank does obtain the benefit of the proceeds of his paper by a lawful retention thereof by a correspondent bank, the owner has either a claim as general depositor,8 or as special depositor, dependent upon the terms of his agreement for collection or the course of dealing,9 or dependent upon the fact that the initial bank was insolvent when it took the deposit for collection.10 But in those states which consider a deposit of paper for credit a transfer to the initial bank, the holder is only a general creditor, with a deposit such as any other depositor has. If it is the secondary bank that becomes insolvent with the right to retain the proceeds as against the initial bank, the holder is protected, because the initial bank has received the proceeds. If the secondary bank becomes insolvent before the proceeds of the collection are paid to it by a sub-correspondent bank, he has the same protection that he has against the secondary bank with the initial bank insolvent. If the secondary bank becomes insolvent having the proceeds of the collection in its hands, the holder is . fully protected in those jurisdictions which recognize the responsibility of the initial bank for its correspondent bank's default.11 In those states which deny this responsibility, he would have either a claim as general creditor or as special depositor, dependent upon the same conditions as would make him a special depositor in the initial bank,12 except iting the depositor cannot make him a general creditor. Armstrong v. National Bank, 90 Ky. 431.

7 See Sec. 188, ante.

8 Anheuser-Busch Ass'n v. Clayton, 56 Fed. R. 759.

9SeeSec. 133, ante.

10 See Sec. 188, ante. The owner may always claim the thing obtained by the collecting bank instead of money. Germ. Am. Bank v. Third Nat. Bank, Fed. Cas. No. 5359.

11 See Sec. 181, ante. But the primary bank would generally cause the owner of the collection to reclaim it from the insolvent secondary bank. It is liable itself. First Nat. Bank v. First Nat. Bank, 75 N. W. R 843.

12 If the primary bank held the in those states which have the further rule that a deposit for credit is a transfer of the paper to the bank. But it would seem to be right to hold that if the secondary bank becomes insolvent in those states and has at the time the proceeds of collections in its hands, the real owner of the collection could claim that he was a special depositor in the secondary bank, whenever the initial bank can claim a special deposit owing to the form of the indorsements on the paper or other notice.13 The difficulty that arises in such cases shows the absurdity of the rule that the initial bank is not responsible for the correspondent bank's default. As between banks, if the primary bank becomes insolvent owing the secondary bank, this latter bank with the proceeds of collection in its hands can hold them as against the initial bank,14 but the real owner can compel payment to himself unless the secondary bank can show itself to be a bona fide claimant of the proceeds.15 If it cannot show itself to be a bona fide claimant, the owner of the collection will, of course, force it to make payment to him rather than trust himself to the chances of recovering from an insolvent bank.16 If it is the secondary bank that becomes insolvent having credited the proceeds of the collection to the primary bank, the latter bank has only the claim of a general depositor.17 If it paper for collection, the so-called agent could get no better or higher right, except as a bona fide claimant for its own claims.

13 There seems to be no case except Bury v. Woods, 17 Mo. App. 245 (see also Foster v. Eincker, 4 Wyo. 484), which recognizes the rule. One case goes so far as to hold that crediting another bank is not paying it Boyken v. Bank of Fayette-ville, 118 N. C. 566. The decision is correct, no doubt, upon the whole question involved. This particular language is opposed to First Nat. Bank v. Davis, 114 N. C. 343.

14 In re Armstrong, 41 Fed. R 381.

This is not a case of an illegal preference, because the collecting bank has a lien upon the proceeds. In this case the secondary bank simply credited the initial bank on what the latter owed to it.

15 See Sec. 188, ante.

16 Such cases are Evansville Bank v. Germ Am. Bank, 155 U. S. 556; Imp. & Trad. Bank v. Peters, 123 N. Y. 272.

17 Continental National Bank v. Weems,69 Tex.489. That it has been credited to the original depositor by the primary bank can make no difference. It has become responsible to him by having received the can show, however, that the proceeds of the collection were to be held by the secondary bank as a special deposit for it, the initial bank may claim to be a special depositor,18 or if it can show that the secondary bank was insolvent when it took the deposit, the reason of the rule requires that the initial bank should be considered a special depositor.19 But there are some jurisdictions which hold the untenable rule, as we shall hereafter see, that although the owner of a collection can claim a trust by reason of the character in which a bank holds the proceeds of a collection, nevertheless if the trustee so called or bailee has been quick enough to mingle the trust fund with his own property the priority is lost. The doctrine needs but to be stated to show its essential unsoundness.20

Weems, 69 Tex. 489; Hunt v. Town-send, 26 S. W. R. 310.

19 See Sec. 188, ante, as to this rule between depositor and primary bank. It would also apply as between banks.

20 See Sec. Sec. 343, 844, post