debtor to its principal for the amount which it has received; but some cases hold that the bank becomes a trustee.

53. INSOLVENCY OF BANK-The authority of the bank to collect is terminated upon its insolvency, and money thereafter received in payment, at least if the insolvency be known to the bank's officers, will be held in trust for the principal, who can recover it in preference to the bank's general creditors, if the fund can be traced into the hands of the bank's receiver.

54. BANK'S LIEN-A bank has a general lien upon paper deposited with it in the usual course of business for collection, and upon the proceeds of such paper, for any balance due to it from the customer upon general account.

Relation of Bank to Customer

When the bank has collected the paper, it becomes, as a rule, a debtor to the customer for the amount collected. In this respect a bank differs from an ordinary collecting agent, whose duty it is to keep the money of his principal separate from his own, and who holds the proceeds of collection in trust. The rule applicable to collections by banks arises from the usage of banks to mingle the proceeds of collection with their own funds.63 "One who collects commercial paper through the agency of banks must be held to impliedly contract that the business may be done according to their well

63 Commercial Nat. Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; First Nat. Bank v. Wilmington & W. R. Co., 77 Fed. 401, 23 C. C. A. 200; Freeman's Nat. Bank v. National Tube Works, 151 Mass. 413, 24 N. E. 779, 8 L. R. A. 42, 21 Am. St. Rep. 461; First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. E. 280, 41 Am. St. Rep. 795; National Bank of Commerce of Seattle v. Johnson, 6 N. D. 180, 69 N. W. 49. See "Banks and Banking," Dec. Dig. (Key No.) § 165; Cent. Dig. §§ 571-885.

known usages, so far as to permit the money collected to be mingled with the funds of the collecting bank.” 64 From this it follows that, when the paper has been collected, the relation changes from that of agent and principal to that of debtor and creditor. If, after collection, the bank becomes insolvent, the customer has simply the rights of a general creditor, without preference over the other creditors. This distinction is lost. sight of by some cases, which hold that the collecting bank is a trustee.67 In these cases, for the most part, the question

65

66

64 Freeman's Nat. Bank v. National Tube Works, 151 Mass. 413, 24 N. E. 779, 8 L. R. A. 42, 21 Am. St. Rep. 461. See "Banks and Banking," Dec. Dia. (Key No.) § 165; Cent. Dig. §§ 571–585.

65 Commercial Nat. Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; First Nat. Bank v. Bank of Monroe (C. C.) 33 Fed. 408; Anheuser-Busch B. Co. v. Clayton, 56 Fed. 759, 6 C. C. A. 108; First Nat. Bank v. Wilmington & W. R. Co., 77 Fed. 401, 23 C. C. A. 200; Tinkham v. Heyworth, 31 Ill. 519; Union Nat. Bank v. Citizens' Bank, 153 Ind. 44, 54 N. E. 97; People v. City Bank of Rochester, 93 N. Y. 582; National Butchers' & Drovers Bank v. Hubbell, 117 N. Y. 384, 22 N. E. 1031, 7 L. R. A. 852, 15 Am. St. Rep. 515; First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. E. 280, 41 Am. St. Rep. 795; North Carolina Corporation Commission v. Merchants' & Farmers' Bank, 137 N. C. 697, 50 S. E. 308; Akin v. Jones, 93 Tenn. 353, 27 S. W. 669, 25 L. R. A. 523, 42 Am. St. Rep. 921; Klepper v. Cox, 97 Tenn. 534, 37 S. W. 285, 34 L. R. A. 536, 56 Am. St. Rep. 823; Bowman v. First Nat. Bank, 9 Wash. 614, 38 Pac. 211, 43 Am. St. Rep. 870; Hallem v. Tillinghast, 19 Wash. 20, 52 Pac. 329; Peters' Shoe Co. v. Murray, 31 Tex. Civ. App. 259, 71 S. W. 977. See "Banks and Banking," Dec. Dig. (Key No.) § 165; Cent. Dig. §§ 571–585. 66 Commercial Nat. Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; Franklin County Nat. Bank v. Beal (C. C.) 49 Fed. 606; Union Nat. Bank v. Citizens' Bank, 153 Ind. 44, 54 N. E. 97; State ex rel. Girardey v. Southern Bank, 33 La. Ann. 957; Billingsley v. Pollock, 69 Miss. 759, 13 South. 828, 30 Am. St. Rep. 585; People v. City Bank of Rochester, 93 N. Y. 582. See "Banks and Banking," Dec. Dig. (Key No.) §§ 166, 167; Cent. Dig. §§ 574-586. 67 Winstanley v. Second Nat. Bank, 13 Ind. App. 544, 41 N. E. 956 (but see Union Nat. Bank v. Citizens' Bank, 153 Ind. 44, 54 N. E. 97); Nurse v. Satterlee, 81 Iowa, 491, 46 N. W. 1102; Kansas State

was presented where a collection had been before the insolvency of the bank, and the discussion was mainly directed to the question whether the fund could be traced into the assets of the bank or into the hands of its receiver; a trust relation being taken for granted. Of course, the bank will be held to be a trustee if it appears that such was the understanding." Instructions to Remit

68

Where the customer is a depositor of the collecting bank, the proceeds are ordinarily credited to his account and become subject to his check. If the paper is forwarded to the collecting bank with instructions to remit, it seems that the general rule should prevail; for it is the usage of banks not to keep separate and remit the very money collected, but to mingle the money with their own funds as in other cases and to remit by exchange; that is, by a draft, usually its own check, upon another bank in New York or some convenient banking center." In such cases, therefore, many cases hold that where paper is forwarded for collection and remittance, as well as where it is forwarded for collection and credit, the relation

Bank v. First State Bank, 62 Kan. 788, 64 Pac. 634; AnheuserBusch B. Ass'n v. Estate of Farmers' & M. Bank, 36 Neb. 31, 53 N. W. 1037; Thompson v. Gloucester City Sav. Inst. (N. J.) 8 Atl. 97; McLeod v. Evans, 66 Wis. 401, 28 N. W. 173, 214, 57 Am. Rep. 287 (overruled on a point involving identification of fund Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N. W. 383).

Where the collection is for a stranger, a trust attaches. Plano Mfg. Co. v. Auld, 14 S. D. 512, 86 N. W. 21, 86 Am. St. Rep. 769 (cf. McCormick Harvesting Mach. Co. v. Yankton Sav. Bank, 15 S. D. 196, 87 N. W. 974). See "Banks and Banking," Dec. Dig. (Key No.) §§ 165, 166, 167; Cent. Dig. §§ 571-586.

68 Continental Nat. Bank v. Weems, 69 Tex. 489, 6 S. W. 802, 5 Am. St. Rep. 85. See "Banks and Banking," Dec. Dig. (Key No.) §§ 165-170; Cent. Dig. §§ 571-596.

69 Farmers' Bank & Trust Co. of Stanford v. Newland, 97 Ky. 464, 31 S. W. 38; Bowman v. First Nat. Bank, 9 Wash. 614, 38 Pac. 211, 43 Am. St. Rep. 870. See "Banks and Banking," Dec. Dig. (Key No.) § 165-170; Cent. Dig. §§ 571-596.

71

after collection is simply that of debtor and creditor.70 Other cases hold, however, that in such cases a trust relation arises." It seems that these cases ignore banking usages, which, in the absence of evidence of a different understanding, impliedly become part of the contract, and that something more than mere instruction to remit is required to show a different understanding and to create a trust relation, as, for example, an understanding that the proceeds are to be preserved as the property of the customer and returned to him as such.72

Insolvency of Bank

A bank has no right to receive paper for collection when it is insolvent. Such conduct, if the insolvency be known to its officers, is a fraud. While the paper remains uncollected, the customer can demand it back from a receiver of the bank.73

70 First Nat. Bank v. Wilmington & W. R. Co., 77 Fed. 401, 23 C. C. A. 200; G. Ober & Sons Co. v. Cochran, 118 Ga. 396, 45 S. E. 382, 98 Am. St. Rep. 118; Union Nat. Bank v. Citizens' Bank, 153 Ind. 44, 54 N. E. 97; First Nat. Bank of Richmond v. Davis, 114 N. C. 343, 19 S. E. 280, 41 Am. St. Rep. 795; Akin v. Jones, 93 Tenn. 353, 27 S. W. 669, 25 L. R. A. 523, 42 Am. St. Rep. 921. See, also, Philadelphia Nat. Bank v. Dowd (C. C.) 38 Fed. 172, 2 L. R. A. 480; Merchants' & Farmers' Bank v. Austin (C. C.) 48 Fed. 25. See "Banks and Banking," Dec. Dig. (Key No.) §§ 165-170; Cent. Dig. 88 571-596.

71 Boone County Nat. Bank v. Latimer (C. C.) 67 Fed. 27 (semble); Holder v. Western German Bank, 136 Fed. 90, 68 C. C. A. 554 (semble); Hutchinson v. National Bank, 145 Ala. 196, 41 South. 143; Wallace v. Stone, 107 Mich. 190, 65 N. W. 113; Griffin v. Chase, 36 Neb. 328, 54 N. W. 572. See "Banks and Banking," Dec. Dig. (Key No.) §§ 165-170; Cent. Dig. §§ 571-596.

72 Continental Nat. Bank v. Weems, 69 Tex. 489, 6 S. W. 802, 5 Am. St. Rep. 85. See "Banks and Banking," Dec. Dig. (Key No.) §§ 165170; Cent. Dig. 88 571-596.

See

73 Richardson v. Denegre, 93 Fed. 572, 35 C. C. A. 452. "Banks and Banking," Dec. Dig. (Key No.) §§ 166, 167; Cent. Dig. §§ 574-586.

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If the bank or the receiver collects the paper, it or he will hold the proceeds as constructive trustee for the customer, who may recover the amount from the receiver, provided the funds can be sufficiently identified and traced into the receiver's hands, but not otherwise." If the bank becomes insolvent after receiving the paper, the agency to collect is thereby revoked, and the paper does not pass to the bank's receiver; and if it be collected by the bank, and the proceeds afterwards come into the hands of the receiver, or if it be collected by him, he will hold the proceeds as trustee for the customer. If the paper has been forwarded by the depositary bank for collection to another bank, which collects it when the depositary bank is insolvent, the customer may re

74 St. Louis & S. F. Ry. Co. v. Johnston, 133 U. S. 566, 10 Sup. Ct. 390, 33 L. Ed. 683; Illinois Trust & Savings Co. v. First Nat. Bank (C. C.) 15 Fed. 858; Beal v. National Exch. Bank of Dallas (C. C.) 50 Fed. 355; Id., 55 Fed. 894, 5 C. C. A. 304; Western German Bank v. Norvell, 134 Fed. 724, 69 C. C. A. 330; Henderson v. O'Conor, 106 Cal. 385, 39 Pac. 786; Showalter v. Cox, 97 Tenn. 547, 37 S. W. 286; Bruner v. First Nat. Bank, 97 Tenn. 540, 37 S. W. 286, 34 L. R. A. 532 (cf. Sayles v. Cox, 95 Tenn. 579, 32 S. W. 626, 32 L. R. A. 715, 49 Am. St. Rep. 940). Post, p. 354. See "Banks and Banking," Dec. Dig. (Key No.) §§ 166, 167; Cent. Dig. §§ 574-586.

75 In re Seven Corners Bank, 58 Minn. 5, 59 N. W. 633; Frank v. Bingham, 58 Hun, 580, 12 N. Y. Supp. 767; Freiberg v. Stoddard, 161 Pa. 259, 28 Atl. 1111; Nonotuck Silk Co. v. Flanders, 87 Wis. 237, 58 N. W. 383 (overruling McLeod v. Evans, 66 Wis. 401, 28 N. W. 173, 214, 57 Am. Rep. 287). See "Banks and Banking," Dec. Dig. (Key No.) §§ 166, 167; Cent. Dig. §§ 574-586.

76 Commercial Nat. Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363; German-American Nat. Bank v. Third Nat. Bank, Fed. Cas. No. 5,359; Levi v. National Bank, Fed. Cas. No. 8,289, 5 Dill. 104; National Butchers' & Drovers' Bank v. Hubbell, 117 N. Y. 384, 22 N. E. 1031, 7 L. R. A. 852, 15 Am. St. Rep. 515; Bank of Clarke County v. Gilman, 81 Hun, 486, 30 N. Y. Supp. 1111; Guignon v. First Nat. Bank, 22 Mont. 140, 55 Pac. 1051, 1097. See "Banks and Banking," Dec. Dig. (Key No.) §§ 166, 167; Cent. Dig. §§ 574-586.

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