or latest one at his option. A corporation which succeeds a partnership and secures a novation as to orders for goods which had been secured by the partnership may, in the absence of directions as to application of payments, apply them on the accounts due the partnership, rather than on orders filled by it." The creditor's right to make the appropriation applies only where the debtor has had an opportunity of exercising his right; and if payments are made on his account by a third person, or in such a way as to impede his right, the rule does not apply.10 While a creditor may apply a general payment on a just and valid demand, whether the correctness thereof be assented to by the debtor or not, the debt must be an actual and existing one.11 The reason for this is that to allow a creditor to apply payments thus made to a debt which he claimed to have against the debtor, but the existence of which the latter denied, would be to compel him to pay, perhaps, a fraudulent claim which the creditor had set up against him, without the possibility of defending against it.12 While in general the creditor may apply a payment to suit his own interests,18 there are certain limitations to this right, which are discussed in the following paragraphs. In general the right of a creditor is subject to the limitation that the application be not inequitable and such as would under the circumstances work an injustice to the debtor.14

96. Time of Application.-By the civil law the right of a creditor to elect to appropriate to one of two or more accounts a payment made

Notes: 31 A. S. R. 265; 96 A. S. R. 49, 52; 12 L.R.A. 712; Ann. Cas. 1915B 698; Ann. Cas. 1917C 582; 3 U. S. (L. ed.) 137.

8. Note: 96 A. S. R. 50.

9. Holloway v. White-Dunham Shoe Co., 151 Fed. 216, 80 C. C. A. 568, 10 L.R.A. (N.S.) 704.

10. Note: 96 A. S. R. 54.

N. H. 283, 55 Am. Dec. 153; Baker 92 Wash. 52, 158 Pac. 740, L.R.A. v. Stackpoole, 9 Cow. (N. Y.) 420, 18 1917C 630; Devaynes v. Noble, 1 Am. Dec. 508 and note; White v. Meriv. 530, 15 Rev. Rep. 151, 3 Eng. Trumbull, 15 N. J. L. 314, 29 Am. Dec. Rul. Cas. 329. 687; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691 and note; Pardee v. Markle, 111 Pa. St. 548, 5 Atl. 36, 56 Am. Rep. 299; Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736; Baum v. Trantham, 42 S. C. 104, 19 S. E. 973, 46 A. S. R. 697; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004; Phillips v. Herndon, 78 Tex. 378, 14 S. W. 857, 22 A. S. R. 59; Putnam v. Russell, 17 Vt. 54, 42 Am. Dec. 478; Robie v. Briggs, 59 Vt. 443, 9 Atl. 593, 59 Am. Rep. 737; Smith v. Loyd, 11 Leigh (Va.) 512, 37 Am. Dec. 621 and note; Sturtevant Co. v. Fidelity, etc., Co.,

11. Massachusetts v. Western Union Tel. Co., 141 U. S. 40, 11 S. Ct. 889, 35 U. S. (L. ed.) 628.

Note: 96 A. S. R. 50. 12. Note: 96 A. S. R. 50. 13. Beck v. Haas, 111 Mo. 264, 20 S. W. 19, 33 A. S. R. 516.

14. Bacon v. Brown, 1 Bibb (Ky.) 334, 4 Am. Dec. 640; Phillips v. Herndon, 78 Tex. 378, 14 S. W. 857, 22 A. S. R. 59.

Note: 96 A. S. R. 49.

by the debtor was limited to the time of payment. If not exercised at that time, the creditor could not do so thereafter.15 In the absence of a contrary agreement between the parties, this rule prevails in jurisdictions wherein the jurisprudence is based on the civil law. Though the common law doctrines relating to the application of payments were evidently borrowed from the civil law, the civil law rule limiting the time within which a creditor may make an appropriation of a payment did not become incorporated into the common law. The early English decisions were conflicting as to the time when the creditor must appropriate the payment.16 But to the extent that the later English cases have established the rule that the appropriation need not be made by the creditor at the time of payment, they are in harmony with nearly all of the American decisions.17 The difficulty and conflict in the cases come in deciding the question as to what particular time after an undirected payment is made the creditor must make the appropriation or lose his right. Undoubtedly the rule that he must make the appropriation within a reasonable time thereafter meets the approval of most courts.18 In applying this rule there are wide differences between the courts. Many courts hold that a creditor cannot make the appropriation after controversy on the subject has arisen between the parties,19 and a fortiori not at the trial.20 The reason supporting this rule is that if a creditar is given the right to apply payments made without designation by the debtor up to the period of controversy, he has a reasonable time to exercise his privilege and fully protect his rights. To extend his period of election beyond this point might wrong the debtor and unfairly prejudice the rights of third persons. Other courts permit a wider

15. Notes: 96 A. S. R. 72; Ann. Cas. note; Grasser, etc., Brewing Co. v. 1913E 895.

16. Note: Ann. Cas. 1913E 895. 17. Alexandria v. Patten, 4 Cranch 317, 3 U. S. (L. ed.) 633.

Notes: 96 A. S. R. 72; 12 L.R.A. 712; Ann. Cas. 1913E 897.

18. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and note; White v. Trumbull, 15 N. J. L. 314, 29 Am. Dec. 687; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691.

Note: 96 A. S. R. 73.

19. United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U. S. 437, 24 U. S. (L. ed.) 176; American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and

Rogers, 112 Mich. 112, 70 N. W. 445, 67 A. S. R. 389; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244.

Notes: 96 A. S. R. 73; 12 L.R.A. 712.

20. United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U. S. 437, 24 U. S. (L. ed.) 176; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691.

Note: Ann. Cas. 1913E 898.

1. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889.

latitude and allow a creditor to make his election at any time befure action is commenced. These courts hold, as a necessary corollary of this rule, that the institution of the suit evidences the creditor's application of payments to items of the account other than those sued on. Still other courts will permit a creditor to make an appropriation of an undirected payment at any time before verdict or judgment.1

97.

make

Change of Application.-While a creditor is not obliged to an appropriation immediately the payment is made, still where he does appropriate the payment in a particular way he is bound by his act and cannot afterwards change the application without the consent of the debtor,6 for the law regards the rights of the parties as becoming fixed at the time the application is so lawfully made in so far as the original debtor and creditor alone are concerned. Therefore where there is no direction as to the application, and it is entered as a general credit on the general account, the creditor cannot make an application afterward to any specific part of the account to serve his interests as may be subsequently developed.s The parties may, of course, by mutual agreement change the application, and then the indebtedness first discharged is revived by law; but where a payment has once been applied toward the discharge of a particular claim it cannot afterwards be applied to another claim to the prejudice of third persons without their consent.10

9

98. Application to Illegal or Unenforceable Demand Generally.Although a creditor, in the absence of direction by his debtor, can apply a payment as he pleases, the great weight of authority supports the rule that he must confine the appropriation to valid and legal claims against the debtor, and that, without the consent of the debtor,

3. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 (stating the rule).

4. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and note (stating the rule); Baum v. Trantham, 42 S. C. 104, 19 S. E. 973, 46 A. S. R. 697 and note; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004.

Notes: 96 A. S. R. 73; Ann. Cas. 1913E 897.

5. See supra, par. 96.

6. Alexandria v. Patten, 4 Cranch 317, 2 U. S. (L. ed.) 633; Grasser, etc., Brewing Co. v. Rogers, 112 Mich.

112, 70 N. W. 445, 67 A. S. R. 389;

Sturtevant Co. v. Fidelity, etc., Co., 92

Wash. 52, 158 Pac. 740, L.R.A.1917C 630.

Notes: 96 A. S. R. 75; 12 L.R.A.

712.

7. Sturtevant Co. v. Fidelity, etc., Co., 92 Wash. 52, 158 Pac. 740, L.R.A.· 1917C 630.

8. Note: 96 A. S. R. 64; Ann. Cas. 1917C 589.

9. Note: 96 A. S. R. 76.
10. Note: 96 A. S. R. 76.
Note: Ann. Cas. 1917C 589.

he cannot apply a payment to an illegal demand.11 Thus a creditor, cannot apply a payment to a claim for forfeited interest.12 But inasmuch as a debtor may apply a payment to an illegal demand,13 he may ratify the act of his creditor in that regard.14 It is generally held that a creditor, receiving payments from his debtor without any direction as to their application, may appropriate them to any legal debt which he holds against him, even if such debt would not support an action because the law, without prohibiting the contracting of such a debt, has declared that no action shall be maintained on it.15 Thus in cases wherein no recovery could be had because the contract was not under seal, the courts have held that the creditor's appropriation of a debtor's undirected payment to such demands was proper.16 Likewise where the debt is unenforceable by the statute of frauds, a general payment may be appropriated by a creditor to such debt. But the view is maintained in some jurisdictions that the application of payments must be to such debts as the debtor is legally bound to pay and that a creditor has no right to apply them to the extinguishment of unenforceable demands without the debtor's consent. Accordingly it has been held that a creditor foreign corporation has no right, without the debtor's consent, to apply payments to its demands which are illegal and unenforceable because of noncompliance with the conditions upon which a foreign corporation is allowed to do business in the state.18

99. Barred Debt.-While there is some conflict in the cases a majority of the courts follow the rule that a creditor may appropriate a general payment to a debt barred by the statute of limitations.19 On the other hand it has been held that it will not be presumed that a debtor, in making a payment to a creditor who holds several debts against him, intended in making the payment that it should be applied to a nonenforceable debt or to impart life into the debts that were then dead, nor will the creditor be permitted so to apply the

11. Armour Packing Co. v. Vinegar 16. Notes: 12 L.R.A. 712; 13 Ann. Bend Lumber Co., 149 Ala. 205, 42 Cas. 953. So. 866, 13 Ann. Cas. 951. Notes: 13 Am. Dec. 506; 12 L.R.A.

712.

17. Haynes v. Nice, 100 Mass. 327, 1 Am. Rep. 109.

Notes: 96 A. S. R. 68; 13 Ann. Cas.

953. State

12. Danforth V. National Bank, 48 Fed. 271, 1 C. C. A. 62, 17 L.R.A. 622; Citizens Nat. Bank v. Froman, 111 Ky. 206, 63 S. W. 454, 757, 56 L.R.A. 673.

13. See supra, par. 94.

14. Notes: 13 Am. Dec. 506; 96 A.

S. R. 66.

15. Haynes v. Nice, 100 Mass. 327, 1 Am. Rep. 109.

Note: 13 Ann. Cas. 953.

18. Armour Packing Co. v. Vinegar Bend Lumber Co., 149 Ala. 205, 42 So. 866, 13 Ann. Cas. 951.

19. Blake v. Sawyer, 83 Me. 129, 21 Atl. 834, 23 A. S. R. 762, 12 L.R.A. 712 and note; Haynes v. Nice, 100 Mass. 327, 1 Am. Rep. 109; Sanborn v. Cole, 63 Vt. 590, 22 Atl. 716, 14 L.R.A. 208.

Notes: 96 A. S. R. 67; 12 L.R.A. 712; 13 Ann. Cas. 953.

payment, unless with the consent of the debtor.20 The authorities are not in harmony as to the effect of such appropriation by the creditor, the doctrine of one line of cases being that the payment should be pro tanto only and not revive the balance of the debt, while another line of cases maintains that if the creditor has the right to apply a payment to a barred debt the usual consequences must follow. This phase of the subject is discussed in another part of this work.1 Where the debts are all barred by the statute of limitations, there is no reason why one should be paid more than another, and the payment may be apportioned to them all.

3

100. Application in Part to Several Demands.-If a creditor holds several claims against his debtor, and the latter makes a payment without directing to which debt it shall be applied, the creditor may apply it equally to the payment of each debt, neither being barred by limitation. The qualification that none must be barred by limitation would not apply in jurisdictions wherein the creditor is permitted to apply a general payment to a barred debt. However, there is some support for the rule that a creditor cannot divide a payment and apply it on more than one debt, each one exceeding the payment in amount. This is on the ground that, although no application is directed, regard must nevertheless be had to the intention of the debtor, and that he cannot be presumed to have intended an application on more than one of the debts. But it is evident that this rule would not be controlling where the debtor had treated several notes as constituting one demand, and made the payment in that view.

101. Application as between Debts Due and Debts Not Due.-There is a strong presumption that payments, made without express direction. for some other application, were intended to apply on the matured debt. If neither party had designated the debt to which the payment should be applied, the law would make the application in accordance with such presumption. Indeed, in the absence of an express agreement or an application by the debtor, the trend of authorities is to the effect that, as between two debts, one due and one not due, the creditor has no choice, and the application must be on the former.8

20. Samuel v. Samuel, 151 Ky. 235, 151 S. W. 676, Ann. Cas. 1915A 278, 42 L.R.A. (N.S.) 1155.

1. See LIMITATION OF ACTIONS, vol. 17, p. 926.

2. Note: 96 A. S. R. 68.

3. Samuel v. Samuel, 151 Ky. 235, 151 S. W. 676, Ann. Cas. 1915A 278, 42 L.R.A. (N.S.) 1155; Beck v. Haas, 111 Mo. 264, 20 S. W. 19, 33 A. S. R. 516.

Note: 96 A. S. R. 50. 4. See supra, par. 99.

5. Sanborn v. Cole, 63 Vt. 590, 22 Atl. 716, 14 L.R.A. 208.

Note: 96 A. S. R. 51.

6. Sanborn v. Cole, 63 Vt. 590, 22 Atl. 716, 14 L.R.A. 208.

7. Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216 and note. Note: 96 A. S. R. 57.

8. McWhorter v. Bluthenthal, 136 Ala. 568, 33 So. 552, 96 A. S. R. 43: Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216 and note; Bacon v. Brown, 1 Bibb (Ky.) 334, 4 Am.