latitude and allow a creditor to make his election at any time before 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.⭑ 97. Change of Application.-While a creditor is not obliged to make 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, 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.8 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 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, 2. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and note (stating the rule); Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244. Notes: 96 A. S. R. 72; 12 L.R.A. 712. 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. Note: Ann. Cas. 1917C 589. But he cannot apply a payment to an illegal demand.11 Thus a creditor cannot apply a payment to a claim for forfeited interest.12 inasmuch as a debtor may apply a payment to an illegal demand 18 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.17 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 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. 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 payinent 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. 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, Atl. 716, 14 L.R.A. 208. Note: 96 A. S. R. 51. 22 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. And further a creditor cannot retain a payment to apply on future demands, leaving a prior debt unpaid." 102. Secured and Unsecured Demands.-The general rule being 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 his debtor,10 a creditor holding secured and unsecured claims may apply an undirected payment to an unsecured claim,11 and is not bound to a pro rata application of it.12 Accordingly it has been held that where a mortgage does not cover the rents and profits of the land embraced in the mortgage and such rents and profits are assigned to the mortgagee, he may apply them in payment of an unsecured note held by him against the mortgagor in the absence of any direction from the latter as to the application of such payments.13 Applying the same principle, it has been held that a creditor who holds two obligations, one of which is an individual obligation and the other of which is a joint obligation of the same debtor, may apply to either obligation, as suits his pleasure, an undirected general payment made by the debtor.14 But where there are distinct demands against a firm, and the individuals of the firm, if money of the partners is paid it cannot be applied to the individual debt; and so, vice versa, a payment by the individual cannot be credited to the partnership account, unless there is evidence of consent. 15 There may be peculiar circumstances, however, under which the creditor will be compelled to apply a general payment to a secured demand. Thus it has been held that a vendor holding a condition sale instalment note against his vendee, and also a demand note, is bound, in the absence of express directions, to presume that subsequent payments are intended to be applied to the first note, where the condition of the sale will be broken if the instalments are not paid, where two instalments were paid before the demand note was given and no demand of payment of the second note was made.16 9. Baker v. Stackpoole, 9 Cow. (N. Y.) 420, 18 Am. Dec. 508. 10. See supra, par. 95. 11. Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216; Wood v. Callaghan, 61 Mich. 402, 28 N. W. 162, 1 A. S. R. 597; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004; Puget Sound State Bank v. Gallucci, 82 Wash. 445, 144 Pac. 698, Ann. Cas. 1916A 767. Notes: 38 A. S. R. 104; 96 A. S. R. 50; 12 L.R.A. 712. 12. Wood v. Callaghan, 61 Mich. 402, 28 N. W. 162, 1 A. S. R. 597. 13. Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736. 14. McBride v. Noble, 40 Colo. 372, 90 Pac. 1037, 13 Ann. Cas. 1202. Notes: 96 A. S. R. 53; Ann. Cas. 1917C 583. 15. Baker v. Stackpoole, 9 Cow. (N. Y.) 420, 18 Am. Dec. 508. Notes: 96 A. S. R. 52; Ann. Cas. 1917C 584. 16. Cavanaugh v. Marble, 80 Conn. 389, 68 Atl. 853, 15 L.R.A. (N.S.) 127. 103. Money Derived from Particular Source or Fund.-Another limitation put on the power of the creditor to apply payments is that where money is derived from a particular source or fund it must be applied to the relief of the source or fund from which it was derived. Hence when money is derived from a foreclosure sale of property given to secure the payment of a particular debt it must be applied in extinguishment of that claim without any direction from the debtor.18 However, a mortgagor, if he sees proper, may consent to adopt or ratify an unauthorized application of payment made by his mortgagee creditor of the proceeds of mortgaged property to an unsecured debt. Whether the mortgagor has consented to either is a question of fact to be determined by the jury, and the burden is on the mortgagee, in either case, reasonably to satisfy the jury of such consent or ratification.19 But the rules which bind the mortgagee who sells on foreclosure, or takes possession of and sells and converts the security, have little application to a case where the payment is made from money obtained by a voluntary sale by the inortgagor. In the latter case the lien of the mortgage does not follow or attach to the money, and the mortgagee has no recourse on any other person to whom such moneys may be paid. In the hands of the mortgagor they have no character different from moneys derived from a wholly different source; and when paid over to the mortgagee in the absence of agreement or direction as to their application, the latter has the right to credit them on the unsecured debt without regard to the source from which they were obtained by the debtor.20 By Court 104. In General.-Both debtor and creditor having failed to direct the application of a payment, the authorities unanimously hold that this duty devolves on the court, according to the justice and equity 17. Sturtevant Co. v. Fidelity, Co., 92 Wash. 52, 158 Pac. L.R.A.1917C 630. Note: 96 A. S. R. 53. etc., 1. Field v. Holland, 6 Cranch 8, 3 U. S. (L. ed.) 136; United States v. January, 7 Cranch 572, 3 U. S. (L. ed.) 443; United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; Backhouse v. Patton, 5 Pet. 160, 8 U. S. (L. ed.) 82; United States v. Irving, 1 How. 250, 11 U. S. (L. ed.) 120; Jones v. United States, 7 How. 681, 12 U. S. (L. ed.) 870; National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U. S. 437, 24 U. S. (L. ed.) 176; McWhorter v. Bluthenthal, 136 Ala. 568, 33 So. 552, 96 A. S. 116 R. 43; Union School Dist. v. Bishop, 76 Conn. 695, 58 Atl. 13, 66 L.R.A. 18. Boyd v. Jones, 96 Ala. 305, 11 So. 405, 38 A. S. R. 100; Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302; Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736 and note. See MORTGAGES, vol. 19, p. 656 et seq. 19. Boyd v. Jones, 96 Ala. 305, So. 405, 38 A. S. R. 100. 20. Cain v. Vogt, 138 Ia. 631, N. W. 786, 128 A. S. R. 216 R. C. L. Vol. XXI.—7. 11 ! 97 |