I (jjornpll lUm irlionl Bbraty irRRITTKCiO, 1 -...,'.;.t..iOr f Attorney and ^ '.-""■ ^:(' j.^'i ..*■', ', Corner Sta'i arid ' loga Streets IT HAG A.N. Y. Cornell University Library KF 1501.M96 A treatise on the application of payment 3 1924 019 204 720 »1 Cornell University Library The original of tiiis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019204720 A TREATISE APPLICATION OF PAYMENTS BY DEBTOR TO CREDITOR; BEING A COMPLETE COMPILATION OF THE LAW PERTAINIIG TO THE RIGHTS OF DEBTOR AND CREDITOR RESPECTIVELY; AND ALSO GITINQ THE VARIOUS EULES FOR THE GUIDANCE OF THE COURTS WHEN NO APPROPRIATION HAS BEEN MADE BY THE PARTIES. ^„ BY >-\ GEORGE G. MUNGBE, LATE JUDGE OF MONROE COUNTY, NEW YORK, ^f NOV f! NEW YORK: BAKER, VOORHIS &* CO., LAW PUBLISHERS, 66 NASSAU STKEET. 1879. -M^^-2:5 t^l^ 43 Copyright, ISIQ, by Geoege G. MmfOEE. Bakbk 4 GoDwra, Psiktbrs, No. 25 Park Row, N. Y. PEEFACE The actual professional wants of the author furnished the suggestion of writing this book. Having occasion, a short time ago, to make a pretty thorough examination of the, principles regulating the ap- plication of payments by debtor to creditor, he found the learning upon the subject in a very fragmentary con- dition. He discovered that not only was there no separate treatise embodying the law in clear and concise form, but even that there was not any systematic and exhaustive col- lection of its doctrines and rules anywhere. A chapter, of greater or less length, in some work com- prising a wide range of subjects, where none received more than a general treatment ; a note in some book of cases displaying more or less industry in collecting the authorities, but without much attempt at method or arrangement, and o,ne or two magazine articles, summed up all that had been written upon the subject. For any further investigation recourse must be had to the digests or to the reports them- selves. It seemed as if this was hardly the condition that a branch of the law should be in which has held a position of considerable prominence for more than a hundred and fifty years in the English courts, and, from the very first, in the courts of this country — the cases on which are numbered far into the hundreds. It seemed as if there iv PBEFAOE. was room for a work wMcli should go considerably farther than any has as yet proceeded, and which should lay before the practitioner and the 'student all that is interesting or useful to know upon this topic. It is apprehended that no plea in support of the value of a study of this subject is necessary. Eyery business man or individual charged with the management of property of his own or of others, ought to have correct general notions in regard to it ; whilst every practising lawyer should possess an accurate knowledge of its origin and history, and a thorough insight into all its rules and principles. More especially is this necessary in commercial com- munities where the transactions among men are more varied and complex than in simpler states of society, and where the questions arising out of business dealings become more and more complicated and subtle for the practitioner. It will be noticed, in looking through the following pages, that the cases vary in number and importance with the greater or less commercial character of the community. The law upon this subject is general, and has in it no features of local custom or local statutory regulations. Wherever the common-law system is in vogue, the decisions here given should be as good authority as in the country or State where they were rendered. The doctrines to be found in these pages are as applicable in the United States as in Great Britain, in Canada as in New York ; and ought to possess the same force and receive the same deference in Maine as in Texas, in Yirginia as in California. In the preparation of this treatise, the author has placed nothing before him as a model to which he has endeavored to make this conform, either in manner of arrangement or PREFACE. V style of execution. In the nature of things, had he been so inclined, he could hardly have done it. The subject is a peculiar one, sui generis, and must needs receive exceptional treatment. The origin of the law is anomalous ; and the discussion, amounting at times to a con- troversy, which has attended its progress through confusion and discrepancy to a state of comparative settlement and symmetry, is unlike the history of any other branch of the law. The controlling "thought with the author has been to give clearly this origin and this history, and also, in their logical order and arrangement, the principles of this system as they have been at last settled or are in process of settlement. It has been his " end and aim " to lead the reader and the student up to a commanding spot, where, with mental eye, they can take in all these points with as clear an impression as can one, with physical eye from an eminence, survey at a single glance, all the features of a variegated landscape before him. If the author has measurably succeeded in his design, or if, having failed, as he may well have done, his effort shall be the means of inciting others to present the subjeet in the form it deserves, he will be amply rewarded for his labors. EocHESTEB, October, 1879. CONTENTS. PAGE PEEFACE iii TABLE OF CASES CITED . . . . ix OHAPTEE I. PEELlMmART ObSEEVATIONS .... 1 OHAPTEE II. The Civil Law ...... 5 OHAPTEE III. The Common Law . . . . .10 OHAPTEE IV. First Peincipal Eule . . . . .11 OHAPTEE V. LmiTATioiirs, Modifications, and Exceptions to the FiEST Peincipal Ettle . . . .24 OHAPTEE VI. Second Peincipal Eule , . . .32 OHAPTEE VII. Limitations, Modifications, and Exceptions to the Second Peincipal Eule . . . .45 Vlll CONTENTS. CHAPTEE VIII. As TO Eeteaotion oe Change of AppKOPKiATioiir . 62 CHAPTEE IX. This Eight of Appkopeiation Confined to the ' Paeties Themselves . . . .75 CHAPTEE X. Thibd Peincipal Ettle . . . .81 First Minor Eule .... 102 Second Minor Eule ..... 126 Third Minor Eule .... 134 Pourth Minor Eule ..... 142 Fifth Minor -Eule . . . .151 CHAPTEE XI. In Eegaed to Paetneeship Cases . . . 160 CHAPTEE XII. On Official Bonds ..... 174 CHAPTEE XIII. Miscellaneous Subjects .... 210 1. As to the Time when the application takes effect 210 2. As to Pawns and Mortgages . . . 210 INDEX 219 TABLE OF CASES CITED. A Adams V. Crimager, 15. Alexandria v. Patten, 53, 70. Allcott V. Strong, 103, 168. Allen V. Brown, 173. Allen ». Culver, 11, 33, 62, 60,70, 74, 81, 99. Allen V. Kimball, 43. Allston V. Contee, 11, 103, 151. Anketel ». Converse, 181. Anon. Cro. Eliz. 68. .11, 13. Antarctic, The Ship, 89, 141. Arkley, & parte, 314. Armistead v. Brooke, 36, 38. Arnold v. Johnson, 33, 45. Arnold v. Poole, 40. Att'y Gen. v. Mandeson, 177. Ayer v. Hawkins, 55. B Bachman «. Wright, 143. Backus V. Minor, 136. Bacon v. Brown, 11, 48. Baggs 1). Loudenback, 47. Baine v. Williams, 11, 141. Baker v. Baker, 126. Baker «. Stackpole, 48. Bancroft ®. Dumas, 46, 143. Bank of Portland «. Brown, 150. Bank of Scotland ii. Christie, 163, 165. Bank of U. S. i). Singer, 218. Bartholomew v. Yaw, 133. Bayley v. Wynkoop, 11. Beale v. Caddick, 70. Bean v. Brown, 33, 115, 134. Benny «. Ehodes, 140. Berghaus ». Alter, 71, 103. Berrian v. Mayor, 35, 37, 33. Biggs V. Dwight, 39. Birch 1). Tebbutt, 143, 147. Bird V. Davis, 32, 43. Birky v. McMakin, 13. Black «. Shooler, 33. Blackman ». Leonard, 55. Blackstone B'k v. Hill, 31, 61. Blanton d. Rice, 133, 134. Blinn «. Chester, 143, 146. Bobei). Stickney, 43,48,81,100,142. Bodenham, v. Purchas, 34, 103, 104, 105. Bois «. Canfield, 13. Bond V. Jones, 136. Bonnell «. Wilder, 11, 33. Boody«. U. S.,185. Boring 11. Williams, 303. Bosanquet v. Wray, 36, Bosley v. Porter, 11. Boutwell®. Mason, 11, 13, 16, 34,33. TABTiE OF CASES, Bower v. Harris, 86, 137, 133. Brady v. Hill, 11, 33. Brazier v. Bryant, 34. Brett V. Marah, 151. Brewer v. Knapp, 35. Bridenbecker ». Lowell, 311. Briggs V. Williams, 11, 53, 184, 135. Bromley*. Goodere, 133. Brooke i>. Enderby, 103, 168. Brown v. Adams, 115. Brown v. Brabham, 44, 70. Browne, In re, 103. Buchanan u.Findley, 31. Burks V. Albert, 134, 139. Bnrland v. Nash, 47. Burrows v. Cook, 144. Bussey ®. Gant, 45, 90, 133, 141. Cage ®. Her, 313. Caldwell ». Wentworth, 11, 33, 46, 64, 81, 116, 143. Callahan v. Boazmau, 53. Calvert «. Carter, 81, 86. Campbell ». Dent', 61, 83. Campbell v. Hodgson, 33. Campbell v. Vedder, 81, 99. Canada Powder Co. ■». Burley, 21. Capen v. Alden, 20. Carpenter ®. Goin, 34, 36. Champenois v. Fort, 11, 33. Chancellor «. Schotte, 71. Chapman «. Commonwealth, 33,115, 175, 204. Chester «. Wheelwright, 81, 99. Chitty «. Naish, 32, 34, Citizens' Disc. Co. d. McLean, 50, 125. Clark «. Burdett, 36. Clayton's Case, 2, 49, 83, 102. Cloney v. Richardson, 48. Codman v. Armstrong, 70. Colby «. Oopp, 58. Cole B. Trull, 41. Colerain v. Bell, 186. Collins ». Gwynne, 176. Colt ®. Nettervill, 13. Commercial Bk. 'B.Cunningham,213. Commonwealth v. Miller, 128. Commonwealth v. Reitzel, 190. Copland v. Toulmin, 102. Cowperthwaite v. Sheffield, 31, Cramer v. Willetts, 31. Cremer v. Higginson, 11, 33, 81, 99. Crisler «. McCoy, 11, 32^ 38. Crisp V. Bluck, 126. Croft «. Lumley, 11, 14. Crompton ». Pratt, 102, 109. Crookshank v. Kose, 40. Gushing «. Wyman, 102, 120. D . Dawe «. Holdsworth, 59, 103. Dawson «. Remnant, 32. Deane v. Williams, 30, 136. De Bruhl v. NeuflFer, 126, 138. Dennis v. Jones, 18. Devaynes «. Noble (see Clayton's Case), 103. Donally «. Wilson, 15. Doe. d. Hindson v. Kersey, 84, 100. Dorsey v. Gassoway, 141. Dorsey v. Wayman, 73. Dows ». Morewood, 102, 141. Draflfen ®. City of Booneville, 195. Dulles V. De Forest, 131. Duncan v. Helm, 47. TABLE OF OASES. XI B Early «. Flannery, 59, 148. Efiinger v. Henderson, 48. Emery v. Tichout, 146. F Pairchild v. Holly, 102, 169. Fargo V. Buell, 11, 32. Farstall v. Blanchard, 82. Feldman ». Gamble, 65. Field D. Carr, 63, 105. Field V. Holland, 91, 99, 134. Fitchburg v. Davis, 140. Fitzmauriee's Minors, In re, 75. Forbes v. Innes, 83. Forelander v. Hicks, 11. Fowke V. Bowie, 25, 60. Eraser v. Birch, 42. Eraser v. Locie, 88, 51. Frazer v. Bunn, 28, 32. Frazier v. Hyland, 126. Fultz V. Davis, 136. G Gass V. Stinson, 87, 173. Gaston ■». Barney, 11, 33, 55, 77, 134. Geake p. Jackson, 168. Gill V. Bice, 47, 70, 144. Gleason «. Hobart, 63. Goddard «. Cox, 32. Goddard v. Hodges, 147. Gordon v. Hobart, 75, 81. Graham v. Cooper, 47. Green s. Tyler, 144. Grigg V. Cocks, 37, 103. Guthrie v. WicklifEe, 126. G-winn v. Whitaker, 11, 86, 136, 141, 151. H Hall V. Clement, 144. Hall u. Wood, 35. Hamer B. Kirkwood, 91, 133. Hamilton i>. Benberry, 33. Hammer v. Rochester, 81, 99, 115. Hampton e. Dean, 136. Hansen ». Rounsavell, 31, 36, 33, 76. Hargroves v. Cooke, 11, 32, 71, 102, 134, 139. Harker v. Conrad, 52, 78, 81, 100, 186. Harrison v. Johnston, 62, 103, 107, 142, 148. Hart ». Dorman, 126, 128. Haven v. Hudson, 70. Haynes v. Nice, 38. Haynes ®. Waite, 42. Heame v. Cutberth, 126. Heilbron v. Bissell, 38, 63. Heintz v. Cahn, 48. Heyward v. Lomax, 133, 141. Hicks v. Bingham, 153. Hill «. Brady, 52. Hill «. Bobbins, 102, 111, 145. Hill V. Southerland, 28, 51. Hilton V. Burley, 32, 134. Hillyer v. Vaughan, 32. Holland v. Teed, 21. HoUister v. Davis, 78, 116. Hooper «. Keay, 33, 162. Home II, Planters' Bk., 11, 32, 82. Howard & Dolman's Case, 51, 145. Howard, Ex parte, 314. Howard v. McCall, 11, 15, 33, 52, 115, 126. Howland e. Bench, 11, 60. xu TABLE OP OASES. Hubbell V. Flint, 64. Huflstater v'. Hayes, 41, 53. Huger V. Bocquet, 117. Hunniker «. Wigg, 135. Hunter, Me parte, 314. Hunter v. Osterhoudt, 143, 148. Hutchinson v. Bell, 33. Irvin V. Paulett, 11. Jacksou V. Bailey, 11, 16. Jackson v. Burke, 55. Jencks u. Alexander, 136, 128. Johnson v. Anderson, 33, 103. Johnson «. Boone, 173. Johnson v. Johnson, 63, 131. Johnson v. Bobbins, 136. Johnson's Appeal, 81, 98, 99, 102, 134, 138. Johnson, Ex parte, 314. Jones V. Kilgore, 32. Jones V. Perkins, 15. Jones ». U. S., 103, 182. Jones V. Ward, 126. Jones h. Williams, 11, 33. K Kidder ». Norris, 47. Killorin ». Bacon, 11, 32, 103. King V. Andrews, 11, 33, 81. Kirby v. Marlborough, 35. Knight «. Bowyer, 154. Lamprell ». Billericay, 142. Langdon ». Bowen, 102, 184. Larrabee «. Lambert, 81. Lash ». Edgerton, 126. Law v. Southerland, 48. Leblen i;. Rutherford, 143. Leef ». Goodwin, 11, 33, 103. Lindsey v. Stevens, 140. Livermore «. Claridge, 73, 178. Livermore v. Eand, 102, 135. Logan V. Mason, 33, 33, 51, 71, 95. Lysaght v. Walker, 133. M Mann ». Marsh, 33. Manning v. Westerne, 34, 38, 33. Marshall v. Bryant, 315. Martin «. Draher, 11, 33, 70. Marryatts v. White, 33, 133. Mason, In re, 79. Mathews v. Switzler, 134, 137. Matossy v. Frosh, 11, 33, 36, 81, 99. McAllister ». Jerman, 47. McDonald v. Pickett, 15. McDonell i>. Montgomery, 11, 143. McDowell 11. Blackstone Canal Co. 49, 118. McFadden v. Fortier, 136. McParland v. Lewis, 32, 33. McKee ®. Commonwealth, 191. McKee v. Stroup, 173. McKenzie e. Nevius, 107. McLaughlin i). Green, 91, 141. McLendon ». Frost, 48. Medewe's Trust, In re, 106. Meggott V. Mills, 59. Merrimack Co. Bk. v. Brown, 10, 61, 143, 149, 153, 316. Merriman v. Ward, 22, 73, 115. Miami Ex. Co. v. Bk. of U. S., 58, 128. TABLE OF OASES. XllI Middleton v. Frame, 33. Miller v. Leflore, 117. Miller D. Miller, 81, 100, 119. Miller®. Montgomery, 78. Miller v. Trabue, 141. Miller v. Trevilian, 15, 18, 30. Milliken «. Tufts, 52, 115.. Mills V. Fowkes, 38, 44, 49, 54, 145. Mills V. Saunders, 137. Mitchell V. Doll, 25, 39. Moore ®. Eiff, 126. Moorhead v. West Br. Bk., 12, 31. Morgan v. Tarbell, 173. Moss V. Adams, 34, 33, 53, 73, 87, 134. Myers v. U. S., 185. Nash V. Hodgson, 33, 38. Neal V. Alison, 91, 141. Newington v. Levy, 74. Newman v. Meek, 143, 148. Newmarch v. Clay, 36, 35. Newton v. Nunnally, 214. Niagara Bk. v. Roosevelt, 48. N. O. Ins Co. V. Tio, 82. Norwood V, Manning, 30, 136. Nutall V. Bonin, 11, 33. N. T. Life & Trust Co. v. Howard, 11. o Ordinary v. McCollum, 11, 36. Otto V. Klauber, 44. Parchman ». McKinney, 183. Parker i>. Ingram, 115. Pattison v. Hull, 3, 11, 33, 52, 86, 141, 210. Peebles v. Gee, 136. Pemberton v. Oakes, 104, 105, 163. Pennell v. Deffell, 103, 113. Pennypacker v. Umberger, 11, 43. Penrose v. Hart, 127. People V. New York, 126. Perris v. Roberts, 150, 211. teters v. Anderson, 11, 35, 33, 134, 134. Phillpott V. Jones, 40, 50. Pilcock V. Bishop, 80. Pierce v. Knight, 3, 33, 81, 99. Pierce w. Sweet, 102, 134, 185. Pindall v. Bk. of Marietta, 15, 30. Pinnel's Case, 11, 13. Planters' Bk. ». Stockman, 134, 139. Plomer v. Long, 33. Plummer v. Erskine, 11, 37, 33, 52. Poindexter v. La Roche, 25, 91. Pond V. "Williams, 88, 39. Postmaster- General ®. Furber, 188. Postmaster- General v. Norvell, 185. Pritchard ». Hitchcock, 74. E Rains v. Scott, 47. Ramsay v. Warner, 38, 39, 310. Ramsour v. Thomas, 184, 143, 146. Randleaon, Ux parte, 135. Reed v. Boardman, 16. Reynolds v. McFarlane, 34. Ribbans v, Crickett, 143. Richards v. Columbia, 53. Richardson v. Woodbury, 65. Righter v. Stall, 180. Robert v. Garnie, 35, 36. XIV TABLE OP CASES. Robinson v. Allison, 81, 99, 146. Robinson v. Doolittle,35,52,81,87,99. Robson V. McKain, 77. Rohan v. Hanson, 27, 46. Rosseau v. Cull, 32. RundlettB. Small, 62, 71. Runyon v. Latham, 29. Russell V. Lucas, 1 26. s Sager ®. Worley, 76, 134, 137. Sandwich v. Fish, 188. Sawjer ®. Tappan, 24, 37, 32, 41. Schenck's Appeal, 172. Scott V. Beale, 168. Scott V. Cleveland, 132. Scott V. Fisher, 35, 133. Selfridge ». Northampton, 67. Selleck ». Sug. Holl. Turnpike Co. 11, 32. Semmes v. Boykin, 11. Seymour v. Marvin, 62, 142. Seymour v. Sexton, 116. Seymour v. "Van Slyck, 35, 85, 198. Shaw V. Bk. of Decatur, 64, 73. Shaw 11. Picton, 25, 33. Shedd V. Wilson, 103. •Shelton v. Gill, 47. Sherwood v. Haight, 73. Siebel v. Springfield, 113, Simson v. Cook, 103, 161. Simson i>. Ingham, 11, 33, 41, 50, 70, IfiO. Smith ». Brooke, 98. Smith V. Coopers, 126. Smith «. Loyd, 93, 99, 115, 133. Smith V. Macon, 126. Smith V. Screven, 33. Smith V. Wigley, 50, 161. Smith V. Wood, 19, 44, 62, 70, 71. Sneed «. Weister, 173. Snell V. Cottingham, 25, 44. Solomon v. Dreschler, 11, 32, 81, 99, 143. Speck ». Commonwealth, 189. SpiUer v. Creditors, 82. Spires v. Hamot, 136, 137. Sprague v. Hazenwinkle, 33, 103. Sproule V. Samuel, 19. Stackpole v. Keay, 19. Stamford Bk. ». Benedict, 33,48, 70, 76, 135. Stanley v. Westrop, 3, 143, 144. Starr v. Richmond, 130. Starrett ». Barber, 11, 33, 43, 52. State, to use of Buchanan Co. v. Smith, 199. State V. Thomas, 134. State Bk. v. Armstrong, 37. Steele ». Taylor, 136. Stemdale v. Hankinson, 108. Stewart v. Cochran, 53. Stewart v. Keith, 13, 36. Stewart v. Stebbins, 181. Stone V. Seymour, 3, 11, 34, 39, 33, 48, 51, 58, 63, 76, 81, 93, 99, 138, 193. Stone V. Talbot, 48. Story «. Livingston, 136. Stoughton V. Lynch, 126, 138. Stoveld ». Eade, 134, 154. Sturgis V. Robbing, 48. T Tayloe v. Sandiford, 35, 36. Taylor v. Coleman, 53, 59. TABLE OF CASES. XV Taylor v. Jones, 25. Taylor v. Talbot, 14. Terhune v. Colton,25, 28,53,71,134. Thayer v. Denton, 11, 71. Thomas v. Kelsey, 134, 137, 142. Thompson v. Brown, 155, 173. Thompson v. Hudson, 23. Thompson v. Phelan, 10, 115. Thurlow 1). Gilmore, 107. Tomlinson «. Kinsella, 65. Tooke V. Bonds, 30. Toulmin v. Copland", 163, 163. Tracy v. "Wikoff, 30, 127. Treadwell v. Moore, 14, 64, 142. Truscott V. King, 107, 120. u Union Bk. v. Kendrick, 30. Upham B. Lefavour, 35, 43, 121. U. S. V. Bradbury, 51, 103. U. S. V. Eckford's Ex'rs, 179. U. S. V. January, 179. U. S. V. Kirkpatrick, 99, 102, 178. U. S. V. McLemore, 126. U. S. V. Ward well, 31, 183, 188. Vance v. Monroe, 134. Van Rensselaer's Ex'rs v. Roberts, 34, 41. Van Sickle v. Ayers, 34. w Walker «. Rostron, 19. Wallace ». Lacy^ 39. Walther ». Wetmore, 37. Walters v. McGist, 126. Washington Bk. «. Presoott, 57. Waterman v. Younger, 33. Waters v. Tompkins, 25. Watt V. Hock, 34, 134, 139. Waugh ». Wren, 11, 77. Webb V. Dickinson, 103. Wendt V. Ross, 58, 63. West. Br. Bk. v. Moorhead, 35. Wetherell ii. Joy, 11. Wheel of Fortune Case, 13. Wheeler v. Cropsey, 103. Wheeler v. House, 55. Whipple V. Briggs, 119. Whitaker v. Grooves, 11, 32. White V. Trumbull, 3, 11, 24, 32, 53, 78. Whitmore v. Murdock, 52, 116. Wilcox «. Fair Haven Bank, 316. Wilkinson v. Sterne, 24, 32, 42, 49. Williams v. Griffiths, 38. Williams v. Houghtaling, 137, 128. Williams «. Rawlinson, 76, 102. Wilson V. Hirst, 131. Wood V. Barney, 143. WooUey v. Jennings, 33. Worthley v. Emerson, 103. Wright V. Hickling, 75. Wright V. Laing, 143. Wright V. Wright, 67. Yates V. Hoppe, 19. Young «. English, 152. THE APPLICATION OF PAYMENTS. CHAPTER I. PEELEHINAKY OBSERVATIONS. The law in regard to the application of payments, although now comparatively settled and uniform, shows more confusion and discrepancy among the authorities, especially the earlier ones, than any other branch of the law. A writer in the American Law Magazine, some years ago, thus spoke of it : " No part of the law exhibits, perhaps, such painful uncertainty as that re- lating to the application of payments made to a creditor by one indebted on various accounts. The student may pause, and after wearying himself over this con- fusion, turn at length in despair to a more promising chapter. Not so the anxious practitioner, who, in his midnight examination, knows that the morning must find him prepared to assume at least an air of con- fidence. The judge, too, in the high responsibility of 2 APPLICATION OF PAYMENTS. passing upon momentous interests, often seems driven, after turning over the books, to the sortes mrgilicmm, and adopts the dictum on which his faded vision may chance to rest." ^ This is highly drawn, and somewhat overdrawn ; but, in the main, is substantiated by judges them- selves. Sir William Grant, in his celebrated opinion in Clayton's case (1 Merivale, 528-607), after collating, the authorities very carefully, and finding them about evenly divided upon diametrically opposite sides of the question, said : " The cases then set up two con- flicting rules — the presumed intention of the debtor, which, in some instances, at least, is to govern — and the ex post facto election of the crieditor, which, in other instances, is to prevail. I should, therefore, feel myself a good deal embarrassed if the general question of the creditor's right to make the application of in- definite payments were now necessarily to be deter- mined." In Stone v. Seymour (15 Wend. 19), Chancellor Walworth commenced his elaborate opinion by re- marking that upon examination he had been sur- prised that there did not appear to be any settled rules, except in two or three cases, as to the applica- tion of indefinite payments, where the creditor had different claims against his debtor, either in England or in the United States, or in those countries whose ' 1 Am. Law Mag. 31. PRELIMINARY OBSERVATIOKS. 3 general principles of jurisprudence were based upon the rules of the Roman or civil law. Judge Cowen, in the course of his oft-quoted de- cision in Pattison v. Hull (9 Cow. 747), observed that the point in contention was one about which English and American chancellors and judges differed and doubted, and that he himself had found two cases directly contradictory of one. another in the same book (Vernon), within a few years of each other ! The same diversity of decision was discovered about the same time by Judge Poland, of Vermont,* and Judge Wheeler, of Texas,^ and in a recent case before the Supreme Court of New Jersey,* it was said that the application of payments seemed to be a subject about which it was difficult to find general principles in the books to guide our practice. This contrariety of opinion and conflict of decision are owing to the fact that the body of the common law on this subject has been borrowed, and at the same time certain parts of the system thus borrowed have been stoutly contested and finally repudiated, and other rules substituted in their place. In the main, the doctrines have been taken from the civil law, but certain features of that code have been discarded. The resultant system is neither a ■wholly new system, nor the former one entire, but a ' Pierce v. Knight, 31 Vt. 701. " Stanley v. Westrop, 16 Texas, 300. ' White «. Trumbull, 3 Greene, 314. -4 APPLICATION OP PAYMENTS. sort of composite system, through which may be caught at times glimpses of the civil law, and at other times views of a new and different jurisprudence. For a full comprehension and appreciation of the new system, a thorough understanding of the civil law is essential. CHAPTER IT. THE CIVIL LAW. The entire text of the body of the Koman law in ■ regard to the imputation of payments : ^ Article 1. The debtor of several debts acquits whichsoever of them he pleases. — ^If a debtor who owes to a cred- itor different debts, hath a mind to pay one of them, he is at liberty to acquit whichsoever of them he pleases, and the creditor cannot refuse to receive pay- ment of it. For there is not one of them which the debtor may not acquit, although he pay nothing of all the other debts ; provided he acquit entirely the debt which he offers to pay. Article 2. Pa/yments a/re applied to the debts at the choice of (lie debtor, and in his favor. — If, in the same case of a debtor who owes several debts to one and the same creditor, the said debtor makes a payment to him, without declaring at the same time which of the debts he has a mind to discharge, whether it be that he gives him a sum of money indefinitely in part of payment of what he owes him, or that there be a ' 1 Domat's Civil Law, by Strahan, 905, Cushing's edition. 6 APPLICATION OF PAYMENTS. compensation of debts agreed on between the cred- itor and debtor, or in some other manner, the debtor will have always the same liberty of applying the payment to whichsoever of the debts he has a mind to acquit. But if the creditor were to apply the payment, he could apply it only to that debt which he would discharge in the first place, in case he were the debtor. For equity requires that he should act in the affairs of his debtor as he would do in his own. And if, for example, in the case of two debts, one of them were controverted and the other clear, the cred- itor could not apply the payment to the debt which is contested by the debtor. Article 3. The payment is allied to the debt which it is most advantageous for the debtor to acquit. — In all the cases where a debtor owing several debts to one and the same creditor, is found to have made several payments of which the application has not been made by the mutual consent of the parties, and where it is necessary that it be regulated either by a court of jus- tice or by arbitrators, the payments ought to be ap- plied to the debts which lie heaviest on the debtor, and which it concerns him most to discharge. Thus, a payment is applied rather to a debt of which the non- payment would expose the debtor to some penalty, and to costs and damages, or in the payment of which his honor might be concerned, than a debt of which the non-payment would not be attended with such conse- THE CIVIIi LAW, 7 quences. Thus, a payment is applied to the discharge of a debt for which a surety is bound, rather than to acquit what the debtor is singly bound for without giving any security, or to the discharge of what he owes in his own name, rather than of what he stands engaged for as surety for another. Thus, a payment is applied to a debt for which the debtor has given pawns and mortgages, rather than to a debt due by a simple bond or promtse ; rather to a debt of which the term has already come, than to one that is not yet due, or to an old debt before a new one ; and rather to a debt that is clear and liquidated, thian to. one that is in dispute, as to a pure and simple debt before one that is conditional. Article 4. The overplus of a payment after the discharge of one debt is to he applied to the others. — When a pay- ment made to a creditor to whom several debts are due, exceeds the debt to which it ought to be applied, the overplus ought to be applied to the discharge of the debt which follows, according to the order ex- plained in the preceding article, unless the debtor makes another choice. Article 5. A pa/yment is flrgt applied to the discharge of the interest. — If a debtor makes a payment to discharge debts which of their nature bear interest, such as that of a marriage portion, or what is due by virtue 8 APPLICATION OF PAYMENTS. of a contract of sale, or the same be due by the sen- tence of a court of justice, and the payment be not sufficient to acquit both the principal and interest due thereon, the payment will be applied, in the first place, to the discharge of the interest, and the overplus to the discharge of a part of the principal sum. Article 6. And that even alihougJi the acquitta/nce should mentdon loth principal and interest. — If, in the cases of the foregoing article, the creditor had given an ac- quittance in general for principal and interest, the payment would not be applied in an equal proportion to the discharge of a part of the principal and of a part of the interest ; but, in the first place, all the in- terest due would be cleared off, and the remainder , would be applied to the discharge of the principal. Article 7. How ;the price of what is pawned or mortgaged for several a/rticles 'is to he applied. — When a debtor obliging himself to a creditor for several causes at one and the same time, gives him pawns or mortgages for the security of all the debts, the money which is raised by the sale of the pawns or mortgages wiU be applied in an equal proportion to the discharge of every one of the debts. But if the debts were con- tracted at divers times, upon the security of the same pawns and mortgages, so as that the debtor had mort- gaged for the last debts what should remain of the THE CIVIL LAW. pledge after payment of the first, the moneys arising from the pledges would, in this case, fee applied, in the first place, to the discharge of the debt of the oldest standing. And both, in the one and the other case, if ftny interest be due on account of the debt which is to be discharged by the payment, the same will be paid before any part thereof be applied to the discharge of the principal. CHAPTER III. THE COMMOK LAW. I Having thus set out tte Roman law, we turn to the rule, as it is now acted upon ia the courts of Great Britain, and most of the States of this country, which may, in general terms, be formulated as follows : • 1. Where money is paid by a debtor to his cred- itor, the debtor has a right to make the appropriation to which account he pleases. 2. If the debtor make no appropriation, then the creditor may apply it to the satisfaction of any de- mand which he has against his debtor, at his own pleasure. 3. If neither party make any such application, then, if there be various debts due to the creditor, the court will make the application according to its own view of the law and equity of the case, under all the circumstances.^ This rule, it will be seen, has three main branches. These we will consider separately in their order, with such modifications, limitations and exceptions as have been engrafted upon them'. It may also be said in this connection, that this rule is of equal application in courts of equity" and of law.^ ' 2 Greenl. Ev. § 539. Bell's Law of Scotland, paragraph 562. " Merrimack Co. Bk. ■». Brown, 13 N.H. 330 ; Thompson v. Phelan, 3 Tost. 839. CHAPTER IV. riEST PRINCIPAL KULE. If hoik debts are due at the time of the pa/rtial payment, the debtor is at liberty to a/pply the payment to which he phases} Solvitwr in modum sol/oentis. ' stone ». Seymour, 15 Wend. 19 ; Pattison v. Hull, 9 Cow. 747 ; Allen o. Culver, 3 Den. 384 ; N. Y. Life & Trust Co. «. Howard, 3 Sand. Ch 183; Briggs b. Wimams, 3 Vt. 383; Bacon v. Brown, 1 Bibb, 384 Howland «. Bench, 7 Blackf. 336; Baine v. Williams, 10 S. & M. 113 Bosley v. Porter, 4 J. J. Marsh. 631 ; Brady ». Hill, 1 Mo. 315 ; White s Trumbull, 3 Green, 814 ; Selleck ®. Sugar Hollow Turnpike Co. 13 Conn. 453; Starrett ». Barber, 7 Shep. 457; Boutwell ». Mason, 13 Vt. 608 McDonell b. Montgomery, 20 Ala. 313; Hargroves ». Cooke, 15 Geo 321 ; Matossy », Frosh, 9 Tex. 610 ; Ordinary v. McCoUum, 3 Strobh 494 ; Caldwell «. Wentworth, 14 N. H. 431 ; Semmes «. Boykin, 37 Geo, 47; Wetherell ». Joy, 40 Me. 335; Thayer v. Denton, 4 Mich. 193; Cremer v. Higginsbn, 1 Mason, 323; Anon. Cro. Eliz. 68; Pinnel's Case, 5 Eep. 117; Peters v. Anderson, 5 Taunt. 596; Gwinn ». Whitaker, 1 Har. & J. 754 ; Allston ». Contee, 4 Id. 351 ; Simson v. Ingham, 2 B. & C. 65 ; Gaston ».. Barney, 11 Ohio St. 506 ; Crisler «. McCoy, 33 Miss. 445 ; Solomon v. Dreschler, 4 Minn. 378 ; Irvin v. Paulett, 1 Kan. 418 ; Forelander v. Hicks, 6 Ind. 448 ; King ». Andrews, 30 Ind. 439 ; Nutall «. Banin, 5 Bush, 11 ; Home v. Planters' Bk. 33 Geo. 1 ; Pennypacker ». Umberger, 33 Penn. St. 493; Croft v. Lumley, 37 L. J. Q. B. 32 ; Waugh ®. Wren, 11 Weekly Rep. 244 ; Whitaker ». Groover, 54 Geo. 174 ; Kil- lorin V. Bacon, 57 Id. 497 ; Jones v. Williams, 39 Wis. 300 ; Champenos V. Port, 45 Miss. 355; Fargo v. Buell, 21 Iowa, 393; Howard ». McCall, 21 Gratt. 305 ; Leef ®. Goodwin, Taney, 460 ; Plummer v. Erskine, 58 Me. 59 ; Bonnell «. Wilder, 67 111. 337 ; Bayley ». Wynkoop, 5 Gilm. 449 ; Jackson v. Bailey, 12 III. 159 ; Martin v. Draher, 5 Watts, 544 ; Moor- 12 APPLICATION OP PAYMENTS. This leading and elementary principle of the civil has been adopted in its entire length and breadth by the common law, and has been applied and en- forced in its fullest integrity. One of the oldest cases in the books, is Anon. Cro. Eliz. 68, which was debt upon a bond. The facts were that the defendant owed to the plaintiff certain money upon a bond, and certain money for wares sold, as it appeared by his books. At the day of payment upon the bond, he tendered the money according to the bond. The plaintiff accepted it, and said it should be for the debt due by his book, and not for the other debt; but the defendant said he paid it upon his bond, and not otherwise, and the plaintiff crossed his book, pretending the book debt to be discharged, and brought debt upon the bond, and it was adjudged against him, for the payment, it was said, is to be in the manner that the defendant would pay it, and not according to the words of the plaintiff how he would receive it. In Bois V. Canfield (Style, 239), it was said by KoU, Ch. J., that if any one pay money in satisfaction of an obligation, and the party to whom it is paid saith that he will receive it for another cause, yet, if he receive it, it shall be adjudged to be paid in satis- faction of the obligation, for he must receive upon such terms as the other will pay it. "Always the manner of the tender and of the head v. West. Br. Bk. 3 W. & S. 550; Stewart ». Keith, 13 Penn. St. 338; Birky v. McMakin, 64 Id. 348. FIRST PRINCIPAL RULE. 13 payment shall be directed by him who makes the ten- der or the payment, and not by him who accepts it." * " It is not material how or in what manner the de- fendant received or accepted it, but how the other paid it, for quicquid sol/vitur, sol/oitiir secundum mo- dum sohentisP * This absolute right of appropriation in the debtor according to Eedfield, J., in Boutwell v. Mason (12 Vt. 608), " results from one of the most obvious prin- ciples of human action, that a free agent may annex such conditions to an offer as he sees fit, and he who accepts the offer takes it subject to those conditions." * It is forcibly expressed by Mr Baron Channel, in a very recent case in the court of Queen's Bench, " The party paying the money had, in my judgment, a clear ' Pinnel's Case, 5 Eep. 117. » Colt V. Nettervill, 2 P. Wms. 308. ' A cognate power in the law of donations or gifts is exemplified in the amusing and celebrated " Wheel of Fortune " case, which occured in Lord Cowper's time. One Mr. Cornwallis, having set up a lottery called "The Wheel of Fortune, or a Thousand Pounds for a Penny," Mrs. Fuller, wife of Dr. Fuller, sent for twenty-four of those tickets, and gave them among the servants, upon condition if twenty shillings or more should come up, her daughter should have a moiety of the prize, and one of them thus given to her foot-boy came up a prize of £1,000. The daughter brought this bill for the moiety, and it was undeniably proved by the rest of the servants and others, that the ticket which cost but one penny was given to the foot-boy on that condition. Lord Cow- per : " Cvjua eat dare, ^us est disponere.^^ The foot-boy is an infant, but he is bound by the conditions, as well as one of full age. He may be a trustee, and is a trustee to £500 for the young lady. Decree accord- ingly. Burnet, IV, 141. 14 APPLIOATIOH OP PAYMENTS. right to appropriate it. He distinctly paid the money as rent. He refused to pay it otherwise than as rent. Mr. Martilli refused in language to receive it as rent, but he did take it. What he did and not what he said, was, in my humble opinion, the all-important matter. He should have declined to take the money at all if he meant to elect to proceed for a forfeit- ure." ^ It extends even to the payment of illegal claims. " The debtor has, in the first instance, the right to apply the payment in reduction of any claim what- ever. The claim may be one which the law will not enforce. It may be in violation of its provisions, and the party paying may have the right to recover back. Still the money must be applied by the party receiv- ing it, as the debtor when making the payment shall direct.'"' This unrestricted power of appropriation will be further illustrated by giving a few instances in which it has been maintained. A party having two unpatented surveys of land, may elect to which a payment of money shall be ap- plied, so as to procure a patent.^ A debtor owing a debt, consisting of principal and interest, and making a partial payment, has a right tO' direct its application to so much of the principal in ' Croft ». Lumley, 37 L. J. Q. B. 331. " Per Appleton. in Treadwell v. Moore, 34 Me. 113. = Taylor ». Talbot, 3 J. J. Marsh. 49. FIRST PRINCIPAL RULE. 15 exclusion of the interest, and the creditor, if he re- ceives it, is bound to apply it accordingly.^ This right applies to a fund which the creditor re- ceives for the delator, as well as to a payment which the debtor makes the creditor^ — to payments made by an execution debtor to a sheriff holding different executions against him ; in such a case he may direct on which execution the payment shall apply* — to money placed in the hands of an agent to pay two- notes equally due by a debtor, and such money cannot be appropriated to the payment of one of the notes at the option of the creditor.* In the case cited from 5 Leigh (^siipra), A, owed a debt to B., payable on demand, for which C. was A.'s surety, and A. assigned debts of others to B. in part payment, and after such assignment, but before the assigned debts were collected, A. contracted another debt to B. for which there was no security : Held, that B. could not, after collection of the assigned debts, apply the same to the payment of A.'s last debt con- tracted after the assignment was made, and recover the whole amount of the first draft from C, the sure- ty. The Court said : " Although the payment be not made in money, it is equally clear that the property, or evidence, or whatever it may be that is assigned in ' Pindall v. Bk. of Marietta, 10 Leigh, 481 ; Miller v. Trevilian, 2 Rob. (Va.) 1 ; Howard v. MoCall, 21 Gratt. 205. ' McDonald v. Pickett, 2 Bailey, 617 ; Donally v. Wilson, 5 Leigh, 329. ' Adams v. Crimager, 1 McMuUan, 309. * Jones V. Perkins, 29 Miss. 189. 16 APPLICATION OP PAYMENTS. payment, must go towards paying the existing debt, and not a debt the existence of which the parties could not, without the gift of prophecy, have dreamed at the time." Where a debtor owed two notes, a small one and a large one, and paid money with directions to apply part of the amount in payment of the small note and the balance upon the large one, and the creditor applied the whole upon the large note, it was held that this action of the creditor was unauthorized and illegal, and that the small note must be considered as paid;^ and in Jackson v. Bailey (12 111. 160), it was said that the creditor is not at liberty to disregard the appropriation made by the debtor, and apply the money on another debt; that the application could not be changed without the consent of the debtor. This right of the party paying cannot be thwarted even by one having the appearance of some authority in the case. Thus, a surety on a note gave money to the prin- cipal debtor, and directed him to pay the note with it, and the principal took it to the holder and told him it vpas the surety's money sent to pay the note. The holder, however, declined receiving it on the note, but took it in payment of another demand against the principal, to which appropriation the principal ulti- mately assented : Held, that the holder must be deemed to have received the money in payment of the note.* ' Boutwell 41. Mason, 13 Vt. 608. ' Reed v. Boardman, 20 Pick. 441. FIRST PRESOIPAL RULE. IT The Court said : " It is a well settled rule of law that a party paying money, even where there are several accounts between him and the receiver, has the right to direct on what account it shall go ; and if at the time of the payment any direction is given as to the appropriation, the receiver, by accepting it, is bound by the appropriation, and cannot apply it to any other purpose. Here the money was sent with distinct notice that it was Boardman's money, sent to dis- charge that note, being the only note on which Board- man was liable to the plaintiff, and the only debt due from Boardman to the plaintiff. Although he at first refused to accept it, and for aught appears con- tinued to refuse, yet by the act of accepting it he was bound to receive it on account of that note, and he is precluded by law from averring that he received it on any other. Wasson was a mere agent or messenger to carry the money and give notice of the purpose for which it was sent. This was made known to the plaintiff, and he had no authority to alter the appro- priation and apply it to the payment of his own other debts, and his assent to such change of the appropria- tion was wholly void as against the party who sent the money." Neither is it lost by the creditor obtaining posses- sion of the debtor's money without his consent (not by legal proceedings), and the debtor will not be bound by an application made by the creditor under such circumstances ; hence where a debtor intrusted 18 APPLICATION OF PAYMENTS. funds to an agent with directions to apply them by way of compromise in satisfaction of two demands held against him by the same person, and the creditor, knowing this fact, levied an attachment on the money so intrusted to the agent, and also on the money of the agent, all of which had been deposited to the credit of the agent, and thereupon the agent, in order to regain possession of his own money, assented, under protest, to the application of the debtor's money to one of the debts which was unsecured, it was held that the application thus made was not binding upon the •debtor, and that he might afterwards, when sued by the same party creditor, apply the money to another debt at his option.^ This general right of appropriation by the debtor is not ajffected by the other party being a creditor in a fiduciary character, as an executor, a trustee, &c.^ Such application may be accomplished by an ad- vance agreement, or by acts anticipatory of the receipt of the money by the creditor, and in such a case will be equally efficacious with a direction given at the time of payment. Thus A. demised to B. certain premises, and by the terms of the lease B. was bound to pay the rents to C. to apply on certain claims therein particularly specified. Within the year C agreed to receive B.'s note for specific amounts in lieu of the balance of the ' Dennis v. Jones, 31 Miss. 606. ' Miller «. Trevilian, 3 Rob. (Va.) 1. FIRST PRINCIPAL RULE. 19 rents, which notes were given and paid without any- further direction from A. : Held, that the stipulation in. the lease, from which B. derived his authority to pay C, was an appropriation of the payments subse- quently made, and C. was bound to credit them ac- cordingly.^ So if there be an agreement or understanding be- tween the parties that payments made to, or moneys received by, the creditor shall be applied in a certain way or on certain accounts, the debtor has a right to insist upon the application as specified.^ Thus D., for the purpose of paying B., to whom he was indebted, drew drafts on A. for the amount, and procured A.'s acceptance of them by giving him security, and then, by an arrangement understood between all of the parties, shipped produce to A. to be sold by him on commission, and the proceeds to be applied on the drafts : Held, that A., on realizing from sales of the produce, could not apply such moneys on an old account which D. was owing him.* A similar ruling was made in the Court of Ex- chequer.* A somewhat complicated case, calling for the ap- plication of this principle, arose in Massachusetts. A debtor gave his creditor a mortgage of his personal property to secure a balance of account. The deal- ' Smith «. Wood, Saxton, 74. ' Tates V. Hoppe, 9 C. B. 541. ' Sproule V. Samuel, 4 Scam, 135; Stackpole «. Kcay, 45 Me. 297. * Walker v. Rostron, 9 M. & W. 411. 20 APPIilCATIOK OP PAYMENTS. ings of the parties afterwards continued, and the debtor, on being pressed for payment on account, told the creditor that he would endeavor to pay him for the articles he had received after the mortgage was given, and keep the subsequent accounts paid up, but that as the creditor had security on the former part of the accounts, he must wait for payment of that part. The debtor afterwards made payments from time to time which were credited to him generally on the creditor's book, and which exceeded the amount that was due when the mortgage was given, but were less than the amount of the articles afterwards furnished to him by the creditor. At the time when these pay- ments were made, the creditor considered them as made towards the payment of the articles furnished to the debtor subsequently to the mortgage. The cred- itor sold part of the mortgaged property, and took part thereof to his own use, but the property so taken by him, and the money received on the sale, were not sufficient to discharge the balance due to him when the mortgage was given : Held, that the payments made after the giving of the mortgage, although credited generally on the creditor's book, might be applied by him towards payment of the subsequent accounts, and that he was not chargeable in the process of foreign attachment as trustee of the debtor, by reason of his retaining part of the mortgaged property, and the proceeds of the sale of the other part thereof^ Hub- ' Capen v. Alden. 5 Mete. 268. FIRST PKINOIPAL RULE. 21 bai'd, J., said : " Whether the facts which existed when the trustee received the mortgage, and his own view of the subsequent payment, would constitute an ap- propriation by him of the mortgaged property and its proceeds, is not free from doubt, but coupled with the statement by him to Alden shortly after the making of the mortgages, when he was pressing Alden for money on account, we are of opinion that an appro- priation was made by consent of Alden to the balance due at the time the mortgages were taken, and that, by agreement of the parties, the subsequent payments were appropriated to the reduction of the account for articles furnished after the mortgages were made." And the giving a draft for money and directing the application of the money when received on it, has been held to be the same as handling the money itself, and as constituting a valid application,^ And generally any amount, either in money or in property, which, by agreement between the parties, or by direction of the debtor, was received by the cred- itor to be applied on a specified demand, is pro tanto a discharge of it.^ If there be an agreement between the parties that the debtor shall perform labor, and that it shall be » Moorhead v. West Branch Bk. 3 Watts & S. 550 ; HoUond v. Teed, 7 Hare, 50 ; Buchanan «. Findlay, 9 B. & C. 738; Can Powder Co. ». Burly, 9 Up. Can. C. P. 290. » Cramer v. Willetts, 61 111. 481 ; Hansen v. Rounsavell, 74 Id. 338. 22 APPLICATION OF PAYMENTS. applied on a certain contract, after performance the creditor cannot apply it to another contract.^ Though in the face of such an agreement, the conduct of the parties may be such as to require the application of the moneys very differently from the original under- standing. Thus, in Black v. Shooler (2 McCord, 293),. the parties made an agreement that the one should work for the other by the month, and that the monthly wages should apply on a note which the laborer owed the other. In fact, during the service, the creditor advanced the other party, at his request, small sums from time to time, which, in the aggregate, amounted to the value of the services : Meld, that the circumstances constituted a rescission of the original agreement to apply the wages on the note, and that the advances by the creditor must be deemed to have been made upon the faith of the fund of the monthly wages. So, payments made by a debtor under a letter of advice from the creditor that they will be applied to- the later items of account, thus reversing the legal order of appropriation as settled in Clayton's Case (which we shall consider hereafter), must be so applied.''' A verbal direction from the directors of a bank to the cashier, without any recorded vote of the board, i» a sufficient authority to guide him in the application of moneys officially received by him.* ' Martin v. Draher, 6 Watts, 544. ' Merriman v. Ward, 1 John & H. 371. ' Stamford Bk. v. Benedict, 15 Conn. 437. FIRST PRINCIPAL KUiE. 23 It follows that where a prior agreement has been made between the parties on the subject of appropria- tion, the powers of the parties in that regard have become merged or absorbed in the agreement. Thus, H; was indebted to T. in three accounts, and an agree- ment was executed by which the amounts of the three demands were settled, and T. agreed to accept in sat- isfaction of all three demands, a smaller sum to be paid in installments. H. paid one installment, and failed to pay anything further, and T. proceeded to enforce his rights. Lord Romilly held that the cred- itor might appropriate as he chose. This ruling was reversed on appeal, and it was decided that the pay- ment must be applied to the three debts ratably.^ Sir G. Mellish, L. J., said : " I do not think that such a case comes within the ordinary rule in Clayton's Case, that if a debtor owes a creditor several debts and makes payments and does not appropriate them to any one of the debts more than the other, then the creditor may appropriate them. That assumes, first of all, that the debtor has a right to appropriate at the time, and that, if he does not do it, then the creditor has a right to do it. Now could any such appropria- tion have been made here ? " . And his lordship pro- ceeded to demonstrate that the application, was a matter of anterior agreement between the parties. ' Thompson v. Hudson, 6 Law Rep. Chan. App. Cas. 330. CHAPTER V. LIMITATIONS, MODIFICATIONS, AND EXCEPTIONS, TO THE riRST PKINCIPAL EITLE. I. .This intention must he manifested at the time of payment} This is the language of the rule as generally ex- pressed, yet it has been held that a formal declaration of his intention need not be made by the debtor at the very moment of making the payment ; that it was sufficient if it could be collected from other circum- stances that he intended, at the time of payment, to appropriate it to one account specifically ; * or if these were circumstances known to the creditor, clearly in- dicating the intention of the debtor, or tending to raise a fair presumption what it would be:* but held, in the same case, that waiting from April 13th to August 17th was too long for the debtor to exer- cise his election. It has been held, also, that the debtor cannot post- pone the assertion of his right of appropriation until ■ Wilkinson s. Steme, 9 Mod. 427 ; Manning «. Westerne, 2 Vein. 607 ; Stone i). Seymour, 15 Wend. 19; Mosa ». Adams, 4 Ired. Eq. 42; Rey- nolds ®. McFarlane, 1 Overt. 488; White ». Trumbull, 3 Green, 314; Boutwell ». Mason, 12 Vt. 608. " Sawyer u, Tappan, 14 N. H. 353. " Carpenter v. Goin, 19 N. H. 479. LIMITATIONS TO THE FIRST PRINCIPAL RULE 25 the trial. Thus, a person holding several notes paya- ble to himself and others, and also a note as agent of B., the payee (all of which notes were made by the same persons), received payment in part from the makers, nothing being said as to the appropriation of the payment. In a suit afterwards brought by B. on the note of which he was payee, it appeared that nb part of said payment had been specifically applied to any of the notes : Held, that the defendants could not, on the trial, claim that any part of said payment should be applied to the note sued on.^ It has been held, also, that it is too late for him to wait until suit brought, and then attempt an applica- tion by plea of set-oflp.* II. This intention need not he expressh/ deda/red by the debtor, but may be mcmifested by, or inferred from, cir- cumstances^ and may, in a proper case, be referred to the jv/ry as a question of fact} ' Taylor v. Jones, 1 Cart. 17. ' Peters v. Anderson, 5 Taunt. 596. ' Robert v. Gamie, 3 Cai. 14 ; Poindexter v. La Roche, 7 S. & M. 699 ; Robinson ». Dpolittle, 12 Vt. 246 ; West. Br. Bk. ». Moorhead, 5 Watts & S. 542; Terhunei). Colton, 1 Beasley, 232; Shaw v. Picton, 7 Dow. & Ry. 201 ; Scott v. Fisher, 4 Mon. 387; Tayloe 8. Sandiford, 7 Wheat. 13 Mitchell ®. Dall, 4 Gill & J. 361 ; Peters v. Anderson, 5 Taunt. 596 Seymour v. Van Slyck, 8 Wend. 403; Snell «. Cottingham, 72 111. 124 Waters «. Tompkins, 2 C. M. & R. 723 ; Berrian ■o. Mayor, 4 Rob. (K Y.) 538. * West. Br. Bk. i>. Moorhead, 5 Watts & S. 542; Fawke v. Bowie, 4 Har. & J. 366 ; Waters ®. Tompkins, 2 0. M. & R. 723. 26 APPLICATION OP PAYHENTS. The expression of a wish by the debtor, how the payment should be applied, will amount to a direction to that effect.^ The amount of the payment exactly corresponding to one of the debts, would be such a circumstance ; - a positive refusal to pay one debt and an acknowledg- ment of another debt, with a delivery of the sum due upon it, would also be a sufficient circumstance of this description.* Such a circumstance would be, the taking of a receipt from the creditor, expressing the debt on which the payment was to apply.* Thus, also, if the creditor held but one debt against the debtor, or held one that was admitted, and other claims that were disputed and not admitted as debts, and there were no circumstances attending the pay- ment to repel the presumption, a jury would be au- thorized to infer that the debtor appropriated the pay- ment to the single debt in the one case, or to the un- disputed one in the other.^ A party paid money to another who held a note against him personally, and also held notes against an estate of which the party paying was administrator, and took a receipt expressing that the money was re- ceived on note ; Held, that these circumstances indi- ' Hansen «. KouDsavell, 74 HI. 238. ^ Robert «. Garnie, 3 Cai. 14 ; Newmai'ch e. Clay, 14 East, 239. = Tayloe ®. Sandiford, 7 Wheat. 13. < Stewart ». Keith, 13 Penn. St. 338 ; Ordinary v. McCoUum, 3 Strobh. 494. " Anuistead «. Brooke, 18 Ark. 531. LIMITATIONS TO THE FIKST PRINCIPAL EULB. 27 cated an intention to pay upon the personal debt, and that it should be so applied.^ Taking a receipt " in fuU of all demands," when the earlier indebtedness is barred by the statute of limitations, is a strong case for the implication of a direction by the debtor that the creditor should apply it to the later indebtedness.'' An intention to apply a payment upon an illegal claim, as for usurious interest, may be manifested by circumstances the same as in the case of a legal claim, and the question may, if necessary, be left to the jury.^ K enough of the payments made on an account be subsequently applied by the creditor to liquidate the items for liquor illegally sold, and a statement of the account omit therefrom the liquor items, and their equivalent credits be sent to the debtor, who there- upon replies that he will pay the same, the appro- priations will be deemed made by mutual assent, and they cannot be revoked without such assent.* III. The direction for the application must he made to the creditor, or the circumstances from which it is to he inferred must he communicated to him, or hriown ■ Sawyer v. Tappan, 14 N. H. 853. ' Berrian v. Mayor, 4 Rob. (N. T.) 588. ' Rohan «. Hanson, 11 Cusb. 44. ' Plummer v. Erskine, 58 Me. 59. 28 APPLICATIOif OF PAYMENTS. iy him, otherwise there will he no valid appUoa- tion} A. indebted by specialty, and also a simple con- tract, pays several sums and enters them in his book on account of what was due by the specialty. The entries are not sufficient to make the application.* Upon the same principle, it has been held that it is not sufficient that the party making the pay- ment credits it to a particular account in his own books, of which the other party has no notice.* And the sending a message by the principal -debtor to one of his sureties, that he had made the payment on a certain item without any communica- tion of this wish or intention to the creditor, or any knowledge of it on his part, is not an application of the payment by the debtor.* IV. It is hardly necessary to add that the act claimed or relied upon as constituting an application hy the debtor, must he one emanating from or authorized hy him, and not the proceeding of some other party to which he is not privy, or of which he is not cognizant. Thus, the mere . fact that a payment with the ' Terhune v. Colton, 1 Beasley, 333. " Manning v. Westerne, 3 Vern. 607. = Heilbron v. Bissell, 1 Bailey Eq. 430 ; Frazer v. Bunn, 8 C. & P. 704. " Hill V. Southerland, 1 Wash. (Va.) 138. LIMITATIONS TO THE PIBST PRINCIPAL RULE. 29 debtor's money was made to a creditor having several demands against the debtor, by one who was a secu- rity of the debtor for one of the debts, is not a suffi- cient circumstance on which to base an inference that the debtor intended it should be applied to the debt of which such agent was the guaranty.^ V. The debtor, in making this appropriation, must pay the whole of any debt which is then due and payable, and cannot claim the right to extinguish it only par- tially.^ But where a debtor paid what was computed by the creditor as the amount due on a note he owed,, and stated that he paid the money on that note, it must be so applied on the note although it falls some- what short of the amount due on the note, and it can- pot afterwards be refused on- that note on the ground that it was a partial payment, and be applied by the creditor on another indebtedness.^ VI. There is still another limitation on the debtor's power of appropriation, stated im some of the cases, viz., that he camiot pay principal only on a debt which ca^- ■ Mitchell V. Ball, 4 Gill & J. 361. " Stone V. Seymour, 15 Wend. 19. ' Runyon «. Latham, 5 Ired. Law, 551. 30 APPLICATION OF PAYMENTS. ries interest, leaving interest unpaid altTiough overdue, for every payment towa/rds such debt, say the courts holding this doct/rine, shall he first appUed to Teeep down the interest then due}. But there are cases also the other way on this proposition.^ The question was discussed at considerable length by Chief Justice Moore, of the Supreme Court of Texas, in Tooke v. Bonds (29 Texas, 419) : " When," said he, " the claim of the debtor is a single debt, con- sisting of principal and interest, the debtor certainly . Knight, 31 Vt. 701 ; Bird v. Davis, 1 Mc- Carter, 467; Middleton v. Frame, 31 Mo. 413 ; Solomon «. Dreschler, 4 Minn. 278 ; Fargo v.' Buell, 31 Iowa, 393 ; Champenois «. Fort, 45 Miss. SECOND PRINCIPAL KDLE. 33 Lord Chancellor Cowper stated the rule thus, in Manning v. Westerns (2 Vern. 606) : " Athough the rule is that quicquid solvitur, solvitwr secundum mo- dum solventis, yet that is to be understood when, at the time of payment, he that pays the money declares upon, what account he pays it, but if the payment is general, the application is in the party who receives the money." By not exercising the power when he parted with the money, the debtor allows the right of appropria- tion to devolve on the creditor, and submits to his exercise of it, if the latter will do it at all, and, it would seem, could not claim therefore to resume it.* The broad language was used in one case, that if anything had been settled by decision, it was that the right to apply a payment, without restriction as to anything but the time, devolves on the creditor in default of application by the debtor,^ The latest form of the rule with which we have met. is that by Field, J., in Hooper v. Keay (1 Law Rep. [Q. B. Div.] 178), as follows : " The law on this subject is clear. A debt prima facie solvitur rnodo 355 ; Marshall v. Sloan, 36 Ark. 513 ; Plummer v. Erskine, 58 Me. 59 ; Howard v. McCaU, 21 Gratt. 305; Chapman «. Com. 25 Id. 721 ; Water- man v. Younger, 49 Mo. 413; Johnson ». Anderson, 30 Ark. 745 ; Leef «. Goodwin, Taney, 460 ; Sprague o. Hazenwinkle, 53 111. 419 ; Bonnell v. Wilder, 67 ^11. 327 ; Arnold «. Johnson, 1 Scam. 196 ; McFarland v. Lewis, 3 Id. 344 ; Hansel ». RounsaTell, 74 111. 338 ; Hamilton v. Ben- bury, 3 Hayw. 385 ; Berrian v. Mayor, 4 Rob. (N. Y.) 538. • Moss V. Adams, 4 Ired. Bq. 42. » Logan V. Mason, 6 Watts & S. 9. 3 34 APPLICATION OF PAYMENTS. solventis, but if the debtor makes a payment, and there are two debts to whicli it may be appropriated if no modus solvendi is pointed out by the debtor, then the rule applies, and the payment re-ci/pitwr modo recijpientisr In the exercise of this right, where there are dis- tinct accounts and a general payment, the creditor may apply such payment to which accdunt he pleases : ^ on an open account, although he has a judgment older than the account ; ^ to whichever debt he pleases, whether the party paying be individually indebted on several accounts, or be individually indebted and also jointly indebted with another,® and the application on the joint account will be upheld, even though a re- ceipt has been given only in the name of the party paying.* He may also apply it to the debt not se- cured by property or sureties, when not prohibited by other rules of appropriation, as where a factor made advances on goods, and, before he had received the proceeds of any sales thereof, brought an action against his principal and attached his property to secure the amount advanced, and afterwards made further ad- vances on the same goods according to the original consignment: Held^ that the factor might apply the proceeds of the goods, as they were received, towards ' Bodenham v. Purchas, 3 B. & Aid. 39. " Watt V. Hock, 25 Penn. St. 411 ; Van Sickle «. Ayres, 3 Halst. Ch. 29; Ohitty «. Naish, 3 Dowl. P. C. 511 ; Brazier v. Bryant, lb. 477. ° Van Rensselaer's Exrs. v. Roberts, 5 Den. 470. * Van Rensselaer's Exrs. 13. Roberts {mpra). SECOND PRINOIPAIi RULE. 35 the discharge of the sums advanced after the action was commenced.^ In Hall V. Wood * (tried at the Sittings at West- minster, Hil. 1785), Lord Mansfield, Ch. J., also laid down the rule that a payment might be applied to any part of a debt, where the creditor had several parts due to him from the party making the payment, unless it be particularly specified, at the time, to which part it is to be applied. Kirby v. Marlborough (2 M. & S. 18) is a leading authority on the creditor's right of appropriation. A. and B. executed a bond to enable A. to carry on his trade, conditioned for the payment of all such sums, not exceeding £300, which should at any time there- after be advanced by the plaintiffs. It was held that payments made generally to the plaintiffs on the ac- count of A. might be applied by them in liquidation of a balance existing against A. before the execution of the bond, and that B. could not insist upon their being applied in exoneration of his liability on the bond, although, at the time of his entering into it, the plaintiffs did not give him notice that any balance was then existing against A. Brewer v. Knapp (1 Pick. 332) was similar in principle to this. A., by indenture, leased a house to B. as principal, and C. and D. as sureties. B. entered and occupied after the expiration of the term, and he ■' Upham «. Lefavour, 11 Mete. 174. ' Note a to Newmarch «. Clay, 14 East, 339. 36 APPLICATION OF PAYMENTS. paid money after that time without appropriating it, and it did not appear whether it was paid before or after rent had become due for the second year. It was held that A. might apply it to the rent which accrued after the expiration of the term, although the sureties were liable for the first year, and not after- wards. The payment may be ascribed by the creditor to a prior and purely equitable debt, and the debtor be held for a subsequent legal debt.^ The application may be made by the creditor through his agent, as his book-keeper ; * or by an attor- ney of the creditor, who may make the application for his client.® Tn the case last cited the Court said: "It is true that payment was not made to a creditor having sev- eral claims, but to the attorney of several creditors. The cases, however, seem to fall within the same prin- ciple, except that, in a case like the present, a duty may attach to any election that may devolve upon the attorney in favor of the client, if either is entitled to priority." The creditor can make application at his option, where there are several debts, even though some of the debts be guaranteed and some not,* as he may ' Bosanquet v. Wray, 6 Taunt. 597. ' Matossy v. Frosh, 9 Texas, 610. ' Carpenter v. Goin, 19 N. H. 479. • Clark e. Burdett, 3 Hall, 197. SECOND PRlNOIPAIi RULE. 37 apply the payment to the earliest items in his ac- count against the debtor.^ Where a dealer with a bank had a balance to his credit upon a general cash account, and died indebted to it by judgment and upon simple contract, it was adjudged that the bank had a right, independent of the statute of set-oflF, to apply the balance to the latter debt.* It is, however, rather a question of set- off than of application of payments, as the money lying in bank constitutes a debt owing by the bank, rather than a payment by the debtor to the bank on 9 account. This general right of appropriation by a creditor, as here expounded, holds in regard to a bankrupt debtor under the bankrupt laws of England, and a creditor is entitled to apply an unappropriated pay- ment in discharge of whatever liability of such debtor he may think fit.* The creditor can exercise his election upon any debts which he holds that are not positively illegal, even if he could not support an action upon them, either because the law, without prohibiting the con- tracting of such a debt, has declared that no action shall be maintained upon it, or because a right of action once existing has been barred. Thus a creditor receiving payments from his debtor, ' Walther v. Wetmore, 1 E. D. Smith, 7. ' State Bk. V. Armstrong, 4 Dev. 519. ' Grigg V. Cocks, 4 Sim. 438. 38 APPLICATION OV PAYMENTS. without aay direction as to their application, may apply th.em to a debt on which the statute of frauds does not allow an action to be maintained, as a prom- ise to pay for the past and future board of the child of another,^ or upon a claim for a higher rate of interest than the law allowed in Canada, but which, though non-enforceable, was not illegal.* And an unappropriated payment may be credited, by the receiver upon a demand against which the statute of limitations has run.* Such an appropriation, however, will not have the effect to take the debt out of the operation of the statute.* It seems to be regarded as a mere permis- sion of law to the creditor thus to apply it, and not an intentional payment on that account, which is necessary to involve the admission of the whole debt, and the implied renewal of the promise to pay it. The debtor is not presumed to have intended to renew a promise which is no longer legally binding upon him, although he has put it in his creditor's power to satisfy pro tanto a claim upon which he had lost his legal remedy.'' If, however, a payment be thus applied by the ' Haynes 11. Nice, 100 Mass. 337. " Fraser e. Loeie, 10 Grant. Ch. 207. » Mills «. Fowkes, 5 Bing. N. C. 455 ; Williams v. Griffiths, 5 M. & W. 300 ; Armistead v. Brooke, 18 Ark. 521 ; Crisler ®. McCoy, 33 Miss. 445. ' Nash «. Hodgson, 31 Eng. L. & Eq. 555 ; Pond ©. Williams, 1 Gray, 680. ' Ramsay v. Warner, 97 Mass. 8. SECOND PRINCIPAL EULE. 39 creditor before the statute has run against the claim, it will have the full effect of a direct payment by the debtor, that is, of extending the time just so much for the barring of the demand by the statute.^ ' This is owing to the distinction which, in many respects, is recognized between debts barred by the statute and those not thus barred.** And when a debtor makes a payment which is applicable to debts of the former kind, he will be held to intend the full effect of a payment.* But an attorney who has several demands against his client, some of which are barred, has no right to appropriate, in payment of the demands so barred, a sum received by him on account of his client for damages recovered in an action.* Per Tindal, Ch. J. : "This is not the case of a payment at all, but of a sum of money received without the knowledge of the defendant. Therefore, inasmuch as the latter never had the power of exercising any election as to the application of this sum, the right of the plaintiff to appropriate it never arose." A creditor has likewise been allowed to credit a general payment upon a bill of exchange wkich was void for want of a stamp.' And in a case in which an attorney had claims ' Bamsay d. Warner (gwpra). ° Pond D. Williams (supra). ' Bamsay ®. Warner (supra). * Wallace v. Lacy, 1 Man. & Gr. 54. » Biggs V. Dwight, 1 Man. & By. 308. 40 APPLICATION OF PAYMENTS. against a corporation for services, some of which he could enforce, and others he could not for want of a valid appointment, and money was paid him gener- ally on account, it was held that he might appropri- ate such payments to the latter claims.^ In Crookshank v. Eose (5 C. & P. 19), and Phill- pott V. Jones (2 Ad. & Ell. 41), it was adjudged that moneys paid generally might be applied by the cred- itor to an account for spirits sold in small quantities to the debtor, although such demand was not recov- erable according to the statute of 24 Geo. II, c. 40, but the sale was not prohibited, and that the cred- itor might enforce the other collectible demands that he held. In the case last cited, Taunton, J,, said : "The spirits in this case have been excluded from the verdict. The rule is that if a debtor pays money on account, and does not at the time state how it is to be applied, the creditor may make the application. Here the £17 were paid without any application to particular items of the account. The plaintiff then might apply J;hat payment to the items in question, and he was not bound to tell the defendant at the time that he made such application ; he might make it any time before the case came under the consid- eration of a jury. There is, therefore, no 'action maintained,' or ' recovery ' for the spirits in this case, according to the terms of the statute, and there is no provision in the act that a party, having been paid ' Arnold i;. Poole. 4 Man. & Gr. 860. SECOND PBINOtPAL KULB. 41 for spirits supplied in the quantities there mentioned, shall be liable to refund. The defendant, if he wished to avail himself of the act, should have appropriated the payment at the time he made it." Williams, J. : " The objection is that this action may be considered as brought for the particular part of the account to which the statute would apply, but the defendant has disarmed himself of this objection by not appropri- ating the payment when he made it. The payment having been made on account of the spirits is valid ; he could not have brought an action to recover the money back." Upon this reasoning, the intimation of the Court, in Huffstater v. Hayes (64 Barb. 573), that the items in the plaintiff's account were such as he could not discharge by the appropriation thereto of a general payment by the debtor, is perhaps questionable. The sale of the spirits was not illegal, but the enforcement of the claim at law was simply prohibited. There are many ways in which the application by the creditor may be evidenced. It may be by entry in his books,^ and for that purpose his account books, together with evidence that the entries were made at the time they bear date, are competent evidence in his favor;* but it has been said that the application is not complete until the fact of such entry has been communicated to the other party.' ' Cole V. Trull, 9 Pick. 335. ' Van Rensselaer's Exib. v. Roberts, 5 Den. 470. ' Siinson v. Ingham, 3 B. & 0. 65 ; Sawyer ». Tappan, 14 N. H. 352. 42 APPLICATION OF PAYMENTS. In an old case, the account books of the plaintiff's testator were admitted in evidence to prove the ap- plication, in vrhich entries were made about a fort- night after the receipt of the money, and thirteen or fourteen years before suit brought.^ But the account books of the creditor showing an application of the payment on one claim against the debtor, are not evi- dence on the part of the creditor to contradict the tes- timony of the debtor as to his application of it on another claim.* As between an entry by the creditor in his books appropriating a payment to a certain account, and a prior receipt given by him to the debtor appropriating it to another account, the receipt is controlling.^ And, on the other hand, as between a mere entry in the debtor's book of application one way, and satisfactory evidence as to an agreement between the patties at the time of payment of application another way, the latter will prevail.* This intention may also be manifested by bringing suit, as where a creditor holding two notes against a party, receives from him a general payment, and com- mences suit on one of the notes, this will constitute an appropriation of the payment on the other .note;'* or,' by bringing suit, coupled with the manner of ' Wilkinson v. Sterne, 9 Mod. 427. ' Pennypacker «. Umberger, 22 Penn. St. 492. ' Per Ld. Brougham, in Fraser d. Birch, 3 Enapp, 380. ■* Bird V. Davis, 1 McCarter, 467. ' Starrett t. Barber, 7 Shep. 457; Haynes v. Waite, 14 Cal. 446. SECOND PRINCIPAL EULB. 43 separating and stating the accounts which the creditor rendered the debtor, and to which he made no objec- tion.^ In another case, it was held that the commence- ment of a suit, and the continuance of it under cer- tain circumstances, evinced an intention to make application on a demand other than the one in suit. Thus, a debtor, owing several different notes, as- signed certain property to his creditor as collateral security for their payment. The creditor brought suit on one of the notes, and afterwards received enough money from the assigned property to pay the note on which suit had been commenced, but another of the notes had in the meantime matured. The creditor continued to prosecute the action, and it was held that such conduct on his part constituted an election to appropriate the money received by him from the as- signed property to the note on which suit had not been commenced.^ Where, also, a debtor owed two notes maturing at different times, and the creditor had brought suit on the first note, and on the day the second note matured the debtor made a general assignment, the fact that the creditor afterwards took judgment on the first note for its full amount was held to show an election on his part to apply the payment to the second note.' ^ Upham V. Lefavour, 11 Mete. 174. " Allen v. Kimball, 33 Pick. 473. ' Bobe V. Stickney, 86 Ala. 483. 44 APPIilCATIOK OP PAYMENTS. Or, lastly, it may be by giving a receipt specifying the v/%j the payment was to be applied.^ And, generally speaking, it may be evidenced by circumstances as well as in the case of an appropria- tion by the debtor.^ ' Smith V. Wood, Saxton, 74 ; Brown v. Brabham, 3 Ham. 375 ; Otto V. Klauber. 23 Wise. 471. ° Snell V. Cottingham, 72 111. 124 ; per Bosanquet, J., in Mills v. Fowkes, 5 Bing. N. C. 455. CHAPTER yn. SECOND PRINCIPAL EULE. The right of application which the creditor enjoys is not so unrestrained as in the case of the debtor, nor so broad even as the preceding chapter would seem to indicate, but is subject to vastly many more limita- tions and exceptions. " The right of the creditor to apply the payment is not unlimited, " said McKinney, J., in Bussy v. Grant (10 Humph. 238). "It is not always essential that there should have been an express declaration by the debtor, at the time of the payment, to which of two accounts he intends the money to be applied. There are cases in which, though the payment be general, the creditor is not allowed to apply the payment to which account he pleases," and which would render the exercise of such discretion on the part of the cred- itor unreasonable, and enable him to work injustice on his debtor.^ ' Arnold v. Johnson, 1 Scam. 196. 46 APPLICATION OF PAYMENTS. I. It Gcmnot he exercised in the case of demands which a/re positi/uel/y illegal. This right of application was said, by the Supreme Court of Vermont, " to be limited, however, to legal demands, the payment of which could be enforced against the party paying, and not to claims such as an account for spirituous liquors sold in violation of the statute." ^ A similar doctrine has been held in Massachusetts. "This right of application by the creditor," said Dewey, J., in Rohan v. Hanson (11 Cush. 44), "has been allowed in the case of demands not recoverable at law, where no prohibitory statute existed against them, but will not embrace contracts which are for- bidden by law under heavy penal forfeitures, or pay- ments which may at once be recovered back from the party receiving them ^because illegal. In such cases, when no application has been made by the debtor and there are two demands, one legal and the other illegal, the payment is to be applied to the legal demand to the exclusion of the illegal. The right of the creditor, therefore, to apply a payment made gener- ally to such demand as he elects, extends only to law- ful demands." But the creditor need not, as a part of his case, ' Bancroft v. Dumas, 31 Vt. 456 ; Caldwell o. Wentworth, 14 N. H. 431. LIMITATIONS TO THE SECOND PRINCIPAL RULE. 47 prove that he had a license to sell the liquors, the burden of proof being on the objector.^ For the same reason a creditor will not be per- mitted to ascribe a general payment upon Illegal usu- rious items or claims.* Nor to a debt for which the debtor is not respon- sible, as paying the debt of another for example.* It is otherwise, however, where usury is not illegal, but simply non-recoverable.* 11. The clavms of the creditor must also he definite, and eadsting demands, concerning which there is no contin- gency either as to their character or the t/ime of pay- ment. There must be no dispute between the parties as to the amount due upon, or the validity of, the con- tract to which the creditor has applied the payment made by the debtor, or else such facts must be estab- lished at the trial. " To allow a creditor to apply payments thus made," was said in one case, " to a debt ■^hich he claimed to have against the debtor, but the existence of which the debtor denied, would be to compel him to pay, perhaps, a fraudulent claim which ' Kidder v. Norris, 18 N. H. 532. ' Duncan v. Helm, 32 La. Ann. 418; McAlister v. Jerman, 33 Miss. 142; Gill V. Rice, 13 Wis. 549. ' Burland ®. Nash, 3 Fost. & Fin. 687. * Shelton v. Gill, 11 Ohio, 417; Baggs v. Loudenback, 13 Id. 153; Bains v. Scott, 13 Id. 115; Graham e. Cooper, 17 Id. 605. 48 APPLICATION OF PAYMENTS. the creditor had set up against him without the possi- bility of defending against it." ^ But it was asserted e contra, by Crawford, J., of the Supreme Court of Georgia, in McLendon v. Frost (57 Geo. 448), that the creditor, in appropriating a payment not applied by a debtor, might credit it on a just and valid de- mand, whether the correctness of such demand be as- sented to or not by the debtor. The claims upon which the creditor makes appli- cation must at the time be due and payable.^ He cannot apply it to a debt not then payable and demandable, if there be another debt then due ; * nor partly on debts then due and partly on debts not then due ; * nor retain it in his hands to apply upon a future indebtedness, leaving a prior demand unpaid ; * nor, where he has an existing claim against the debtor, apply the payment to extinguish his contingent lia- bility on a note, which he has indorsed for him.^ Advances made on account generally for work done under several distinct contracts, some of which have not been completed, must be applied in the first ' stone v. Talbot, 4 Wise. 442. " Heintz v. Cahn, 39 111. 308. ' Bffinger «. Henderson, 33 Miss. 449; Sturges v. Robbins, 7 Mass. 301 ; Stone v. Seymour, 15 Wend. 19 ; Heintz v. Cahn, 29 El. 308 ; Bacon V. Brown, 1 Bibb. 334; Stamford Bk. ■». Benedict, 15 Conn. 437; Law ■». Sutherland, 5 Gratt. 357 ; Bobe v. Stickney, 36 Ala. 482. ' Cloney v. Richardson, 34 Mo. 370. " Baker v. Stackpoole, 9 Cow. 420 ; Parks v. Ingrain, 3 Post. 383. • Niagara Bk. v. Rossevelt, 9 Cow. 409. LIMITATIONS TO THE SECOND PRINCIPAL BULB. 49 place to the amounts due on the contracts which have been completed, and not on those which have not been completed.^ III. As to the time for the creditor to make the appro- priation. Upon this point there is great antagonism among the cases. The English judges pretty generally extend a very large authority to the creditor. One of the older cases held that it would do for the creditor to make the application any time after a general payment, so that he does it before an account settled between them.^ Sir William Grant, in Clayton's ease,* reviewed the decisions, and, although he expressed no opinion himself, he found there was " certainly a great deal of authority for the doctrine that the creditor may at any time elect how the payments made to him shall retrospectively receive their application." In Mills v. Powkes,* Chief Justice Tindal, de- clared that it had been held, in Simson v. Ingham, that the creditor might appropriate at any time before action, and Coltman, J., in the same case, remarked > McDowell 9. Blackstone Canal Co. 5 Mason, 11. " Wilkinson ». Sterne, 9 Mod. 427. » 1 Merivale, 610. ' 5 Bing. N. C. 455. 4 50 APPLICATION OF PAYMENTS. that it was not necessary to decide whether the cred- itor should make the appropriation within. any limited time because there had been no unreasonable delay, but that the more correct view, however, seemed to be that the creditor was not limited in point of time. Lord Denman, in Phillpott v. Jones,^ used the broad language, that " the defendant having made no appro- priation, the gjaintiff therefore might elect, at any time, to appropriate it to this part of his demand ; " and Taunton, J., was equally liberal, declaring that the defendant " might make the appropriation any time before the case came before the consideration of a jury." In a recent case,^ Blackburn, J., adhered to the rule as thus expressed, employing very explicit lan- guage for the purpose : " If the debtor does not appro- priate the payment the creditor has a right to do so to any debt he pleases, and that not only at the in- stant of payment, but up to the very last moment." Other judges, however, have not subscribed to this doctrine. Best, J., in Simson v. Ingham (2 B. & C. 65), seemed disposed to give the creditor a reasonable time only for deciding to which account he would place a sum of money that had been paid him, without any application by his debtor, and Lord Chief Justice Tindal, in Smith v. Wigley,^ laid down the doctrine " 2 Ad. & Ell. 41. ' City Disc. Co. v. McLean, 9 Law Eep. (C. P.) 692. = 3 Moore & Scott, 174. LIMITATIONS TO THE SECOND PRINCIPAL RULE. 51 as narrowly as any partisan of the civil law could ask. " In tlie absence of appropriation *by the debtor," said he, " the creditor must make the appropriation at the time the money comes to his hands," and in How- ard & Dolman's case,^ it was held that where moneys have been paid by a company to its solicitors, on ac- count of costs generally, the solicitors have no right, post litem motam, to make a special appropriation of the payments. By the law of Scotland, the creditor is treated as leniently as by the most liberal English doctrines, being allowed to make his election " at the last hour," by whicb we understand even upon the trial,^ while in Canada some limitation at least is imposed on the creditor's right, for, in a recent case * it is said to be too late for him to wait until the very day of bringing the account into the master's office. In this country great contrariety of decision and opinion appears. Some judges say that the creditor must make the application at the time of receiving the payment.* Others, that he must make a recent application by entries in his books, and not keep parties and sureties in suspense, changing their situation from time to time as his interests, governed by events, might dictate.^ ' 1 Hem. & Mill, 433. ' Campbell v. Bent, 3 Moore's P. C. C. 293. ' Fraser v. Locie, 10 Grant. Ch. 307. * Stone V. Seymour, 15 Wend. 19 ; U. S. v. Bradbury, Davies, 146. ' Hill V. Southerland, 1 Wash. (Va.) 133; Logan v. Mason, 6 W. & S. 9. 62 APPLICATION OF PAYMENTS. While others still have taken the broad ground that he may make the application at any time ^ — " at the time of payment or at any subsequent time." ^ In a case in South Carolina,* it was held, that he could do so by his answer after suit brought, and Chancellor Harper said : " My conclusion is, on the pre- ponderance of authority, that the creditor has an un- limited right to appropriate when the debtor has made no appropriation at the time of payment." There are many authorities, however, between these two propositions ; some ruling that the creditor will be allowed a reasonable time ; * but that it is too late to wait until the trial ; ^ or until after suit brought ; * or until a controversy has arisen between the parties.'' A recent case in New Jersey,* laid down the doc- trine that it would suffice for the creditor to take ac- tion " at any time, except that it must be to a debt existing at the time of payment, and before the cir- ' Pattison v. Hull, 9 Cow. 747; Hill s. Brady, 1 Mo. 315; Alexandria ®. Patten, 4 Cranch, 317. ' Howard b. McCall, 31 Gratt. 205 ; Plummer v. Erskine, 58 Me. 59. " Heilbron v. Bissell, 1 Bailey Eq. 480. ^ Allen V. Culver, 3 Deu. 284 ; Brigga v. Williams, 2 Vt. 283 ; Harker ». Conrad, 12 S. & R. 301 ; White v. Trumbull, 8 Green, 314 ; Starrett v. Barber, 7 Shep. 457. ' Harker v. Conrad {supra) ; White e. Trumbull {supra). » Moss V. Adams, 4 Ired. Eq. 42; Callahan il. Boazman, 21 Ala. 246; Whetmore v. Murdock, 3 W. & M. 396 ; Richards i>. Columbia, 55 N. H. 96. ' Robinson v. Doolittle, 12 Vt. 246 ; Milliken ». Tufts, 31 Me. 497. ° Terhune v. Colton, 1 Beas. Ch 813. LIMITATIONS TO THE SECOND PEINCIPAL EULE. 53 cumstances of the parties interested are in any way changed, but that with this limitation it was impor- tant that the creditor's right should be maintained," while, in an equally late case in New York,^ it was said, by Mr. Justice Talcott of the Supreme Court, to be " too late, after the creditor had kept an account in a general debit and credit form, to attempt, for the first time, upon the trial of the cause, to divide up the items and apply the payments to different classes." Under this head, a somewhat peculiar case arose in South Carolina. A principal was indebted to his factor for distinct debts by judgment, and also by mortgage. It was held that the factor was entitled to retain the proceeds of the crops in his hands, without inaking any application until it could be ascertained, by a sale of the mortgaged property, whether it would be sufficient to pay the mortgage debt, and if it were not, that he might then apply the proceeds to the un- paid balance of the mortgage debt, and the residue to the judgment, and that the right of the factor to make such application was not affected by an intermediate assignment, by the principal, of his entire estate for the benefit of his creditors.^ The whole question received quite a discussion at the hands of Chief Justice Hemphill, of the Supreme Court of Texas, in Taylor v. Coleman (20 Texas, 772), who, while advocating a limited time for the creditor, ' Hufifstater v. Hayes, 64 Barb. 573. ' Stewart v. Cochran, 1 Bailey Eq. 380. 54 APPLICATION OP PAYMENTS. was also obliged to confess that the cases were the other way. " There has been some doubt," said he, " as to the time for the creditor to make the appropria- tion. In Mills V. Fowkes (5 Bing. N. C. 455), cases were cited that the creditor must specify, and in a rea- sonable time, the debt which, he proposes to discharge. This seems a most reasonable doctrine. If the debtor lose the right of appropriation, unless exercised at the moment of payment, the creditor should act upon his right, if not immediately, at least within a reasonable time, and not delay until, perhaps, there be a great change of circumstances, and especially where the law, on his failure, will do exact justice between the par- ties. But the rule, as at present established by the decisions, is otherwise. It may be doubted whether the plaintiff made any application of the payment until after the commencement of suit, when, on the authorities most favorable for the creditor, it would have been too late." From such a clashing of the cases, it is apparent that no fixed rule can be deduced. It is entirely clear that the creditor is not required to form his decision at the moment of receiving the payment, but as soon as we go beyond that the ground begins to lose its firmness, and our path is beset with difliculties. A late case in Ohio puts the rule about as reasonably as any we have seen, and we will close this branch of our subject by transcribing it. " It is thought to be the better rule, and the one sustained by the weight of UMITATIOKS TO THE SECOND PRINCIPAL EULB. 55 authority, that the creditor may make the application at any time as between himself and the debtor, but if the rights of third persons are concerned, and affected by the time of application, the creditor should make it in a reasonable time." ^ IV. In case of two demands, each exceeding the amount paid, the creditor may apply the payment on whichever demand he pleases — even the largest, and though all of them he harred by the statute of limitations / hut he can- not split -up the payment and apply it pa/rtly on one demand and pa/rtly on the other : he must apply wholly on one or the other? The contrary was held in Jackson v. Barke (1 Dillon, 311), the court ruling that a payment might be distributed by the holder of several notes among them all, so as to prevent any of them from being barred by the statute of limitations. It is true that the court held that the debtor gave a direction which might fairly be construed as conferring this authority upon the creditor, but it also said that, aside from that direction, the creditor possessed such a power of appli- cation. In the case of Wheeler v. House (supra), the Court used the following language : " It is well said, in Ayer " Gaston v, Barney, 11 Ohio St. 506. ' Ayer v. Hawkins, 19 Vt. 26 ; Wheeler v. House, 1 Williams, 735; Blackman ». Leonard, 15 La. Ann. 59. 56 APPLICATION OP PAYMENTS. V. Hawkins, ' that the right of designation among the creditor's demands is essentially the right of the debtor,' and ' that if he silently waives it in favor of the creditor, it should be intended tliat he does so, relying upon an application to which he could not justly or reasonably object; ' and it may be added that the debtor has the right to rely upon the application being made in the manner usually adopted in the course of business. Though it may be true that where the debtor at the time of payment neglects to direct its application, the right to make it devolves upon the creditor .with certain limitations, and if he has more than one demand against the debtor he may select the one upon which the application is to be made, yet I am not aware of any case, where the pay- ment was not sufficient to cancel one demand, in which the creditor has been allowed to divide up the payment and apply a part to one demand and a part to another, and certainly it is not in accordance with the usual course of business to make such a divided application of a general payment. We think the case of Ayer v. Hawkins should govern this, notwithstand- ing the reasoning of the judge is in some measure grounded upon the fact that the statute had run when the indorsements were made upon the notes. All the right which the defendant yielded to the plaintiff was a selection upon which note he would indorse the payment, and a divided application of the payment is not to be presumed to have been within LIMITATIONS TO THE SECOND PKINOIPAL EULE, 57 the intention of the parties, in the alDsence of proof. The court will, in the application of payments, carry- out the intention of the parties whenever that inten- tion can be ascertained." But where there is an authority in the transaction conferred on the creditor to make a divided or propor- tionate appropriation, he will be allowed by the court to do so. Thus, where four notes made by the same person and indorsed by the defendant were in the hands of the same holder, and the defendant, before any of them became due, gave the holder an order for their pay- ment (without expressing any priority) out of prop- erty conveyed by the maker to assignees by an indenture to which the defendant was a party for the payment of the notes in fall, or proportionately, which property proved to be insufficient, and the assignees in pursuance of the order made a payment, after all the notes had fallen due, and the holder ap- plied the money to all the notes pro rata^ instead of applying it wholly to those which had first fallen due : Held, that he had a right to make such appro- priation.^ Putnam, J., said : " By the terms of the assignment to which the defendant was a party, the money collected by the assignees was to be applied in payment and discharge of the debts of the party of the first part (the debtor) to the persons named in the schedule (the creditors), in proportion to the de- * Washington Bk. ». Prescott, 30 Pick. 339. 58 APPLICATION OF PAYMENTS. mands named in the schedule, without preference or priority, until all the claims should be paid in full." V. In some cases, it will he the duty of the creditor to apply the payment ratably on his demands if he have more than one. Thus, if a payment be made generally to a party who holds a debt due to himself, and another due to himself and a third person, he is bound to apply the payment ratably upon the two notes.^ So, also, if a party holds two demands against a party : one in his own right, and the other as agent for another person, and a general payment is made by the debtor.^ Ordinarily, in the case of an indefinite payment upon an obligation carrying interest, the creditor has a rigbt to appropriate so much thereof as is necessary to the satisfaction of the interest then due, before any part of the principal is canceled ; but if, in the case of such a demand, neither the principal nor the interest has yet become due, the payment shall apply, ratably, so as to extinguisli so much of the interest to that time upon so much of the principal as is discharged by the payment.® ' Colby 11. Copp, 35 N. H. 434. •■' Wendt V. Ross, 33 Cal. 650. ' Stone ®. Seymour, 15 Wend. 19; Miami Ex. Co. «. Bk. of U. S. 5 Ham. 260. LIMITATIONS TO THE SECOND PRINCIPAL RULE. 59 VI. Wheye the creditor lias a choice of modes of appro- priation, he will not be authorised to make such an application as will put the debtor injeopa/rd/y, either as to estate or reputation, as, if one of two debts was con- tracted while the debtor was a trader within the bank- rupt laws, and the other afterwards, the creditor will not be permitted to apply a gerieral payment to the latter, so as to expose the debtor to a commission of banhruptcy} In another case, it was said that this did not vest the creditor with power to act capriciously or to make such designation as would unreasonably operate to the prejudice of the debtor." VII. The principle on which the foregoing exceptions to the creditor's right of appropriation arefou/nded, seems to be this: that the debtor, by waivvng his right of ap- plication in fa/oor of the creditor, could not have in- tended that it should be exercised to his own injury, but on the contra/ry, that he relied on the creditor'' s making an appropriation to which, he could not reasonably object? ' Meggot «. Mills, 1 Ld. Raym. 386 ; Dawe ». Holdsworth, Peake's N. P. 64. " Taylor v. Coleman, 20 Texas, 772. ' 2 Greenl, Ev. § 531 a. ; Early v. Plannery, 47 Vt. 253. 60 APPLICATION OF PAYMENTS. VIII. Certain rules a/re alike applicahle to the two classes. Thus, we have seen that the application by the debtor need not be express, but may be evidenced by circumstances.^ In like manner the application by the creditor is matter of evidence depending upon the circumstances of the particular case.^ In Fowke v. Bowie, the Court said : " Whether the debtor (owing in his own right, and also en autre droit) made any and what application is a question of fact solely cognizable by the jury. There is evidence stated in the exceptions, from whicli the jury might infer that the defendant applied the payment in his representative character. Whether this testimony was true or not was a question solely for the consideration of the jury, and the court below erred when they instructed the jury that the defendant had not made any application." We found, also, that the right of application by the debtor existed only in the case of voluntary pay- ments.® The same principle obtains in reference to the creditor's right of appropriation. ' Ante, page 25. " Allen ». Culver, 3 Den. 384 ; Rowland v. Rench, 7 Blackf. 236 ; Powke «. Bowie, 4 Har. & J. 566. ^ Ante, page 31. LIMITATIONS TO THE SECOND PRINCIPAL RULE. 61 Thus, where a creditor recovered one judgment on several notes, some of which were made by the judg- ment debtor alone and others were signed also by a surety, and took out an execution which was satisfied by a levy : Held^ that he could not appropriate this money solely to the notes not signed by the surety, but that all tlie notes were paid proportionately.^ ' Blackstone Bk. ■». Hill, 10 Pick. 139 ; Merrimack Co. Bk. ». Brown, 12 N. H. 320. CHAPTER VIII. AS TO EETRACTIOIT OR CHANGE OF APPEOPBIATION. Where either party has once made a lawful appli- cation of a payment, or lias acquiesced in any applica- tion made hy the other pa^ty, or where either party has omitted to make such application as he was entitled to make in all such cases, such party is concluded hy the affi/rmatvoe or negative action to which he has committed himself J and cannot in the one case thereafter change any application which has been made, or, in the other case revive the lost right of appropriation} Whenever a legal appropriation of a payment has been made by either party, upon one of two claims of a creditor against the same debtor, one of the parties alone cannot change the appropriation.* Where a creditor, after having applied a payment made by his debtor to a particular debt, serves on the debtor an account current showing how the pay- ment was applied, which is acquiesced in by the latter for a long time, such application will be conclusive on him, and this even where the moneys were applied by the creditor to satisfy a usurious debt.' ' This last proposition holds in countries where the civil law prevails. Stone v. Seymour, 15 Wend. 19. ' Rundlett «. Small, 12 Shep. 29 ; Smith v. Wood, Saxon, 74 ; Harri- son i> Johnston, 27 Ala. 445 ; Johnson v. Johnson, 30 Geo. 857 ; Wendt «. Ross, 33 Cal. 650. ' Seymour «. Marvin, 11 Barb. 80. EETKACTION OR CHANGE OF APPROPRIATIOK. 63 A. owed B. on account, and on a note, and made a payment without any direction as to the application. B. applied it on the note, and afterwards A. settled the l)alance due on the note, after deducting this pay- ment out of it : Held, in an account on the account, that A. could not recall the payment and have it ap- plied on the account.^ The same rule governs where the creditor has ap- plied in a way other than the debtor intended, if the debtor has acquiesced in the application made by the creditor. Thus, where S., the indorser on a protested bill of exchange held by the Branch Bank at Decatur, pro- cured a discount of his note with a view of paying the bill, but having given no directions as to the application of the proceeds, they were placed to his credit on the books of the bank, and afterwards ap- plied by the cashier to the payment of the note, which was thereupon canceled and delivered over to S. : Held, that the note must be considered as paid. The Court said : " None of the cases' come up to the case at bar, and we apprehend no case can be found where the debtor, after his acquiescence in the application of the fund in the extinguishment of one debt, and hold-' ing the canceled demand in his hands, has been per- mitted to turn round and avail himself of the fund so applied the second time in the extinguishment of an- ' Gleason ». Hobart, 16 Vt. 473. 64 APPLICATION OF PAYMENTS. other demand, to pay which he may originally have designed it."^ The debtor cannot retract his application to an illegal demand even, nor can the court for him, whether the application be a present one made by the debtor himself, or by the creditor under a previous agreement with the debtor that it should be thus made. " No case can be found," said the Supreme Court of Maine, " where the law by its own vigor has with- drawn a payment deliberately applied to the discharge of a claim, however illegal, and appropriated it in payment of some legal claim existing against the in- dividual making the payment. No such principle as applicable to the appropriation of payments is recog- nized," And, accordingly, where part of the creditor's claim was for liquors sold by him in violation of stat- ute, which was not collectible, and the debtor had made payments specifically on those items, the court held that they must be so applied, and not to other items which were for groceries.* A similar ruling was made in Massachusetts, in Hubbell V. Flint,^ where Metcalf, J., said : " Having directed the payments made by him to be applied to the claims on him, for liquors unlawfully sold to him by the plaintiff, the defendant cannot now require ' Shaw V. Bk. of Decatur, 16 Ala. 708. = Treadwell v. Moore, 34 Me. 113; Caldwell v. Wentworth, 14 N. H. 431. = 15 Gray, 650. RETRACTION OR CHANGE OF APPROPRIATION. 65 that they he otherwise appropriated. A different doctrine would be tantamount to permitting a recov- ery back of the money voluntarily paid on an illegal demand, contrary to the established rules of law." Also in New Jersey, where payments had been appropriated by a debtor on an illegal usurious con- tract.^ And if payments, made by a debtor on account, be applied by the creditor, under a previous agree- ment, to certain items of the account which are illegal, as for liquor, it has been held in Massachusetts that such payments are valid, and cannot afterwards be re- voked by the debtor. " Such an agreement," says Chief Justice Shaw, " would be revocable by the debtor, and he might, on making a payment, give notice that he required it to be applied on other demands, not- withstanding the agreement, and it would be the duty of the creditor to make the application directed, but until such revocation, or such explicit notice from the payer, such agreement would regulate the application of payments to the items for liquor, would make them voluntary payments on that account, and extinguish them pro tanto" ^ Precisely the same ruling has been made in Con- necticut.^ Chief Justice Hinman subjected the ques- tion to a very thorough examination. " In the deal- ' Feldman v. Gamble, 36 N. J. Eq. 494. ' Eicbardson v. Woodbury, 13 Cush. 379. ' Tomlinson v, Kinsella, 31 Conn. 368. 5 66 APPLICATION OP PATMBNTS. ings of the respondent," he remarked, " with Hol- comb & Birdsey, he had at different times received from them, as a purchaser, a considerable quantity of liquors, but the account against him for other articles, which were lawfully sold, was larger than the amount of the notes, and there was an unrescinded agreement between them, made before there were any payments on the account, that the payments which should be made should be applied to the liquor account, and, consequently, not to the other portion of it until the liquors were paid for. Now, it is true, that this was an unlawful agreement, and, therefore, void as a con- tract, just as the purchase and payment for the liquors on delivery would have been. But it shows, never- theless, the intention of the parties, at the time the payments were made, to apply them exclusively to the liquor account, and excludes the idea that there was any intention to pay any portion of the lawful ac- count. If, during the running of this account, a cask of liquor had been bought by the respondent and paid for at the time, we presume it would not be claimed that the subsequent lawful account between them, to the amount of the money so paid, would be extin- guished by an application which the law would make directly contrary to the intention of all parties, and after the lawful account was settled by a note, surely, no one would claim that such note was void, or that the money paid for the liquor ought to be applied in satisfaction of it. The party receiving money as the RETRACTION OR OHAKGE OP APPROPRIATION. 67 consideration of an illegal sale may, tinder the statute, be liable to refund it. But to apply it by law as pay- ment to other lawful debts is, in effect, to make a new contract for the parties against their wishes and inten- tions, and different from that which the law raises from the circumstance that the money may be re- covered back under the statute." And it has been decided, generally, in another case, that where the debtor has distinctly made the application, it is not in the power of the court to vary it against his consent.^ A very strong instance of the party paying being bound by his own act, although it was done even in a representative character, is afforded by one of the latest cases in the Court of Appeals of New York.** The parties to the action were heirs at law and next of kin of J., deceased, of whose estate the defendant was administrator. The plaintiff drew two drafts on defendant, which the latter paid. Defendant there- after presented a verified account as administrator to the surrogate, of moneys paid by him to the next of kin, including, in the statement of moneys paid to the plaintiff on account of his distributive share, the two drafts. The surrogate rejected these claims. On ap- peal to the General Term of the Supreme Court, the surrogate's decision was reversed. In an action brought by the plaintiff for an accounting as to rents ' Selfridge v. Northampton, 8 Watts & S. 330. ' Wright V. Wright, 72 N. Y. 149. 68 APPLICATION OE PATMEKTS. and profits of the real estate left by J., wMch had been received and collected by defendant, the latter set up as a counter-claim the sums paid on the drafts: Held, that the facts evinced an intention on the part of de- fendant to apply the sums paid on the drafts towards plaintiff's distributive share of the personalty, and having thus elected as to the fund out of which said sums should be paid, he was precluded from applying them as against the rents received from the realty. Miller, J., in delivering the opinion of the court, after stating the facts concisely, proceeded : " It appears that subsequent to the payment of the drafts, whicb was in 1870, and in the month of September, 1875, the defendant, as administrator of his father's estate, presented to the surrogate a verified account of moneys paid and advanced by him to the next of kin of the deceased, with a schedule attached containing a particular statement of moneys paid to the plaintiff on account of his distributive share, in which he charged the amount for which the drafts in question were given, at or about the date of the same. He thus conceded that both of them were applicable on the plaintiff's sharei of the personal estate of his father. Whatever criticism may be indulged in as to the lan- guage employed in the application and the affidavit accompanying the same, it cannot be denied, I think, that these papers evince an intention of the defendant to apply both of the sums named towards the plaint- iff's distributive share of such estate. Such being the KETRAOTION OR CHANGE OE APPROPRIATION. 69 irresistible inference from the facts, I think that the defendant is precluded from claiming that such pay- ments were to be differently applied, and that they are a proper and legitimate counter-claim against the rents received by the defendant from the real estate, and it is too late now to interpose such a defense in this action. It is true the surrogate rejected these claims, but his decision was reversed, on appeal, in this respect ; and as the case now stands, they were properly presented by the defendant, and should have been allowed. The fact that an appeal was taken and is pending from the decision of the General Term, of itself makes no difference, and cannot change the as- pect of the case or aid the defendant, and it is enough that the law, as declared, held them to be legitimate. But in no event is this controlling, for the affidavit of the defendant as to the original application is con- clusive against the defendant, and he cannot now withdraw his claim from his account rendered under oath, and use the same as a set-off in this action against the plaintiff's demand. Such a position ns in- consistent with the acts and declarations of the defend- ant heretofore, and cannot be upheld upon any legal ground. He has made his election and is precluded from claiming a right to change his ground." An exception to this general bent of the authori- ties, has been noted in a few cases where a debtor, having paid illegal interest, has been allowed, not- 70 APPLICATION OF PAYMENTS. withstanding, to retract it, and have it applied on the legal debt.^ E eonverso, where once the creditor has made his election, he is bound by it.^ Thus, where the creditor gave a receipt specifying that the payment was to be applied on a certain ac- count, it was held that this was an appropriation of the payment which the creditor could not afterwards change.* Nor can either of the parties recover a lost right of appropriation through the medium of the court, neither directly by being allowed a second time to make it, nor indirectly by demanding of the court so to make the application as to advance the peculiar in- terests of that party to the injury of the other party.* Where both the payer and the receiver agree to change an application which has been made, the ques- tion fias arisen whether such change could be made, and it has been decided that it cannot be done where the rights of other parties intervene. Thus, where an application of a payment has once been made upon the joint debt, it has been ruled that the application cannot be subsequently changed by ' Gill V. Eice, 13 Wis. 549; Hayen v. Hudson, 13 La. Ann. 660. " Allen V. Culver, 3 Den. 284; Simson ». Ingham, 3 B. & C. 65; Beale v. Caddick, 3 Hurl. & N. 336 ; Smith «. Wood, Saxton, 74 ; Brown v. Brabham, 3 Ham. 375 ; Martin v. Draher, 5 Watts, 544 ; Alex- andria «. Patten, 4 Cranch, 317 ; Codman i-. Armstrong, 15 Shep. 91. ' Brown v. Brabham, supra. * Stamford Bk. v. Benedict, 15 Conn. 437. EETEACXION OR CHANGE OF APPROPRIATION 71 the concurrent act of the creditor and the paying debtor, and the claim thus be revived without the con- sent of the co-debtor.^ The Court said; "The co- debtor, not having consented to any change as to the application of the payment, has the right to insist on its remaining where the parties placed it. It might be a fraud on him to apply it elsewhere." And such a refusal to change will be made by the court where the rights of third persons are involved*^ — such as sureties^ — and such change will not be made where the appropriation has been made even by the law, and both debtor and creditor consent to the change, if the rights of a surety will be thereby pre- judicially affected.* Where, however, no other rights or interests than those of the parties themselves are at issue, an appli- cation, whicb has been made by either party, may be changed with the consent of both, and in such case the indebtedness which was first discharged will be revived by implication of law, even where there is no express promise." A^ fortiori there can be no doubt that in a case where both parties had omitted to make ftn applica- tion, the concurrence of both of them subsequently, in ' Thayer v. Denton, 4 Mich. 192. » Chancellor «. Schott, 23 Penn. St. 68 ; Terhune v. Colton, 1 Beas, Ch. 232. " Logan V. Mason, 6 W. & 8. 9 ; Hargroves «. Cooke, 15 Geo. 321. * Berghaus ». Alter, 9 Watts. 386. ° Rundlett ». Small, 1? Shep. 29 ; Smith v. Wood, Saxton, 74. 72 APPLICATION OF PAYMENTS. a specified application, would be effectual, for the law makes the application on the failure of the parties to do it, on the presumption of the interest or intention of one or the other of the parties, and, therefore, it would give way to an actual appropriation by both of the parties as furnishing direct evidence, and super- seding the necessity of presumption. That would probably be the rule of law even where sureties are concerned.^ In the case last cited, an interesting speculative question was started, viz., if the law were that the debtor or creditor must, when each acts by himself and upon his single right, apply the payment when it is made, whether in equity those two parties could subsequently, by concurring in an application, pre- vent the law from making one, so as thereby to affect the rights of sureties. One limitation, at least, would occur, it was thought, to such a case : the insolvency of the debtor in the meantime, for that event would tie his hands and let the law operate between his sureties and the creditor as things stood at the happening of the insolvency. . The crSditor cannot withdraw and change an ap- plication which he has once made with the consent of the debtor, even though it was originally against the design and intention of the debtor.^ It is an obvious principle, from the foregoing rules, ' Moss V. Adams, 4 Ired. Eq. 42. " Dorsey v. Wayman, 6 Gill. 59. RETRACTION OR CHANGE OF APPROPRIATION. 73 that when either the debtor or the creditor has made an application in a given case, the other has no right to change it.^ Such a change cannot be made, even by the cred- itor commencing legal proceedings on the claim, after the debtor has made the application, and taking judg- ment thereon, by default of the debtor, for the full amount of the claim. Notwithstanding such legal proceedings, and this judgment, the payment must still be applied on the debt, just as the debtor orig- inally applied it.^ And an executor cannot change an application which has been made of past payments, by others pre- ceding him, so as to revive a lapsed liability of the estate.* Where, however, the payer has been guilty of mis- representation and misstatements in regard to the accounts or fands at the time of his direction for ap- propriation, the receiver is not precluded by sucli ap- propriation, and may change it upon discovery of the fraud practiced upon him.* And if what was intended as a payment by the debtor, and received as such by the creditor, proves, by subsequent developments, to be incapable of such a construction or treatment, the application which was ' Shaw V. Bk. of Decatur, 16 Ala. 708. ' Sherwood v. Haight, 26 Conn. 433. ' Merriman v. Ward, 1 John. & Hem. 371. * Liveimore v. Claridge, 33 Me. 438. 74 APPLICATION OF PAYMENTS. made of it will be withdrawn, and the del^t revived and reinstated.^ All these cases presuppose an actual or completed appropriation, and have no reference to an inchoate but incomplete act of appropriation. Thus, the entry of payments by a creditor upon one account, does not preclude him from applying them subsequently, within a reasonable time, to any other account to which he might originally have ap- plied them, provided that such entry has not been communicated to the party making the payment.^ This is upon the ground that the creditor making private entries in his books, which were not communi- cated to the other party, did not indicate a complete election so to appropriate the payments, but merely an idea of so appropriating them. ' Pritchard v. Hitchcock, 6 Man. & Gr. 151 ; Newington v. Levy, 39 L. J. (C. P.) 334. ' Allen V. CulTer, 3 Den. 284. CHAPTER IX. THIS EIGHT OP APPEOPEIATION CONriNED TO THE PAE- TIES THEMSELVES. A TEET useful inquiry in this place is the question, whether any other parties are entitl'ed to a voice in this matter of application ? The general rule may be very broadly and strongly stated, that none others than the party paying or re- ceiving have any power of action or dictation in the premises ; ^ but this general rule will be found to be attended with some slight exceptions. Judge Story, in Gordon v. Hobart (2 Sto. 243)^ said that the right of appropriation of payments was one strictly existing between the original parties, and no third person had any authority to insist upon any appropriation of such money in his own favor, where neither the debtor nor the creditor had made or re- quired any such appropriation; and he ruled accord- ingly, that the assignee of A. could not insist that money in the hands of B., belonging to A., should be applied in a particular way. Sureties would seem to have rights in this direc- •2 Sto. on Con. 5th ed. §1156; Gordon «. Hobart, 2 Story, 264; Wright «. Hickling, 2 Law Rep. (C.P.) 199; In re Pitzmaurice's Minors, 15 It. Ch. 445 ; Theobald on Prin. and Surety, 165. 76 APPLICATION OF PAYMENTS, tion, if any one had ; yet £lie law is laid down very explicitly in regard to them. In quite a recent case in Connecticut,^ it was said : "A surety of the debtor has no voice in the appropria- tion of payments made by the debtor. The debtor and creditor have the sole right of controlling the payment, and the doctrine that sureties will be fa- vored in the construction and enforcement of contracts has no application to such a case. To do so would be to defeat the object and end of suretyship, and to hold that the surety might have the money which was paid by the debtor so applied as to leave the creditor a loser, notwithstanding his care and vigilance." The same principle was also enunciated in South Carolina.^ The question received great attention in Williams V. Rawlinson (10 J. B. Moore, 362), and Lord Chief Justice Best expounded the doctrine quite as explic- itly as was done in the foregoing cases. " One fact is extremely strong against the defendant," said he, "viz., that his principal agreed to the application of the payments by the plaintiffs to the old balance, as he saw the accounts every fomight, and received vouch- ers half-yearly. And he must, consequently, h,ave seen, when the first half-yearly vouchers were sent in, that the sums remitted by him subsequently to the giving ' Stamford Bk. v. Benedicli, 15 Conn. 437. ' Sager v. Warley, Rice's Eq. 36; Stone v. Seymour, 15 Wend. 19; Hansen «. Rounsavell, 74 111. 238. APPROPRIATION CONFINED TO PARTIES. 77 of the bond, had been applied by the plaintiffs in liquidation of the old balance. If, therefore, the prin- cipal consented to such an appropriation, there is an end of the question, for he clearly had an option as to which account the payments should be applied, and he alone had an unfettered right iu this respect, and over whicli the defendant, as surety, could have no control, unless there were an express or distinct agree- ment entered into at the time of the execution of the bond, which cannot be collected, or even inferred, from anything that appears on the face of that instru- ment."^ In a case in Ohio, presenting quite a complicated state of facts, and one appealing very strongly to the sympathy of the court in behalf of the surety, the same rule was adhered to.^ It was said that the in- terests of a surety cannot be permitted to control the intention of the immediate parties to a payment, and, in the absence of circumstances indicating the debt- or's intention in his favor, the law raises no presump- tion of such intention. E conversOj a principal has no right to control a payment by a surety.' But a surety may have a voice in regard to the disturbance of a past application. Thus, where a payment has once been properly applied upon a particular note, which was made by '•See, also, Robson «. McKoin, 18 La. Ann. 544. " Gaston v. Barney, 11 Ohio St. 606. ' Waugh v. Wren, 11 Weekly Reporter, 344. 78 APPLICATION OP PAYMENTS. several parties as principals and by another as secu- rity, it cannot afterwards be diverted from that appli- cation to another debt, upon the mere agreement of one of the principal makers with the holders, so as to revive the original indebtedness against the security.^ The rights of sureties in another phase, viz., on "Official Bonds," will be discussed in a subsequent chapter. In a late case in Pennsylvania, it is said generally that the court cannot go outside of the case, in the absence of an appropriation by the parties, to see whether or not there are other parties interested in the subject of the set-off. They can only deal with the parties before them.^ This rule has been encroached upon in a few in- stances, owing to their peculiar circumstances. In White v. Trumbull (3 Green. 314), it was held that where the case was not one of a running and con- tinuous account, but of several different debts, all of which were due, and on all of which there were sure- ties and different ones, the payments would be applied pro rata on all of the debts. In Harker v. Conrad (12 S. & R 301), a lumber merchant had separate liens for materials furnished to two houses. After receiving a general payment from the debtor, he suffered his lien on one of the houses to expire. On the trial of his claim filed against the ' Miller v. Montgomery, 31 HI. 350. » HoUister v. Davis, 64 Penn. St. 508. APPROPBIATION CONFINED TO PARTIES. 79 other house, it was held that he could not appropriate the payment in discharge of his demand, in respect of which his lien had expired, to the injury of a third person who, without notice, had purchased the prop- erty against which the lien was sought to be estab- lished. And while, as a mere question of power in ordi- nary cases, a surety will be allowed no voice in the direction of the appropriation, yet when he is the vic- tim of a fraud which has been practiced on him, and under the influence of which he has performed acts, he will be heard by the court, and will be relieved. Thus, where bankers with the knowledge of an act of bankruptcy committed by their customer, took a guarantee from a surety on his behalf," to secure to a given amount all sums then or thereafter to become due from the customer, but the surety had no knowl- edge of the act of bankruptcy, and afterwards paid to the bankers the full sum for which he was guarantee, without specifying to which portion of the banker's debt the payment was to be applied : Held^ that such payment was to go in reduction of that portion of the bankrupt's debt whjch was provable under the fiat, and not of that which was not provable.^ Per Vice-Chancellor Itnight Bruce, C. J. : " Upon these facts, I think that neither when the guarantees were given, nor when the payments were made, were the guarantors on equal terms with the petitioners ; ' In re Mason, 3 Mont, Deac. & De Gez, 490. 80 APPLICATION OF PAYMENTS. and if those payments were to be held applicable to the portion of the debt that was incurred after the act of bankruptcy of December, and the consequences of that were to render their proofs liable to be expunged, I apprehend that justice would not be done as be- tween the petitioners and the guarantors. * * * Under all the circumstances, I am of opinion that the justice of this case will be best satisfied by applying the £450 received, from the guarantors towards the the earlier' portion of the debt. * * * I may say that the principle on which Pidcock v. Bishop (3 B. & C. 605),* proceeded seems not very foreign from the matter before me." ' In this case, it -was agreed between the vendors and vendee of goods, that the latter should pay 10s. per ton beyond the market price, which sum was to be applied in liquidation of an old debt due to one of the vendors. The payment of the goods was guaranteed by a third person, but the bargain between the parties was not communicated to the surety : Seld, that that was a fraud on the surety, and rendered the guarantee void. CHAPTER X, THIRD PRINCIPAL RULE. If neither party applies the payment, the coti/rt will make the application, according to the justice and equity of the case, for the benefit of both parties} We have now reached the point of greatest diver- gence between the Roman law and the common law, on this subject. The pivotal point in the civil law was the inten- tion of the debtor, ^^ animus solventis^ To this all other considerations were made to bow. The debtor's real or expressed intention would in all cases prevail, and inasmuch as his actual intention would in the first instance have governed, so, in case of no express appro- priation by him, it was his presumable intention that was resorted to as the rule by which the application 'Stone v. Seymour, 15 Wend. 19; Allen «. Culver, 3 Den. 384; Harker v. Coorad, 18 S. & E. 301 ; Hammer v. Rochester, 2 J. J. Marsh, 144 ; Robinson v. Allison, 36 Ala. 535 ; Gordon o. Hobart, 3 Story, 343 ; Robinson v. Doolittle, 13 Vt. 346; Matossy v. Frost, 9 Texas, 610; Cald- well V. Wentworth, 14 N. H. 431 ; Pierce «. Knight, 31 Vt. 701 ; Miller D. Miller, 10 Shep. 23; Cremer «. Higginson, 1 Mason, 333; Johnson's Appeal, 37 Penn. St. 268 ; Bobe v. Stickney, 36 Ala. 483 ; Solomon 8. Dreschler, 4 Minn. 278; Calvert v. Carter, 18 Md. 73; King v. Andrews, 30 Ind. 439; Chester n. Wheelwright, 15 Conn. 563; Campbell©. Vedder, 1 Abb. Ct. of App. Decis. 295. 6 82 APPLICATION OF PAYMENTS. was to be determined. The inquiry in such case always was, what application would be most beneficial to the debtor. The payment was consequently ap- plied to the most burdensome debt; to one that carried interest, rather than to that whicb carried none ; to one secured by a penalty, rather than to that which rested on a simple stipulation, and if the debts were equal, then to that which had been first contracted. The creditor was, in short, to substitute himself in place of the debtor, and apply the payment to that debt which he would have first discharged if he had been the obligor.^ And this is substantially the law of modern conti- nental Europe, and of those countries deriving their jurisprudence from the civil law.* The doctrine here stated has never obtained in the common law tribunals. The right of appropriation has, as we have seen, been accorded to the debtor, in the first instance, to the fullest extent, but upon his failure to avail himself of it very different conse- quences result. Upon this matter of difference between the two systems there is a remarkable absence of all discussion ' Home V. Planters' Bk. 33 Geo. 1. ' Poth. Obi. part 3, c. 1, art. 7, § 530 ; 1 White's New Eecopil, b. 3, tit. 11, pp. 164, 165; Van Der Linden's Laws of Holland, b. 1, c. 18, § 1 (Henry's ed. p. 207) ; Grotius Introd. to Dutch Jurisp. b. 3, c. 39, § 15, p. 458 (Herbert's Tr.) ; Civil Code of France, art. 1258-1356 ; Civil Code of Louisiana, art. 2159-2161 ; Spiller v. Creditors, 16 La. Ann. 393; Far- stall ®. Blanchard, 12 La. Ann. 1 ; N. O. Ins. Co. ■». Tio, 15 La. Ann. 174. THIED PEINCIPAL RULE. 83 in the English cases, especially the older ones. The new doctrine is stated by the courts, and laid down, and acted upon, but no attempt is made to give its history or origin ; no comparison instituted between it and other rules ; no argument advanced in support of its excellence or superiority. The student may travel through all the old cases where the foundations of tlie common law rule were being laid, and not glean therefrom the first intimation that there ever existed such a thing as the Roman law. Even as late as . Clayton's Case, judges expressed themselves with hesitation, and Sir William Grant, in his very celebrated opinion in that case, modestly said that those rules were " probably borrowed from the civil law." This is very different from the language of judges fifty years later. The courts of Scotland, on the other hand, have pursued a very different course, not hesitating to admit their obligations to the civil law, nor to ac- knowledge their departure from it. In the case of Forbes v. Innes (1 Kiikerron's Decisions, 284), cited by the Right Hon, Dr, Lushington, in Campbell v. Dent (2 Moore's P, C. C, 292), the Court said: "We have receded much from the civil law in the matter of indefinite payments. With us it has been understood to be applied to the debt worst secured, and to the debt bearing annual rent, to which, as the chu/rior sors, it was applied by the civil law ; nay, we have now gone so far as instead of the rule of the civil law 84 APPLiOATION OF PAYMENTS. that electio was debitoris we have gone into the direct contrary that electio is creditoris.^'' To what this persistent taciturnity in the old English books is owing has exercised the curiosity of students and scholars. The writer in the American Law Magazine, to whom we have already alluded {supra, page 1), attributes it to a repugnance to the civil law in England, for which he quotes Sir William Jones as stating that- law to be in bad odor among Englishmen, and also Lord Holt as saying, in an im- portant case, that he was loath to quote it. There is, undoubtedly, some foundation for this charge at the time to which it applies, for, at about the same date, another eminent judge felt obliged to close one of the ablest opinions, ever delivered by any jurist, in the following terms : ^ " I am not wise enough to de- termine which of the two laws is most perfect— rthe Roman law or the English, but this I know (which is enough for a judge), that although almost every coun- try in Europe hath received that body of laws, yet they have been with a most stubborn constancy at all times disclaimed and rejected by England. For which reason (and not through any disrespect to the argument I have been endeavoring to answer), I choose to lay aside all that learning as not being rele- vant in Westminster HalV * ' Opinion of Chief Justice Pratt (afterwards Lord Camden), in Doe A. Hindson ». Kersey, 1 Day, 41, note j. " It would seem that an enthusiastic preference for the common law THIED PRINOIPAIi RULE. 85 Happily such a feeling, however strong it may have existed at one time, has long since disappeared. At the very time that Lord Holt made the above quoted disparaging remark, a contemporary judge, the great Lord Chancellor Somers, was mastering, more completely than any of his predecessors had ever done, the principles of the civil law, and incorporating them into the equity system of England,^ and within the last forty years Lord Cottenham has made the admission, as frank and unqualified as could possibly was not confined to England, nor to olden times, but had existed " on this side of the water," and at a comparatively recent date. Bronson, Atty.-Gen., and afterwards a distinguished member of the Supreme Coiirt and Court of Appeals of the State of New York, arguendo in Seymour v. Van Slyck (8 Wend. 403-12), paid the following glowing tribute to that system : " It is the fashion of the day to magnify the civil law to the prejudice of the common law, without regard to the value of the latter. The common law is founded on no particular code of any nation, but is the collected wisdom of what is valuable in the institutions of all nations, as it regards the rights of persons and property. All have been made to contribute to the fund which we claim as our richest inheritance." • ' The change which has come over the spirit of the equity jurispru- dence of England, commencing with Lord Somers' time, and which was owing to the infusion of the principles of the Roman civil law into it, has been well portrayed by the pen of the distinguished biographer of the Lord Chancellors, Lord Campbell, himself a consummate Chief Justice of a common law court, and afterwards an able Lord Chancellor. His tribute to the civil law acquirements of Lord Somers and Lord Hardwicke, and to the value of the contributions to the equity system of England, from these sources, is equally generous and just. His mention of Lord Somers will be found in vol. 4, of the "Lives of the Lord Chancellors," at page 113, and that of Lord Hardwicke in vol. 5, at page 65. 86 APPLICATION OF PAYMENTS. be asked, that the English law on this very subject had been taken from the Eoman codes. "Clayton's Case," said his lordship, " did not establish any new rule of law. The general rules for the appropriation of payments are of much older date than that of Lord Hardwicke's. order (in 1743), amd are derived from the civil lawP ^ In the American courts, on the other hand, a very lively discussion of the respective merits of the civil law and the common law, in this respect, has ensued from the very outset. The earliest cases arose in Maryland, where the civil law doctrine was adopted and applied, though without any extended examination into the matter by the court.^ Chase, Ch. J., treated the doctrine as set- tled, and did not take the pains to go into the citation of authorities.- And the ruling of this early case was re-affirmed at a comparatively recent date.' In Pattison v. Hull (9 Cow. 947), Judge Cowen collected the decisions very laboriously, and, while he disclosed his individual opinion very slightly, if at all, yet he regarded the weight of authority as prepon- derating very decidedly, in the English and American courts, in favor of the civil law doctrine. The Supreme Court of North Carolina, in 1845, felt constrained to yield, by the force of authority, to ' Bower «. Harris, Cr. & Phil. 351. ' Gwinn ». Whitaker, 1 Har. & J. 754. " Calvert v. Carter, 18 Md. 73. THIRD PRINCIPAL RtJLE. 87 the common law rule ; ^ but Ruffin, Ch. J., evidently sympathized with the civil law. " Perhaps," said he, ■" it had been well to have adhered to the original rule of the civil law as more simple in itself, easier under- stood, and, in its uniform operation, doing as much justice, upon the whole, as any other, however modi- fied. But with no previous predilection for them, we find the exceptions to it so firmly established in the tribunals of the common law, that we have no choice but to adopt them also ; and possibly they were nec- essary to the advancement of credit in our more com- mercial ages, by affording to the creditor more facili- ties for securing himself upon the failure of his debtors," The Supreme Court of Vermont was similarly con- ditioned in the case of Robinson v. Doolittle (12 Vt. 246). Redfield, J., found the authorities leaning to- wards the common law doctrine, but expressed him- self as considering the rule, as it had been expounded in the Maryland courts, " more in accordance with the principles of natural justice and equity, and more cor- respondent with other established rules upon the same subject." Judge Story has contributed the influence of his great name to this side of the question. In Gass v. Stinson (3 Sumn. 98), he made several earnest pleas in its behalf. At page 110 he says: "There is no doubt that the doctrine of the common law as to the ' Moss V. Adams, 4 Ired. Eq. 42. 88 APPLICATION OF PAYMENTS. appropriation of indefinite payments has generally been borrowed from the Roman law, and it is deeply to be regretted that there has been any departure from its true results. The Roman law is equally sim- ple, convenient and reasonable upon this subject, and, for most cases, will furnish an easy and satisfactory conclusion." Again, at page 111, he continues: "Now, the whole of this doctrine of the Roman law turns upon the intention of the debtor, either express,^ implied or presumed : express, when he has directed the appli- cation of the payment, as, in all cases, he had a right to do; implied, when he knowingly has allowed the creditor to make a particular application at the time of payment without objection; presumed, when, in the absence of any such special appropriation, it is most for his benefit to appropriate it to a particular debt. And, notwithstanding there are contradictory and conflicting authorities on this subject, in the En- glish and American courts, I cannot but think that the doctrine of the Roman law is, or at least ought to be, held, and may well be held to be the true doctrine to govern in our courts. There is a great weight of common law authority in its favor, and, in the conflict of judicial opinion, that rule may fairly be adopted which is most rational, convenient and consonant to the presumed intention of the debtor. If the creditor has a right, in any case, to elect to what debt to ap- propriate an indefinite payment, it seems to me that THIRD PBINOIPAL BOLE. 8& can be only when it is utterly indifferent to the debtor as to which it is to be applied ; and then, perhaps, his consent that the creditor may apply it may fairly be presumed. Mr. Justice Cowen, in his learned and elaborate opinion in Pattison v. Hull, has examined and criticised all the leading authorities, and mani- festly leans in favor of adopting the doctrines of the Roman law throughout. I confess myself strongly in- clined to the same way, and shall yield only to author- ities which I am bound to follow." The same doctrine is asserted in a recent case in the District Court of the IT. S. for Massachusetts.^ Judge Sprague reasons as follows : " All the author- ities agree in one point, that the debtor, when he pays, has a right to say to what debt the payment shall be appropriated, and this for the obvious reason that the debtor might withhold the payment ; and if the creditor receives it, he must take it on the terms offered by the debtor. Now, it is said that the debtor failing to exercise the right, it passes to the creditor. Why so ? What equity is there in giving this right to the creditor at any subsequent period? If the creditor appropriates it at the moment and with the knowledge of the debtor, and he is silent, there is a presumed assent to the application, otherwise the law ought to appropriate. But on what principles ? Thfe Koman law adopted the rule of appropriation sanc- tioned in the case of Gass v, Stinson, and the other ' The Ship Antartic, 1 Sprague, 206. •flO APPLICATION OF PAYMENTS. •cases cited, viz., that the application was to be made as the defendant would have made it, if he had ex- pressed His choice at the time. Thus, where there are two debts, one secured by a penalty and the other not, or one bearing interest and the other not, the payment in both cases is to be applied to discharge the former, according to the presumed intention of the debtor. I am satisfied that the law applies the same principle in <;ase of a debt secured by a lien, that the debtor would naturally intend to relieve his property from incum- brance. He had the original right of appropriation, but it not having been made by either party, the law comes in and makes it as it presumes the debtor would have done." In Tennessee, at an early day, preference was given iiO the civil law rule. In the case of Bussey v. Gant {10 Humph. 238), McKinney, J., used the following language : " The doctrine upon this subject, both of the English and American courts, seems to have been borrowed from the civil law. The rule of that law was, that where the application was not made by the parties, and where it became necessary to direct it by a court of justice, it ought to be applied to the debts which lie heaviest on the debtor, and which it con- cerns him most to discharge. And the weight of au- thority, in England as well as in this country, is, we think, in accordance with this principle." The learned judge then cites several authorities, such as Pattison v. Hull and the cases from Maryland, and gives instances THIRD rEINOIPAL RULE. 91 of the application of the doctrine similar to those al- ready given, and concludes by remarking : " Such, also, is the rule in various other instances in the books." And this may be considered the law in Tennessee, The civil law rule became acclimated in Mississippi from the first. It was originally asserted in Poindex- ter V. La Eoche (7 S. & M. 699), and has been repeat- edly recognized and affirmed in subsequent cases/ In McLaughlin v. Green, Chief Justice' Peyton said : " The difference between the common law and Roman law is to be found in the application which the law makes of a payment, in the absence of any made by either the debtor or the creditor. The common law appropriates the payment most beneficially for the creditor; the civil law appropriates the payment most beneficially for the debtor. Whatever difference of opinion may exist with respect to the equity and justice of the rules respectively adopted by these systepas of jurispru- dence, it must be conceded that the. doctrine of the civil law, upon this subject, has been adopted in this State." These arguments and authorities, however, have not prevailed against the reasoning and the names which appear upon the other side of the question. Chief Justice Marshall struck the key note of a contrary doctrine, in a very early case,^ and this is his ' Harner v. Kirkwood, 35 Miss. 95 ; McLaughlin v. Green, 48 Id. 175 ; Keal ®. Allison, 50 Id. 175. «' Field ». Holland, 6 Cranch, 8. 92 APPLICATION OF PAYMENTS. language : " There is then no question on the merits but this : Were the payments properly applied by the court, or were they applicable to the judgment ? The principle that a debtor may control at will the application of his payments is not controverted. Neither is it denied that on his omitting to make this application the power devolves on the creditor. If this power be exercised by neither, it becomes the duty of the court, and in its performance a sound dis- cretion is to be exercised. It is contended by the plaintiffs that, if the payments have been applied by neither the creditor nor the debtor, they ought to be applied in the manner most advantageous to the debtor, because it must be presumed that such was his intention. The correctness of this conclusion can- not be conceded. When a debtor fails to avail him- self of the power which he possesses, in consequence of which the power devolves on the creditor, it does not appear unreasonable to suppose that he is content with the manner in which the creditor will exercise it. If neither party avails himself of his power, in consequence of which it devolves on the court, it would seem reasonable that an equitable application should be made. ' It being equitable that the whole debt should be paid, it cannot be inequitable to extin- guish first those debts for which the security is the most precarious. That course has been pursued in the present case." Referring to this decision, the Court of Appeals of THIRD PEINOIPAL EULB. 93 Virginia, by Allen, J., in a case before it,^ said : " If neither party makes the application, the law will ad- just it by its own notions of equity and justice of the case. The point has never been decided, so far as I can discover, in Virginia. In the absence of any ex- press authority, I incline to the opinion that the posi- tion taken by the Supreme Court is, upon the whole, the best. No general rule, applicable to every case, could be adopted and adhered to without producing great hardship. Men keep their accounts Igosely. Scarcely any case occurs which does not vary in some material circumstances from every other case. Justice to creditor or debtor would frequently require ex- ceptions to any specific rule that might be adopted, and these exceptions would multiply with the ever varying dealings and transactions of individuals, until at length the rule itself, and the particular cases in which it could apply, would become exceptions. If the parties having the power fail to use it, they can- not complain that the law, not conforming itself to the presumed intentions of either, makes the applica- tion according to the justice of the particular case, in view of all the circumstances attending it." In Stone v. Seymour (15 Wend. 19), Chancellor Walworth, in the course of his very learned and ex- haustive opinion, thus addressed himself to one of the great supporting considerations of the civil law rule : " The Eoman law proceeded upon the erroneous prin- ' Smith r. Lloyd, 11 Leigh, 513. 94 APPLICATION OP PAYMENTS. ciple, that where there was an indefinite payment the creditor was hound to act upon the golden rule of doing as he would be done by if he were himself the debtor, and therefore must apply it in that way which would be most beneficial to the debtor. In adopting this principle, the Roman lawgivers overlooked the fact that when there were conflicting interests the golden rule applied to the debtor as well as the cred- itor, and that, upon the same principle, it would be the duty of the debtor to allow his creditor to apply the payment in the way that he might consider the most beneficial to himself In other words, that the debtor, as well as the creditor, should be required to do as he would be done by under like circumstances, the effect of which conflicting duties would be to leave the application to be made according to equity be- tween the parties, A ad this rule of equity would not require the creditor, where both debts were due and ought to be paid, to apply the payment to that which was secured upon the debtor's property and drawing interest, instead of that which was insecure, and from which he was deriving no income, while he was de- prived of the use of his money by the neglect of the debtor to pay both debts. The true principle unques- tionably is that stated by Chief Justice Marshall, in Field V. Holland," &c. But by far the most lengthy and most spirited ar- gument against the civil law doctrine, is that delivered by Chief Justice Gibson, of the Supreme Court of THIRD PEINOIPAL RULE. 95 Pennsylvania, in th^ case of Logan v. Mason (6 Serg. & W. 9). We cannot transcribe it entire, .owing to its great length, but will give such excerpts from it as will furnish a tolerable idea of it. " Notwithstanding the admitted excellence of the Latin code, the English judges were constrained to alter almost every part of it which they introduced into the body of the common law, in order to fit it to modern use, and the conti- nental states, who profess to have received it entire, followed only to a lesser extent the footsteps of their more commercial neighbors. These alterations were indispensable to make the jurisprudence of the day keep pace with the changes wrougjht in the affairs of men by the lapse of a thousand years. Yet, encour- aged by an article in the Lawyer's Magazine,, and by the authority of Mr. Justice Story, in Gass v. Stinson, the district court have disregarded an actual applica- tion by the creditor in due season, though there had been no application by the debtor. For every thing that comes from Mr. Justice Story I feel a deferential respect, and had not the weight of his name been thrown into the scale, I should not have felt myself called upon to vindicate the rule of the common law. But in saying that, as regards the application of pay- ments, the Roman law is more rational and consonant to the presumed intention of the parties than the com- mon law ; that it is equally simple and convenient, and that it is, or ought to be, the law of the subject in this country, it seems to me his partiality for his M APPLICATION OF PAYMBKTS. favorite code has carried him too far. In the Ameri- •can courts the question is not an open one, and it would require some intolerable mischief, certainly more than an equality in point of simplicity, conve- nience and reasonableness, to justify us in overturning the decisions of more than two centuries. Were we called on to engraft a new principle on the common law stock, without lopping a branch to mate room for it, I would certainly do as Lord Mansfield did in laying the foundations of the English commercial law. I would take it from what he, perhaps justly, called the first collection of written reason that ever existed. Its fault, if it has one, is in aiming to do too much, by attempting to give effect to abstract equities which are too subtile to be dealt with by a human tribunal, at least by one encumbered with a jury. It is agreed that the application of a payment belongs to the debtor in the first instance, and that in default of ap- plication by him it devolves on the creditor. So far the Roman law and the common law march together. But the Roman, law has this extraordinary proviso, that the creditor make, the application as he would maike it if he were the debtor, and any other applica- tion by him would go for nothing, on the ground that his act is consonant to the presumptive wish of the parties only where it is most beneficial to him who paid. It is scarce necessary to say how unfounded is such a presumption in experience, which is the mother of presumptions. It certainly is a narrow basis for a THIRD PRINOIPAIi BULB. 97 moral duty. Why should the creditor, standing in no relation of confidence, be expected to take care of the interests of a party who is too supine or indiflferent to take care of it himself? Conscience has nothing to do with such a case, for the man who will not exercise his right at the proper time, renounces it. ***** A right of choice is essentially exclusive, and if the creditor's right of application is to be controlled by the interest of the debtor, it is no right at all. The exercise of the power devolves on the creditor, either as a right or as a duty. If as a right, it is absurd to say he may exercise it, but only in subordination to the right of another. Yet the Roman law says so, and tacitly admits that its proviso is repugnant to its rule, K, however, the power devolved on the creditor, sub- ject to a duty to make the application in a particular way, he might be compelled to make it. But why compel him to go through the form of an application which the law would make without his assistance? The well-founded remark of the Chancellor of New York, in Stone v. Seymour, shows clearly the want of a moral obligation in this matter, which the Roman law would enforce as a moral duty. As a rule of morals the golden precept to do as we would be done by, ought to bind the debtor as it binds the creditor, yet it is not assumed by that law that the debtor, when he makes the application, is bound to consult the interest of the creditor, though it is a maxim of our law that equality is equity. * * * * The 7 98 APPLICATION OF PAYMENTS. true cause that there is priority of application at all, is not the supposed merit or misfortune of the party, but necessity. It must be vested somewhere, and the common law vests it in the debtor, because in the transaction of payment he takes the first step. 'If election is given of several things,' says Lord Coke (1 Inst. 144), ' he shall have it who is the first agent, and ought to do the first act.' If, as I conjecture, the Ro- man law has the same origin, its supposed sentiment is no better founded than its morality." This doctrine is still firmly held in Pennsylvania, for in a very recent case ^ it is said by Strong, J., that " it is presumed that the debtor by neglecting to give any direction consented to such application as would be most beneficial to the creditor." From the foregoing, it is "conceived that a pretty intelligent and comprehensive idea can be formed of the manner in which this question has progressed towards, and finally reached, a settlement in England and in this country. It now remains to consider the rule itself. In the form in which it is stated at the commence- ment of this chapter, it is rather the enunciation of a principle than a rule for practical application. It is noticeable in how many general and indeterminate ex- pressions the courts have indulged in stating the rule, and if they were to be accepted as the only criterion for our guidance and action it would be as varying ' Johnson's Appeal, 37 Penn. St. 268 ; Smith «. Brooke, 49 Id. 147. THIRD PRINCIPAL RULE. 99 and uncertain as the famous " Chancellor's foot " rule of olden times was reputed to be. The application : " becomes the duty of the courts and in its performance a sound discretion is to be ex- ercised ; " ^ " the law will apply the payments accord- ing to its notions of justice ; " * " on equitable princi- ples;"^ "according to the justice of the particular case in view of all the circumstances attending it ; " * " according to its own notion of the intrinsic equity and justice of the case ; " ^ " according to the justice and equity of the case for the benefit of both par- ties ; " * " so as to effectuate justice ; " ^ "according to the intrinsic justice and equity of the case ; " ^ " the law will make such application as it deems equitable ; " * " such application as is just and equitable between the parties ; " ^^ " an equitable application, and in making it will regard the circumstances of the case ; " " " in de- ' Field ■». Holland, 6 Cranch, 8. ' U. 8. V. Kirkpatrick, 9 Wheat. 730. ' Stone v. Seymour, 15 Wend. 19; Compbell «. Vedder, 1 Abb. Ct. of App. Dec. 295. ' Smith 9. Lloyd, 11 Leigh. 513. " Cremer v. Higginson, 1 Mason, 333. " Allen «. Culver, 8 Den. 384. ' Hammer «. Kochester, 3 J. J. Marsh, 144. ° Robinson «. AUison, 36 Ala. 535 ; Chester «. Wheelwright, 15 Conn. 563; Matossy ®.,Frosh, 9 Tex. 610; Solomon v. Dreschler, 4 Minn. 378. " Robinson v. Doolittle, 13 Vt. 246. " Pierce «. Knight, 31 Vt. 701. " Johnson's Appeal, 37 Penn. St. 368. 100 APPLICATION OF PAYMENTS. fault of actual appropriation the matter is to be de- termined by rules and circumstances of equity." ^ It is obvious that no definite mode of action is pre- scribed by these loose and indefinite expressions. If this were all there was of the system, the question would simply be one resting in the equitable percep- tions of the court in each particular case instead of a system of jurisprudence based upon enlightened ' and well defined principles. Such a condition of the law would be diametrically opposed to Lord Coke's notions of judicial action,* and would be obnoxious to all the criticism conveyed by Lord Camden's famous dissection of judicial discretion, contained in his opin- ion in Doe d. Hindson v. Kersey, already cited ' {svr pra, p. 84). That the rule is not intended to be of such a char- acter is manifest from the language of the courts whenever they have expressed themselves closely on the point. Thus in Miller v. Miller (10 Shep. 22), it is said that " in such a case the court may make the applica- tion, but in doing so it must be governed by general ' Harker «. Conrad, 12 S. & R. 301. " "A judge's discretion is discernere per legem;" a judge is to be guided by the straight line of law, and not by the crooked cord of dis- cretion." ° " The discretion of a judge is the law of tyrants. It is always un- known. It is different in different men. It is casual and depends upon constitution, temper and passion. In the best it is oftentimes caprice; in the worst, it is every vice, folly and passion to which human nature is liable." THIRD PRINCIPAL RULE. and, as far as may be practicable, by established The court cannot be at liberty to adopt its own notion of what may be equitable in each particular case." In a few of the cases, the expressions are more ac- curate and specific. Thus in Bobe v. Stickney (36 Ala. 482), it is said the law makes the application on certain rules of its own, and in other cases it is stated that the court will make the application by appropriating the payment to the oldest debt, or in some other certain manner specifying it. This approaches more nearly the requisite pro- priety of statement. The truth is that the general rule, which we have given, and the foregoing ex- pressions are simply declaratory of a principle of action. The mode of application branches out into a variety of minor rules each based upon some spe- cific equity or good reason, and each susceptible of def- inite application, which we wUI take up in their order. 102 APPLICATION OF PAYMENTS. FIRST MINOR RULE. In the case of payments where no appropriation is made hy either party, and there is hut one continuous accoimt of several items, the payments will he ap- plied on the account according to the priority of time, that is, the first item on the debit side is discharged or reduced hy the first item on the credit side^ This important rule was settled by the Master of the Rolls in 1816, in Clayton's Case, which is a very celebrated case, and has heen referred to, perhaps, as freguently as any other case upon any subject in the hooks, and never cited except in terms of approba- tion or of eulogy. It was a case of a banker's run- ning continuous account, and the question was how ' Bevaynes v. Noble (Clayton's Case), 1 Mer. 584-610 ; Bodenhatn v. Purchas, 3 B. & Aid. 89 ; Williams ». Rawlinson, 10 J. B. Moore, 362 ; Brooke », Enderby, 2 Bred. & Bing. 70 ; Simson v. Cooke, 1 Bing. 452 ; Webb 9. Dickinson, 11 Wend. 63 ; Wheeler ». Cropsey, 6 How. (N. Y.) 388; Fairchild v. Holly, 10 Conn. 175 ; Berghaus s. Alter, 9 Watts, 386; Hargroves b. Cooke, 15 Geo. 331 ; Livermore v. Band, 6 Fost. 85 ; Shedd ®. Wilson, 37 Vt. 478 ; AUcott v. Strong, 9 Cush. 323 ; Harrison v. John- ston, 27 Ala. 445 ; Pierce v. Sweet, 33 Penn. St. 151 ; Dawe e. Holds- worth, Peake's N. P. 64 ; AUston d. Contee, 4 Har. & J. 351 ; Field ®. Carr, 5 Bing. 13 ; Johnson's Appeal, 37 Penn. St. 368 ; Cashing «. Wy- man, 44 Me. 131 ; Crompton v. Pratt, 105 Mass. 356 ; Hill v. Bobbins, 33 Mich. 475; Worthley ». Emerson, 116 Mass. 374; Dows », Morewood, 10 Barb. 183; Pennell ». BeflFell, 4 De G. Mc. & G. 373; Copland v. Toul- min, 1 West. H. of Lords Cas. 164 ; Grigg «. Cocks, 4 Sim. 438 ; Se Browne, 3 Grant. Ch. (Can.) 590 ; Johnson «. Anderson, 30 Ark. 745 ; Leef ®. Goodwin, Taney, 460 ; Sprague «. Hazenwinke,-53 111. 419 ; Kil- lorin V. Bacon, 57 Geo, 497 ; U. S. v. Kirkpatrick, 9 Wheat. 730 ; Jones «. IT. S. 7 How. 681 ; U. S. v. Bradbury, Davies, 146 ; Langdon v. Bowen, 46 Vt. 518. THIED PKINOIPAL KULE— FIEST MINOE EULB. 103 payments whicli had been made generally should be applied upon it. Sir William Grant disposed of the question in the following manner : " This is the case of a banking account where all the sums paid in form one blended fund, the parts of which have no longer any distinct existence, and is not a case of distinct, insulated debts. Neither banker nor customer ever thinks of saying, this draft is to be placed to the account of the £500 paid in on Monday, and this other to the account of the i6500 paid in on Tuesday. There is a fund of £1,000 to draw upon, and that is enough. In such a case there is no room for any other appropriation than that which arises from the order in which the receipts and payments take place, and are carried into the account. Presumably, it is the sum first paid in that is first drawn out. It is the first item on the debit side of the account that is discharged or reduced by the first item on the credit side. The appropriation is made by the very act of setting the two items against each other. Upon that principle all accounts current are settled, and particularly cash accounts. When there has been a continuation of dealings, in what way can it be ascer- tained whether the specific balance due on a given day has or has not been discharged, but by examin- ing whether payments to the amount of that balance appear by the account to have been made ? You are not to take the account backwards, and strike the balance at the head instead of the foot of it. A man's banker breaks, owing him on the whole account a 104 APPLICATION OP PAYMENTS. balance of £1,000. It would surprise one to heai the customer say: I have been fortunate enough to draw out all that I paid in during the last four years, but there is £1,000 which I paid five years ago that I hold myself never to have drawn out ; and, there- fore, if I can find anybody who was' answerable for the debts of the banking house, such as they stood five years ago, I have a right to say that it is that specific sum which is still due to me, and not the £1,000 I paid in last week." The next case was Bodenham v. Purchas (siipra) in a court of law. The facts were these: A bond was given to the several persons constituting the firm of a banking house conditioned for the repayment of the balance of an account, and of such further sums as the bankers might advance to the obligor. One of the partners died, and a new partner was taken into the firm, and at that time a considerable balance was due from the obligor to the firm. Advances were afterwards made by the bankers and payments made to them on account of the obligor. The latter was credited by the new firm with the several payments and charged with the original debt and subsequent advances as constituting items in one entire account. The balance due at the time of the partner's death was considerably reduced, and that reduced balance, by order of the obligor, was transferred by the bank- ers to the account of another customer who, with his assent, was charged with the then debt of the obligor. The person so charged having become insolvent, the THIED PRINCIPAL RULE— FIKST MINOR RULE. 105 surviving partners of the original firm brought their action upon the bond : Held^ that as they had not originally treated it as a distinct account, but had blended it in the general account with other transac- tions, they were not at liberty so to treat it at a sub- sequent period ; and that, having received in different payments a sum more than sufficient to discharge the debt due on the bond at the time of the death of the deceased partner, the bond was to be considered as paid, Bayley, J., said that he could not distin- guish this in principle from Clayton's Case. Abbott, J,, also thought that the question was decided by that case, and Holroyd, J,, declared that Clayton's Case, which seemed to him to have been decided upon the soundest principles, was " exactly in point, and ought to govern their decision." In Bodenham v. Purchas, Clayton's Case was spok- en of by Abbott, J., as "a case decided upon great consideration," and as being "an authority of great weight." In Field v. Carr (mpra), Best, Ch. J., and Park, J., both said that "the rule settled by Sir William Grant had received the sanction of every court in Westminster Hall." In Pemberton v. Oakes (4 Buss. 154), Lord Chan- cellor Lyndhurst assigned it its place among the Eng- lish juridical authorities in the following encomiastic terms: "The third question is whether the balance due from Stokes to the bank at the time of Harding's death has been discharged by his subsequent pay- 106 APPLICATION OF PAYMENTS. ments, and that point is decided by Clayton's Case and Bodenham v. Purchas. It is true that -the facts here are not, in every respect, precisely the same with the circumstances of those two cases, but the decisions in them proceeded upon a broad general principle equally applicable to the state of circumstances exist- ing here. * * * In Bodenham v. Purchas, a court of law confirmed the rule which Sir William Grrant had laid down in a court of equity. The point was again brought into discussion in Simson v. Ingham, and the principle was again confirmed, though the particular circumstances of the transaction produced a difierent decision. * * * The same question arose in Brooke v. Enderby before the Common Pleas, and there, too, the principle of Clayton's Case was adopted. ■ Peeling myself bound by the force and authority of these decisions, and acquiescing completely in the rea- soning of Sir William Grant, I decide," &c. Still later, in 1859, Sir John Eomilly, Master of the Eolls, spoke of the rule in Clayton's Case as " hav- ing always been acted on since." ^ The principle enunciated by this case has been very extensively applied, both directly and by way of analogy. Where frequent settlements of accounts with debt and credit are made between the parties, and balances carried forward to new account, and no appropriations have been expressly made by the parties, the law will ' In re Medewe's Trust, 36 Beav. 588. THIRD PBINOIPAL KCXE— PIEST MINOR RULE. 107 appropriate the credits to the extinguishment of the oldest charges.-' This rule is applicable where such payments are made by one of full age upon an account commencing before and terminating after the debtor's majority.^ It will be applied without reference to the fact that one item may be better secured than another when the particular parts have been blended together in one common account, and have no longer any separate ex- istence, and the balance only is considered as due.* The Court of Appeals of the State of New York* applied this rule in a case where the cred- itor held security for the first items of the account and none for the final balance of the account, it ap- pearing in the case satisfactorily that the parties had manifested an intention of making such an application. Jewett, J., delivering the opinion of the court, said : " There is, it is true, no direct evidence in the case showing any express application of the moneys paid by Brown & Starkweather upon the judgment at the time of the receipts of the money, but the manner in which Williams & Co. "kept the accounts between them from 1835, and ascertaining the balance due from them from time to time, show that the indebted- ness for which the bond was given on which the judg- ment was entered was brought into the account and ' McKeozie ». Nevius, 9 Shep. 138. ' Thurlow «. Gilmore, 40 Me. 378. ' Harrison v. Johnston,' 37 Ala. 445. * Truscott V. King, 6 N. Y. 147. 108 APPLICATION OP PATMENTS. made a part of it from the beginning, and that both parties intended to apply, and did, in fact, apply, the first receipts of money to the first items of indebted- ness. Williams & Co, kept an account from the be- ginning, in which they charged Brown & Stark- weather with their acceptances, and credited them with money when received, and from that account the balance due from time to time was found." This rule was appealed to, and considered apposite by the court in a case where A., the widow and admin- istratrix of B., continued B.'s trade after his decease. B., at his death, was indebted to C. on balance of ac- count. A. continued to receive goods from and make payments to C, as B. had done, and she was charged in account by C. with the debt. The payments made by her to C. exceeded the debt, but a balance was ulti- mately due to C. : Jleld, that B.'s debt was discharged by A.'s payments, and that the ultimate balance could not be proved as a debt against B.'s estate.^ A case arose recently in the State of Massachu- setts, presenting a very peculiar state of facts for the question of the applicability* of this principle. A., who was a dealer in machinery, sold B., at different times, several machines, at agreed prices, all of them to remain the property of the vendor until paid for. He opened an account with the vendee in his books in the ordinary manner, debiting him with the ma- chines at the various dates when sold, and entered a memorandum of the conditions of sale. He after- ' Sterndale v. Hankinson, 1 Sim. 393. XHIKD BRINOIPAL BULE— FIRST MINOR RULE. 109 wards sold B. other goods, and entered them in the same account in their order. B. made payments at different times, which were entered in the usual man- ner on the opposite side of the account as credits: Held^ that the payments were to be applied to the earliest items on the debit side of the account in their order .^ Wells, J., said: "Upon the facts stated, we think a jury would be warranted in finding that the price of the articles sued for had been paid by O'Brien to the defendant before the latter retook and sold them. They were charged in general account upon the defendant's books with other articles sold and delivered in the usual mode. They were the earliest in date upon that account, the whole account being kept in the usual form of merchants' book accounts. The sums credited were paid by O'Brien, and were received and applied by the defendant towards the payment of said account. Neither of them directed or made any specific application thereof to any par- ticular items, or class of items, of the account, except as appears from the facts stated. The general rule of law in case of payments by a debtor to one who is his creditor upon distinct transactions, or for dis- tinct accounts, when neither party makes an appro- priation at the time, is that the payments are applied by law to the liabilities of earliest date. The authori- ties cited by the plaintiffs, we think, sufficiently sus- tain this position. The rule is especially applicable to items of debt and credit in a general account cur- ' Crompton r>. Pratt, J05 Mass. 255. 110 APPLICATION OP PAYMENTS. rent. We do not think the other facts stated are sufficient to overcome the presumption involved in this rule of lavr. The interest of O'Brien to perfect his title to the property weighs against the interest of the defendant to obtain payment of his unsecured rather than of his secured claims. But the option belongs to the debtor rather than to the creditor, and it is only when he omits to exercise that option that the law presumes an intention on his part to allow the creditor to exercise his election. When both par- ties concur in the entry of the payments upon general account, without specific application, the law infers an intention on the part of both that they shall sat- isfy the charges therein in the order of theii- entry^ and they will be so applied unless some controlling equity requires a different disposition. We do not discover any such controlling equity in this case. The fact that the defendant minuted the terms of the de- livery against the charges upon his books when the entries were made, does not, in our opinion, affect "the question of the intent with which the payments were made, received and credited." An additional reason for resorting to this rule was found in a case where payments had been made from time to time without application by the debtor, who had received a discharge in bankruptcy, upon a run- ning account for goods sold at different dates, partly before and partly after the granting of the discharge, the creditor having no notice of the bankruptcy pro- ceedings, and not being named in the bankrupt's THIRD PElNOIPAIi EtLE — FIRST MINOR RULE 111 schedules as a creditor, aiid where the payments made after the discharge was granted exceeded in amount the goods purchased after that time.^ The Court said : " Assuming the discharge in bankruptcy to be valid, it did not relieve Hill from the moral obligation to pay his pre-existing debts. This moral obligation he was at liberty to recognize and discharge, if he saw fii to do so, and in this record we discover very satis- factory evidence that such was his intention at the time. Although not having named Eobbins in his schedule of creditors, he continued an open account with him pending the proceedings, not only buying, but making payments, without any direction that they should be applied to the new purchases. His omis- sion to notify Robbins of his petition in bankruptcy, can only be reconciled with honesty on the supposi- tion either that he was exceedingly thoughtless con- cerning his current business dealings and the rights of others in respect thereto, or that he fully intended to discharge the demand by payment. The subsequent payment by him, of a sum in excess of his purchases after the bankruptcy proceedings commenced, is strong evidence of his understanding that the payments he made would be applied on the account generally, in- stead of being limited to the portion thereof not cov- ered by the discharge. And as Robbins, having no knowledge of the bankruptcy proceedings, would nat- urally so apply them, there is no principle of law which will permit Hill, on a subsequent change of pur- ' Hill V. Robbins, 32 Mich. 475. 112 APPLICATION OP PAYMENTS. pose, to make a diflferent appropriation of the payment. He has no right to make Bobbins his debtor against his will, by payments which the latter understands, and has a right to understand, are only his just due." A very recent case in England shows the in- fluence of Clayton's Case to be still undiminished in the courts. The defendants, as factors for R. & Co., in February, 1857, purchased certain silk for that firm, and paid the purchase money. In the same month K. & Co, sold it to the plaintiff, but it remained in the defendants' warehouse until July, 1858, when they sold it to liquidate, in part, a debt due from R. & Co. to them upon the balance of a general accoimt current which was kept between the firms. At the time of the purchase of the silks, however, the balance was in favor of E. & Co., and so remained at the half-yearly settlement of accounts between R. & Co. and the de- fendants, six months later : Jleld, that this settlement of accounts amounted to a re-payment to the de- fendants by R. & Co. of the purchase money paid for the silk.^ Lord Cockburn, Ch. J., expressed him- self thus: "The cases of Bodenham v. Purchas and ^fl? ^arie Clayton, show that where a general account exists and items are entered on both sides of it, then, even although the account may relate to different transactions which might have been made the subjects of separate accounts, the appropriation of payments is to be made according to the priority of the various items. This doctrine seems to me to be a sound one. ' Siebel o. Springfield, 13 Weekly Reporter, 73. THIBD PKINCIPAL EULB— FIEST MINOB EULB. 113 There were numerous pecuniary transactions here, but only one general account. That being so, we must treat it on the above principle, and, therefore, if a bal- ance in favor of Rudolf, Jung & Co. was struck subse- quent to the purchase by the defendants of these goods and to the advances made in respect of them, we must take it that the price of the goods had been repaid to the defendants." In Pennell v. Deffell,^ a customer of a bank had deposited therein his own private funds, and also moneys in his hands as a trustee, and had kept the whole blended in a single account, and the contention was whether his drafts on the bank, from time to time, should be applied on the account in the chronological order of the items, or whether they should be distrib- uted thereon so as to cancel^the indebtedness of the bank to him by Virtue of his individual moneys, and have it owing him in regard to the trust moneys, and it was held that the rule in Clayton's was the proper one for the case. Lord Justice Knight Bruce said : " This state of things would not, I apprehend, be varied by the circumstance of the bank holding also, or owing also to him, money in every sense his own. It may be, however, and, as I think is, true, that checks drawn by the trustee in a general manner upon the bank would for every purpose be ascribed to, and affect, the account in the mode explained and laid down by Sir W. Grant in Clayton's Case. The prin- - 4 De G. M. & G. 372. 114 APPLICATION OP PAYMENTS. ciples there stated would, I conceive, be applicable notwithstanding the different nature and character of the sums forming together the balance due from the bank to the trustee, whatever the purpose and objects of the checks." Lord Justice Turner, in his opinion, employed similar language : " I take it to be now well settled that moneys drawn out on a banking account are to be applied to the earliest items of the opposite side of the account. By every payment which he makes, the banker discharges so much of the debt which he first contracted. If that debt arose from trust moneys paid in by the customer, so much of those trust moneys is paid off, and, unless otherwise invested on account of the trust, falls into the custom- er's general estate, and is lost to the trust, because it cannot be distinguished^ from the general estate of which it has become part. If, upon the other hand, the earliest debt due from the banker arose from the customer's own moneys, paid in by him, that debt is pro tanto discharged, and the trust moneys subse- quently paid in remain unaffected. The same principle . runs through the whole account, each sum drawn out goes to discharge the earliest debt due from the banker which is remaining unpaid, and thus, when it is ascer- tained what moneys have been paid in belonging to the trust, it becomes clear to what portion of the bal- ance which remains the trust estate is entitled." This case is spoken of by Vice Chancellor Sir W. THIRD PRINCIPAL RULE— FIRST MINOR RULE. 115 Page Wood, in Merriman v. Ward,^ as a very strong example of the rule in Clayton's Case. The facts in Brown v. Adams ^ were very like those in Pennell v. Deffell, and the following remarks fell from Lord Justice Sir G. M. Gifford ; " There can be no question that at law, as between a banker and his customer, the debt is extinguished by the first pay- ments made, and it would be an extraordinary thing if the debt would be in existence in equity when it is extinguished at law." The principle of Clayton^ s Case has been carried he- yond cases of accounts strictly, and has been employed in other cases by way of analogy. It was said by the Supreme Court of Virginia,* that in general where several debts are due and pay- -jnents are made without specific application by either creditor or debtor at the time, the payments ought to be applied to extinguish the debts according to priority of time, and the doctrine has been re-affirmed in late cases in that State.* A similar remark was made by the court in the case of Hammer v. Rochester (2 J. J. Marsh. 144). Where no application is made by either party, the law will make the application to the oldest legal claim then due, if there is no particular equity or reason for a different course.^ ' 1 Johns. & H. 371. 'i Law Rep. (Chan. App. Cas.) 764. ' Smith V. Lloyd, 11 Leigh, 512. * Howard v. McCall, 21 Gratt. 205; Chapman v. Com. 25 Gratt. 731. ' Parker v. Ingram, 2 Fost. 288 ; Thompson v. Phelan, Id. 339 ; Milliken i>. Tufts, 31 Me. 497; Bean v. Brown, 54 N. H. 395. 116 APPLICATION OF PAYMENTS. Nor is this course arbitrary and inequitable, but rests on a like foundation with the other rules where the debtor says nothing. It must be presumed, if there be no other equity to settle the question, to pay first what has been longest due, and about which there has been most forbearance on the one side and neglect on the other, and which is nearest being barred by the statute of limitations.^ By the earliest debt is meant the one first due and payable, although it may be the latest in origin, and, therefore, if the earliest debt is not due and payable at the time of payment, the law will apply the payment to the debt which had a later origin but was then due upon the obvious presumption that the one party intended to pay and the other must have understood that he was receiving the money in discharge of something which the creditor had the right to claim at the time.^ Payments made generally on a bond payable in in- stallments without appropriation at the time to any particular installments, will be applied to such as are past due and not to such as are not then payable.* In the last case the Court said : " This is just, because it must be presumed to have been so intended by the parties, or, at least, by the debtor and payer at the times the payments were made, because it would be contrary to reason and the motives which generally influence ■ Whitmore v. Murdock, 3 W. & M. 380 ; HoUister v. Davis, 54 Penn. St. 508. " Caldwell v. Wentworth, 14 N. H. 431. ' Seymour v. Sexton, 10 Watts, 355. THIRD PEINCIPAIi EULB— Jb'IRST MINOR RULE. 117 human action, to presume that a debtor* in paying money intended to apply it to the discharge of a debt not bearing interest, and which had not at that time become payable, in preference to a debt which was bearing interest, and had become payable ; nor would a creditor be permitted to claim that it should be so ap- plied without the express consent of the debtor." Upon the same principle, in the .case of three bonds executed by the debtor of same date, but payable at different times, and on a general payment it was held, that it should be applied on them in the order of their falling due, the payment in the case before the court paying the first two bonds in full, and leaving a further sum for application on the last one.^ In Mississippi the principle has been carried to the extent of paying an earlier item so completely as to satisfy both principal and interest of such earlier 'item before touching even the interest on a later item. Thus, where several promissory notes or bonds had been executed on the same day and by the same maker, and paying to the same persons, but falling due at dif- ferent times, it was held that partial payments, made by the debtor to the creditor after they had all become due, would be applied to the satisfaction of the princi- pal and interest of the note first falling due, in prefer- ence to the interest on the others.* The Court said : " The four notes, although originating in the same trans- action, must be treated as four several and distinct con ' Huger V. Booquet, 1 Bay. 497. ' Miller v. Leflore, 33 Miss. 634. 118 APPLIOATIOlf OF PAYMENTS. tracts, for, otherwise, no suit could be maintained on any one of the notes until they all became due. Besides, they could have been indorsed to different persons who could have maintained several actions thereon, where- as, if all the notes constituted but one contract, one of the notes could not, in a legal sense, be indorsed so as to invest the indorsee with the legal title, as part of a contract cannot at law be indorsed so as to pass the title. The question then being settled that each note was a separate contract the case falls within a familiar rule, that contracts must be performed in the order in which they were made, that is to say, the defendants undertook to pay, and the plaintiffs to receive pay- ment of the first note before payment of the second note, and so on in this order until the last note should be paid. Suppose suit had been commenced on the first note when it became due, the measure of damages would have been the principal and interest accrued when the judgment should have been rendered. The same rule would have applied to the other notes if suits had been commenced when they severally fell due." The following ruling was made, it is conceived, in analogy with the principle under consideration. Advances made on account generally for work done under several distinct contracts, some of which have not been completed, must be applied in the first place to the extinguishment of the amounts due on the con- tracts which have been completed, and not of those which have not been completed.^ " McDowell V. Blackstone Canal Co. 5 Mason, 11. THIRD PRINCIPAL RULE— FIRST MINOR RULE. 119 The Supreme Court of Maine adhered to the rule in a very close question between a judgment creditor of the debtor, and a grantee under him. One party claimed under the extent of an execution, and the other under a deed of the same premises from the judgment debtor, and one item in the account which formed part of tbe foundation of the judgment of tlie execution creditor, was subsequent to the deed, and a credit of large amount was also subsequent, and neither party had made an appropriation of the pay- ment. The court held that it could not depart from the general rule, even to enable a creditor to contest a conveyance alleged to be fraudulent as to prior cred- itors, but must apply the payment in extinguishment of the oldest item, instead of the most recent.^ This rule has been called into requisition in cases of moneys realized from a fund created by the debtor instead of payments directly made by him. Thus in a case in Vermont,'^ it was decided that money realized by a surety, on security given him by his principal to protect his liability as surety, ought to go to extinguish his claims for payments for the princi- pal in the order in which they were made, and that the surety could not apply the money so realized toward the payment of demands unconnected with his rela- tion as surety, so long as any claims arising from his suretyship remained unpaid. In a recent case in the State of Maine, it was held ' Miller v. Miller, 10 Shep. 33. " Whipple V. Briggs, 30 Vt. 111. 120 APPLICATION OF PAYMENTS. that, in the case of a running account, this rule will be applied although the creditor may hold security for the earlier items, and none for the final balance of the account.^ As a broad, unqualified proposition, this may be questioned ; certainly the authority cited in support of it (Truscott v. King, 6 N. Y. 147) does not proceed to that extent, for as we have already seen (page 107), there was satisfactory evidence in that case, that the parties designed the payments to be applied in that order.^ Exceptions to this Eule. It has been said that this rule, although general, is by no means universal. It is not an artificial or arbitrary principle, but one founded merely on the presumed intention of the par- ties, and is applicable only where there is no evidence sufficient to show a different intention. But where there is such evidence, the presumption fails. And such evidence may consist of any facts and circumstances from which tbe intention of the parties may properly be inferred. It is obvious that all the transactions between indi- viduals may be, and often are, entered together in the form of one general account, for the purpose of more readily ascertaining the state of all the affairs between ' Cushing V. Wyman, 44 Me. 131. ^ The reporter's head note on this point, to Truscott v. King, is incor- rect and calculated to mislead. THIRD PRINCIPAL RULE— JIEST MINOR RULE, 121 them, or for some other purpose of mere personal con- venience, and it would be unreasonable indeed if an in- flexible rule of inference' should be adopted, which would preclude them from showing, in such a case^ what was their rejil object and intention.^ And in another case,'* it was said that this rule ap- plies to running accounts where such payment must be presumed to have been made without other reference than to the simple discharge of the account as far as the items of payment will go, and does not apply where the party having the right to make an appro- priation of a payment does actually make it, or in the absence of such appropriation, when the law, looking at the relations of the parties, and the nature of the ac- count or transactions between them, finds another ap- plication required in order to do justice between them.. In Wilson v. Hirst (1 Nev. & Man. 742), Denman, Ch. J., said such a state of facts as those in Clayton's Case, was evidence of such a payment, but not con- clusive, and other evidence might be adduced to vary the application of the rule. The facts may evince a different intention on the part of the debtor. Thus, where security had been given by a surety for goods to be supplied to his principal, and not in respect of a previously existing debt, and goods were subsequently supplied and payments Were made from time to time by the principal, in respect of some of ■ Dulles V. De Forest, 19 Conn. 190. " Upham «. Lefavour, 11 Mete. 174. 122 APPLICATION OF PAYMENTS. which discount was allowed for prompt payment, and the payment thus made, with the discount allowed, was* the exact amount of the goods previously sup- plied : Held^ that it was to be inferred that these pay- ments were intended in liquidation of the latter ac- count.^ " Where there is nothing to show the cmimus ■solventis, the payment may certainly be applied by the party who receives the' money. The payment of the exact amount of goods previously supplied is irref- ragable evidence to show that the money was in- tended in payment of those goods, and that it was made in relief of the surety." Where an account is delivered by an agent in which he charges himself with a balance, and he continues to receive money for his principal, his subsequent pay- ments are not necessarily to be first applied to the ex- tinction of the previous balance, where the subsequent receipts are equal to the subsequent payments. It may, in such a case, be properly left to the jury to say how the payment shall be applied.^ Lord Tenterden said : " Consardine was an agent employed by the defendants in error, for the sale of their bees, at Banogher, from 1817 to 1821. At that time he was indebted to his employers in a balance of £379. He is then sent to Loughrea, holding the same character of agent, accounting to the defendants in error for his weekly receipts, and making to them remittances of the moneys received at Loughrea. The question ' Marryatts v. White, 2 Stark. 101. " Lysaght «. Walker, 5 Bligh. (N. S.) 1. THIRD PRINCIPAL RULE — FIRST MINOR RULE. 123 upon this state of facts is, whether there is an absolute rule of law which requires that the moneys so remitted should be considered as paid in discharge of the bal- ance due on the Banogher account, or whether it may be considered independently as a remittance on ac- count of moneys received for his employers. I think it was properly left to the jury, upon consideration of all the circumstances, to determine upon what account the remittance was made. The judge was not bound to direct the jury to find a verdict contrary to the scheme of the accounts as they appeared in evidence. He was not bound to tell the jury that they should consider the remittance from Loughrea to have been paid by the agent out of his own funds, in reduction of the balance then due his employers." The debts, although blended in one account, may be separate in their nature,' and the creditor's rights may be different, in respect to some of them from what they are as to others. In such a case, the rule may well be held not to apply. Thus, the plaintiff served the defendant three years under a covenant, and three and a quarter years more under a simple contract. He received goods and money during the first period in part payment; he also received goods and money during the second period. The whole receipts more than covered the salary due upon the covenant. The parties kept a blended account, and made no rest of it at the end of the first period. The plaintiff brought covenant for 124 APPLICATION OP PAYMENTS. the balance of wages for the first period, and assumpsit for the balance of wages for the last. The defendant attempted to appropriate by set-off to the discharge of the covenant debt; but it was held, first, that these were two separate debts and not one account ; and, second, that the plaintiff had the right to ascribe to the second debt, for which he had the worse security, the value received in the second period ; and might, there- fore, recover in both actions.^ In Stovell V. Eade (4 Bing. 154), it was considered that there were sufficient circumstances to disturb this presumption for priority of payment. The defendant being indebted to the plaintiff, gave him a bill of ex- change, in 1823, for £2,500 and a warrant of attorney to secure the payment ; and, in 1825, by a deed re- citing that he was indebted to the plaintiff in the sum of £5,000, he gave a mortgage to secure that sum and any advances to the extent of £10,000. In 1826, the estate so mortgaged was sold for £3,600, and the pro- ceeds paid to the plaintiff, and he, after this, issued an execution on the warrant of attorney. A motion was made to set the execution aside, but the court refused to do so. It was contended by the counsel for the de- fendant that the case fell within Clayton's Case, but the court thought otherwise. Best, Ch. J., saying : " Is there, then, in the present case, any circircumstance which can enable us to determine whether the pay- ment of the £3,600 was to be applied in any order other than that, of priority ? It is clear that this sum, ' Peters «. Anderson, 5 Taunt. 596. THIRD PRINCIPAL RULE— FIRST MINOR RULE. 125 the proceeds of the sale of the Salmon Bridge Estate, was applied towards the discharge of the £5,000 for which that estate was mortgaged, and it n6where appears that the sum due on the bill of exchange formed any part of that sum ; on the contrary, it is treated as a separate transaction." Where a bond has been given as a continuing se- curity, the transactions under it do not fall within this principle. Thus, if a bond be given by A. to B. in a specified sum, as and for a continuing security, payments made by A. to B., in their dealings, arfe not to be applied in immediate and final liquidation of the sum named, or of the first items in A.'s debit ; and even if A., on a long course of transactions, should, after the giving of the bond, be for a time in advance to B., the bond is not thereby satisfied.^ The same principle was recognized and applied in City Disc. Co. v. McLean (9 Law Kep. C. P. 692). The following qualifications of the rule seem, also, to be established. Payments will not be applied to any items in the accounts which are barred by the statute of limita- tions,'* nor to illegal items.* The principle of this qualification will be consid- ered more at length under a subsequent head. ' Hunniker v. Wigg, 4 A. & E. (K S.) 793. " Livermore v. Band, 6 Fost. 85. " ExparU Randleson, 2 Dea. & Chit. 534. 12(J APPLICATION OF PAYMENTS. SECOND MINOR RULE. In the case of indefinite payments, they will he ap- plied jwst to extinguish interest, amd then principal} The origin of this rule is very ancient. It was called into exercise as far back as the time of Charles II, when the following case occurred : " Judgment was had for principal and interest due on a bond, decreed what sum the creditor had received before the judg- ment was entered shall go in discharge of the interest,, and what he received after the judgment entered shall go, in the first place, to discharge the interest, and theu to sink the principal." * The question was referred to the judges of the Su- preme Court of New York, at an early day, for the true rule as to the application of payments, where ' People 8. New York, 5 Cow. 331 ; De Bruhl v. NeuflFer, 1 Strobh. 426; Stoughton v. Lynch, 3 Johns. Ch. 209; Jencks ». Alexander, 11 Paige, 619 ; Steele o. Taylor, 4 Dana, 445 ; Peebles v. Gee, 1 Dev. 341 ;. Spires v. Hanrot, 8 Watts & S. 17; Heam v. Cutberth, 10 Texas, 316; Hart ®. Dorman, 3 Fla. 445 ; McFadden «. Fortior, 30 111. 509 ; Gwinu V. Whitaker, 1 Har. & J. 754 ; Frazier «. Hyland, 1 lb. 98 ; Norwood ®_ Manning, 2 Nott & McCord, 395 ; Story v. Livingston, 13 Pet. 359 ; U. S. «. McLemore, 4 How. (U. S.) 386; Dean v. Williams, 17 Mass. 417; Walters v. McGirt, 8 Richardson, 387 ; Jones ®. Ward, 10 Yerger, 160 ; Guthrie V. WicklifFe, 1 A. K. Marsh, 584 ; Smith «. Coopers, 9 Iowa, 376 ; Baker v. Baker, 4 Dutch. 13 ; Backus n. Minor, 3 Cal. 281 ; Russell « . Lucas, Hempstead, 91 ; Howard t. McCall, 31 Gratt. 205 ; Johnson » . Robbins, 20 La. Ann. 569 ; Lash «. Edgerton, 18 Minn. 210; Smith o. Macon, 1 Hill. Ch. 339; Hampton «. Dean, 4 Texas, 455; Bond ®. Jones, 8 S. & M. 368 ; Moore n. Kiflf, 78 Penn. St. 96 ; Fultz ». Davis, 26 Gratt. 903. » Crisp s. Bluck, Finch, 89. THIRD PRINCIPAL RULE— SECOND MINOR RULE. 127 there were items of principal and interest, and they reported the following/ which is believed to be the prevailing rule in ordinary cases everywhere.^ "To calculate interest on the principal up to the time when the payment has been made, add this interest to the principal, and then deduct the payment without regard to the time when made, whether before or after the-, expiration of the year. This rule, however, is only to be adopted in cases where the payment exceeds the interest due, otherwise it will be taking interest upon interest. When the payment falls short of the inter- est due, interest must be calculated on the principal up to the time when the payments will overrun the interest due on the principal debt, and the deduction then be made." In a very old case in Pennsylvania,' it was held by Chief Justice McKean that the rule of computing in- terest was that the interest of money paid in before the time must be deducted from the interest of the whole sum due at the time appointed by the instru- ment for making the payment, but this dpctrine was overruled in the same volume,* and, subsequently, re- peatedly in the same State.® It was formerly the custom among merchants, in stating accounts, to let the principal continue upon in- ' Williams v: Houghtaliog, 3 Cow. 86, note. " Bower v. Harris, Cr. & Phil. 351 ; Mills v. Saunders, 4 Neb. 190. = Tracy v. Wikoff, 1 Dall. 134. * Penrose v. Hart, 1 Dall. 378. ' Spires v. Hanrot, 8 W. & 8. 17. 128 APPLICATION OP PAYMBNTS. teresfc, and to compute interest upon the payments as they were successively made. But this method is not ■correct, nor just to "both parties. By it, the debtor gains, and the creditor loses, for it is stated to be sus- ceptible of demonstration that a debt will, by this mode of computation, in the course of a few years (and the time will be longer or shorter, according to the rate of interest), be wholly extinguished by payments of interest, without paying a cent of principal.^ Where neither principal nor interest is due at the time of a partial payment, it becomes an interesting question how the payment shall be applied. In such a case, some of the courts have laid down the rule that the payments will be applied to the ex- tinguishment of principal and such proportion of in- terest as has accrued on the principal so extinguished.'' The point received careful attention in the Court of Appeals of South Carolina, in De Bruhl v. Neuf- fer,* and the ruling was substantially in accordance with the rule as just stated. Frost, J., discussed the question in the following manner : " The third ground of appeal presents the inquiry how a payment shall be applied that is made before either principal or inter- est is due on a bond. The authorities are not very ' Stoughton B. Lynch, 2 Johns. Ch.309; Fonbl. Eq. note * to note r, to p. 439, marginal paging ; Com. v. Miller, 8 S. & R. 453 ; Hart v. Dor- man, 3 Fla. 445. " Stone «. Seymour, 15 Wend, 19 ; Miami Ex. Co. ■». Bk. of U. S. 5 Ham. 260 ; Williams «. Houghtaling, 3 Cow. 86 ; Jencks o. Alexander, 11 Paige, 619. * 1 Strobh. Law, 436. THIRD PRINCIPAL RCLB— SECOND MINOR RULE. 129 uniform on this subject. In some cases the payment is treated as a deposit until the principal debt, or the in- terest becomes payable, and interest is computed on the payment from the time it is made to the end of the year. The interest is also computed on the prin- cipal debt to the end of the year, and then the aggre- gate of the payment and the interest on it is deducted from the aggregate of the debt and interest. Another mo^e is to credit the payment when made on the ag- gregate of the principal debt and of the intei'est com- puted to the time of payment (Williams v. Houghtal- ing, 3 Cow. 86). The latter mode is best supported by the authorities. The immediate application of the payment towards the discharge of the debt seems most consistent with the intention of the party in mak- ing it, and with the general rule by which payments are first applied towards the extinguishment of the in- terest. This mode is also more simple and common. When neither principal nor interest is due, there is no rule of law to determine the application of a payment to either in preference of the other. Where, there- fore, a payment is made on a bond before either prin- cipal or interest is due, and the debtor does not direct the application, it should be deducted from the aggre- gate of the principal and interest due at the time of payment, if the payment .exceeds the amount of inter- est then due, and if the payment does not exceed the interest then due, it should be applied to the extin- guishment of the interest then due." 9 130 APPLICATION OF PAYMENTS. A different rule prevails in Illinois, where it has laeen held that if a creditor receives money before it is due, on a demand drawing interest, such payment, in the absence of an agreement to the contrary, should be applied to the extinguishment of the principal.^ Walker, J., said : " It appears to be more equitable and just that when the holder receives money before it is due on a demand drawing interest, it should be applied to the principal. Otherwise, by loaning, the money thus received, he would, in effect, compound the interest, or have placed at interest before its ma- turity a larger sum than his original claim. In other words, he would receive money on the maker's money as well as on his own. After both principal and in- terest became due, it would be otherwise." About two-thirds of the sum secured by a mort- gage was paid at a time when a small amount was due for interest, and when no part of the principal (which was payable in annual installments) was ac- tually due, and there was no direction given by the debtor, nor any actual application of the payment made by the creditor. The court felt that the law must make the application, and that after discharging the interest due the balance must be applied ratably to the exoneration of each and all of the installments of principal secured by the mortgage.^ Where the interest is payable annually, the rule ' Starr v. Richmond, 30 111. 276. " Righter v. Stall, 3 Sandf. Ch. 608. THIRD PErBTOIPAIi RULE— SECOND MINOR RULE. 131 seems to be that the interest on the principal bears simple interest from the time it falls due till it is paid, and when partial payments are made they apply first in payment of the interest due on interest, second in payment of interest due on the principal, and third in payment of the principal, but in no case can any part of the interest upon interest be made to- bear interest.^ The foregoing rule for the computation of interest is applied to analogous cases. Thus, in the settlement of a partnership account where one partner has advanced money to tbe firm to be paid back with interest, the application of partial payments will be made in the same manner as in other contracts, that is, first to the extinguishment of inter- est, and then to the principal.^ It will also be applied to tbe payment of a legacy by an executor, where partial payments have been made by him, viz., the payments will be appropriated to extinguish the interest due at the date of payment, and the residue, if any, to the extinguishment of prin- cipal.^ And in England, the rule is in vogue in the case of the estates of bankrupts, when there is more than twenty shillings in the pound paid, or where there is a claim over against some other party. This ' Anketel v. Converse, 17 Ohio St. 11. ^ Stewart ®. Stebbins, 30 Miss. 66. ' Jobnaoi] v. Johnson, 5 Jones Eq. 167. 132 APPLICATION OP PAYMENTS. was settled by Lord Hardwicke's order in 1743/ and has been repeatedly recognized since.^ In analogy with this rule, applying payments to in- terest in preference to principal, is another one, that in the case of different demands owing by a debtor, some of which bear interest and others do not, indefinite payments will be ascribed by the court to the interest-bearing debts, rather than those not carrying interest.^ The rule, in such cases of debts of unequal bearing, consequences, and burden on the debtor who makes a payment, does not leave the creditor to apply the money to his open, unliquidated account, not pressing nor bearing interest, in preference to a demand bearing interest. Where partial payments are made upon open ac- count, the law, in the absence of any legal appropria- tion of these by the parties, will apply them to the different items which bear interest in the order in which they fall due.* In the case of a judgment affirmed with ten per cent, damages, an indefinite payment will be applied in discharge of the interest on the original judgment first, and then to the debt due on such judgment, and lastly to the damages awarded.^ ' Bromley v. Groodere, 1 Atk. 75. " Bower «. Harris, Or. &. Phil. 351. ' Bussey v. Gant, 10 Humph. 238 ; Heyward v. Lomax, 1 Vern. 34 ; Blanton v. Rice, 5 Mod. 353 ; Scott v. Fisher, 4 Mon. 387. ' Scott V. Cleveland, 33 Miss. 447. ' Hamer v. Kirkwood, 35 Miss. 95. THIKD PRINCIPAL EULE— SECOND MINOR RULE. 133 This rule contemplates only legal interest, and has no reference to illegal or usurious interest.^ Although it may be true that by law partial pay- ments must be first applied to the interest, and the party receiving them would have the right so to apply them, yet this would not be the case with illegal in- terest. The law does not apply payments to illegal purposes.^ In the case of a usurious security, where the duty of applying some payments which had been made de- volved on the court, an appropriation was made of them in satisfaction of the money loaned, and legal interest.* The rule, thus expounded as between parties them- selves, is not necessarily transferable to other parties, and the application of it was refused where the rela- tion of attorney and client existed between the parties before the court, and the payments were of moneys collected by the attorney, it not appearing that the attorney had used any of the moneys for his own use, or manifested any disposition so to use them.* ■ Parchman v. McKinney, 12 S. & M. 631. ' Per Sharkey, Chief Justice, in Parchman v. McKinney, supra. ° Bartholomew v. Yaw, 9 Paige, 165. ' Smith V. Lloyd, 11 Leigh, 513. 134 APPLICATION OF PAYMENTS. THIRD MINOR RULE. In case of payments^ and a/pplication hy neither party J the covH will malce the application in accordance with a prvnciple which requires that the debts which hoAie the most precarious secv/rity shall he first exti7i- guished} One of the oldest authorities upon this point in this country is Field v. Holland (6 Cranch, 8), in which Ch. J. Marshall used the following language : " It is contended by the plaintiffs, that if the pay- ments have been applied by neither the creditor nor the debtor, they ought to be applied in the manner most advantageous to the debtor, because it must be presumed such was his intention. The correctness of this conclusion cannot be conceded. When a debtor fails to avail himself of the power which he possesses, in consequence of which that power devolves on the creditor, it does not appear unreasonable to suppose ' Briggs V. Williams, 2 Vt. 383 ; Moss v. Adams, 4 Ired. Eq. 42 ; Field 1). Holland, 6 Cranch, 8 ; Blanton v. Kice, 5 Mon. 253 ; Watt v. Koch, 25 Penn. St. 411 ; Pierce v. Sweet, 83 Penn. St. 151 ; Terhune v. Colton, 1 Beasley Ch. 232 ; Peters i>. Anderson, 5 Taunt. 596 ; Thomas v. Kelsey, 30 Barb. 268; Burks «. Albert, 4 J. J. Marsh, 97; Hilton?). Burley, 3 N. H. 193 ; Mathews «. Switzler, 46 Mo. 301 ; Planters' B'k v. Stockman, 1 Freeman's Ch. 502; Gaston b. Barney, 11 Ohio St. 506; Ramsour v. Thomas, 10 Ired. Law, 165 ; Johnson's Appeal, 37 Penn. St. 268 ; Vance v. Monroe, 4 Gratt. 52 ; Sager «. Warley, Rice's Eq. 26 ; Bell's Law of Scotland, par. 562 : Hargroves v. Cooke, 15 Geo. 321 ; State V. Thomas, 11 Ired. Law, 251; Bean v. Brown, 54 K. H. 395; Langdon v. Bowen, 46 Vt. 512. THIRD PRINCIPAL RULE— THIRD MINOR RULE. 135 that he is content with the manner in which the cred- itor will exercise it. If neither party avail himself of his power, in consequence of which it devolves on the court, it would seem reasonable that an equitable ap- plication should be made ; it being equitable that the whole debt should be paid, it cannot be inequitable to extinguish first those debts for which the security is most precarious." In Pierce v. Sweet (33 Penn. St. 151), the Court said : " Another rule of the common law is, that when no application is made either by the debtor or the creditor, the law will apply the payment in the way most beneficial to the creditor, and therefore to the debt least secured, unless to the prejudice of a surety. It is true there are exceptions to the current, of decis- ions, but the authorities greatly preponderate in favor of the doctrine." We will refer to one or two more cases. "The courts are bound to carry into effect," re- marked Turner, J., of the Supreme Court of Ver- mont, in Briggs v. Williams,^ "the object of the law, that is, so to apply the payment that the creditor may obtain satisfaction of his debt." In Stamford B'k v. Benedict (16 Conn. 437), the court knew of no better administration of the prin- ciples 6f equity, in case of non-appropriation by either party,' than so to direct the application of the money paid by the debtor, or received from other sources by ' 3 Vt. 283. 136 APPLICATION OF PAYMENTS. the creditor, as that under all the circumstances the greatest equity shall be done, or the mutual intention of the parties, at the time of the payment, if it can be ascertained, shall be best carried out. * * * The result of the operation of this principle will be, as it frequently has been, that in some instances payments will be applied upon the oldest demands, and some- times upon the most precarious debts. In Harker v. Conrad (12 S. & R. 301), the court regarded the question, first, from the standpoint of the debtor, and then from that of the creditor, and, finally, from that of even-handed justice between them. Said Gibson, J. : " Where neither party has made the application, the law presumes, in ordinary cases, that the debtor intended to pay in the way which, at the time, was most to his advantage. Thus, if it were peculiarly the interest of the party to have the money received in extinguishment of a particu- lar demand, the law intends that he paid it in extin- guishment of such demand, and that the omission to declare his intention was accidental. Where, how- ever, the interest of the debtor could not be promoted by any particular appropriation, there is no ground for a presumption of any intention on his part, and the law then raises a presumption for the same reason that the payment was actually received in the way that was most to the advantage of the creditor. * * * The law ought to presume, and does presume, that every man is governed by the dictates of conscience, THIRD PEJ^NCIPAL KULE — THIRD MINOR RULE, 137 and that lie will do what honesty requires of him, even though it be against his interest." The doctrine is put very strongly in favor of the creditor in a case in South Carolina : ^ "As between the parties themselves it would be difficult for the debtor to satisfy the conscience of any just man, that when he has made a general payment, without directing its applica- tion, the court should not so apply it as to promote to the highest degree the interests of the creditor." Equally strong is the language of Johnson, J., in a recent case * in the Supreme Court of the State of New York : " The other claims were secured by the mortgage. This was not, and, I think, that had King even paid the indorsed notes before this even came to his hands, equity would apply it to the satisfaction of this unsecured debt, and for the simple reason that the other demands were secured by the mortgage, and without such application the creditor would suffer the loss of a part of his debt. It scarcely needs authority to support so plain and just a proposition. * * * The law will never presume that the debtor intended thus to prejudice his creditor, but will rather presume that he intended so to apply his money and property as to discharge all his obligations." Lastly, the point was ably discussed by Currier, J., in the case of Mathews v. Switzler,* on appeal to the ' Sager «. Warley, Rice's Eq. 26. ' Thomas v. Kelsey, 30 Barb. 368. = 46 Mo. 301. 138 APPLICATION OF PAYMBNXg. Supreme Court of Missouri : " The substantial question here is, shall the original creditor, who holds all the notes, have the full benefit of all the securities which he took for his own protection ? He was not satisfied with the security of the deed of trust, and therefore required an additional name upon one of the notes. He testified, and without objection, that he intended the additional name as a security additional to the deed of trust, and the transaction, upon its face, sug- gests as much. In the meantime, he has surrendered no security and done nothing to prejudice the right of the surety upon the note. And since his debt is not paid, he now calls upon the surety to make good the unpaid balance to the extent of the sum called for upon the face of the note sued on." The facts in Johnson's AppeaP were quite similar in substance to those just stated, and the same prin- ciple was applied by Strong, J. : " The matter is, how- ever, set at rest by the agreement of the parties con- tained in the mortgage. They contemplated, as the language of that instrument shows, that payment of the debt existing at the time it was given should be extended, that other and future advances should be made, and that the mortgage should continue to be a security to the extent of $25,000. What was this but an agreement that in the anticipated continuance of the course of dealings between the parties, any pay- ments or credits of the mortgagor should not be ap- ' 37 Penn. St. 268. THIRD PRINCIPAL RULE— THIRD MIKOR RULE. 139 plied to the extinguishment of the mortgage security while there were other debts unsecured. The appli- cation which the appellant seeks to have made is, therefore, in conflict with the understanding at least,. if not the agreement of the parties, and it is such as the law wUl not enforce." After this explication of the doctrine, a few in- stances of its practical application will not be out of place. Where a creditor has two claims against the same debtor, one well secured and the other not, upon a payment being made, the court will apply the same to the debt for which no security was taken ^ — ^to an open account rather than a judgment for the payment of which the creditor has security, although the judg- ment be older than the account.'' In a case of a party owing two notes, one of which is secured by a surety, making a general payment, and the creditor not applying it, the court will direct its application on the note which was not indorsed.* The holder of different notes secured by deed of trust may apply the entire proceeds of sale under the deed to the payment of those last maturing, and will not be prevented thereby, either in law or equity, from obtaining judgment against a surety on the note first falling due, and which was the only note indorsed. ' Planters' Bk. v. Stockman, 1 Freem. Ch. 502. " Watt V. Koch, 25 Penn. St. 411. ' Burks V. Albert, 4 J. J. Marsh. 97 ; Hargroves v. Cooke, 15 Geo. 321, 140 APPLICATIOlir OP PAYMENTS. In an action against the indorser of a promissory note to recover an installment due thereon, it ap- peared that when previous installments had become •due, of the non-payment of vrhich the indorser had not been duly notified, the indorsee had applied the proceeds of a mortgage given by the maker to secure the payment of the note to such installments : Held, that the indorsee had the right so to apply them.^ In analogy, it is conceived vrith the principle of this rule, it has been ruled that, in case of a general payment, the court will so apply it as not to deprive the party receiving it of a meritorious right of set-off in some matters between them.^ And, also, in an action by a principal to recover goods tortiously delivered by his factor to the defend- ant, it was decided that a payment which had been made by the factor to his principal on a running account of consignments, there having been no appro- priation of the payment by the parties to any partic- ular items of the account, would not be applied in satisfaction of the charge for the goods sued for.* The doctrine conveyed by this rule is in direct an- tagonism to the favorite tenet of the civil law, that the debtor was to be specially protected, and is avowedly and designedly in the interest of the creditor. Quite a long list of cases, therefore — such as Gwinn ' Fitchburg v. Davis, 121 Mass. 121. ' Lindsey ®. Stevens, 5 Dana, 104. ' Benny ». Rhodes, 18 Mo. 147. THIED PKINOIPAL RULE— THIRD MINOR RULE. 141 V. Whitaker (1 Har. & J. '754), Dorsey v. Gassawaj (2 Id. 402), Baine v. Williams (10 S. & M. 113), Mc- Laughliu v. Green (48 Miss. 175), Neal v. Allison (50 Id. 175), Bussey v. Gant (10 HumpL 238), The Ant- arctic (1 Sprague, 206), Hey ward v. Lomax (1 Vem. 24), Pattison v. Hull (9 Cow. 747), Dows v. Morewood (10 Barb. 183), and Miller v. Trabue (16 La. Ann. 375), holding that in case of a general payment by a debtor to a creditor having different claims, one of which is secured and the other not, the payment will be applied to the demand for which the creditor holds security in preference to the unsecured one — is at variance with a clear preponderance of authority. Of coarse, the law in this respect will not be changed in Louisiana, where the civil law has been bodily adopted, nor, probably, in Maryland, Missis- sippi or Tennessee, where the rule has either been repeatedly declared or treated as settled, but the case of The Antarctic, and the cases of Pattison v. Hull and Dows v. Morewood must be regarded as overruled in their respective jurisdictions; the former case as being in contravention of superior federal court au- thorities, and the latter two cases as being repugnant to the spirit of numerous adjudications in the State of New York, 142 APPLICATION OF PATMENTS. FOURTH MINOR RULE. In case of the office of making a;pplication devolv- ing upon the court, the law will apply the payment to that one of the creditor's claims which is legal in preference to one which is not enforceable by law / ^ to a certain or conceded one instead of an indefinite or disputed one;''' to an existing demand rather than a future or contingent one,^ or one not yet due ; * and to a transaction affecting the pa/rty directly and person- ally and not collaterally, or in some other capadl/y!' 1. To a legal demand. Upon this subject there is an old English case. The statute of 7 & 8 W. Ill, c. 4, made it unlawful for a candidate to furnish provisions to any voters after the teste of the writ. In an action brought by an innkeeper against a candidate, for provisions so furnished at his request, after a payment by the candi- ■ Wright 4>. Laing, 3 B. & C. 165; Treadwell v. Moore, 34 Me. 113; Bachman v. Wright, 37 Vt. 187 ; Bancroft «. Dumas, 31 Vt. 456 ; Stan- ley «. Westrop, 16 Texas, 300 ; Seymour v. Marvin, 11 Barb. 80 ; Cald- well ®. Wentworth, 14 N. H. 481. '' Eamsour e. Thomas, 10 Ired. Law, 165 ; Bell's Law of Scotland, par. 563 ; Blinn v. Chester, 5 Day, 166. = McDonnell o. Montgomery, 30 Ala. 313 ; Thomas ». Kelsey, 30 Barb. 268 ; Harrison v. Johnston, 37 Ala. 445 ; Birch ®. Tebbutt, 3 Stark. 74 ; Lamprell «. Billericay, 3 Excheq. 383. ■* Lebleu «. Eutherford, 9 Robinson, 95 ; Hunter «. Osterhoudt, 1 1 Barb. 33 ; Bobe «. Stickney, 36 Ala. 483. " Newman v. Meek, 1 S. & M. Oh. 331 ; Merrimack Co. Bank «. Brown, 12 N. H. 320. THIRD PRINCIPAIi RULE— FOURTH MINOR RULE. 143 date to the innkeeper upon an account which con- tained some such items in it, and other items that were legal, and no application by either party, the court ruled that it was not competent for it to apply the payment to the former items/ Lord Chief Justice Eyre remarking, "with regard to. the money paid into court it is to be observed that such payment is only an admission of a legal demand and we cannot allow it to be applied to an illegal account." In Wood V. Barney (2 Vt. 369), the court held that the law would not apply a payment to an ac- count for spirituous liquors, where the statute of the State prohibited a recovery for more than one dollar and a half, and neither party had appropriated the payment. Prentiss, J., said: "As the articles deliv- ered by the appellant were charged generally in ac- count, and no specific application had been made of them by the parties, they remained with the rest of the accounts to be adjusted and settled as the law re- quired. To apply the payments in the appellant's ac- count in off-set to, or extinguishment of, the charges for liquors in the intestate's account, as was done by the auditors, would be in effect to allow the represent- ative of the intestate to recover the amount of the ac- count for liquors. This would be a palpable evasion, if not a direct violation of the statute." A similar ruling was made in Minnesota.'' ■ Ribbans v. Crickett, 1 B. &. P. 264. " Solomon v. Dreschler, 4 Minn. 278. 144 APPLICATION OP PAYMENTS. Where a party owes an account, consisting partly of legal charges, and partly of illegal charges, as for liquors unlawfully sold, and makes a general payment, it must be applied by the court to the legal charges, but if it exceed the legal part of the account it will be applied to the, illegal charges rather than be de- ferred for future legal chai^ges.^ The law is equally stringent in the case of another kind of an invalid demand, viz., a usurious one. Thus it has been decided that the holder of a usu- rious mortgage cannot, even with the assent of the mortgagor, apply partial payments to the unsound part of his mortgage for the purpose of keeping it alive, that part of it which is valid, to the prejudice of an existing subsequent mortgage.^ In case of a general payment upon a contract car- rying usurious interest, the law will apply the pay- ment to the principal sum loaned if that can be col- lected.* And when notes were given in payment of an ac- count at a usurious rate of interest, after which one of the notes was paid, held, that the payment should be applied upon the amount legally due upon the aggre- gate account, and not as a payment of the usury in the note thus paid.* ' Hall i>. Clement, 41 N. H. 166. ' Green v. Tyler, 39 Penn. St. 361 ; Stanley e. Westrop, 16 Texas, 200. » Gill ». Rice, 13 Wis. 549. * Burrows v. Cook, 17 Iowa, 436. THIRD PRINOIPAIi EULE— FOURTH MINOR RULE. 145 Where money has been paid by a company to its solicitors, on account of costs generally, and there were costs incurred in respect of unauthorized busi- ness by the company, and known by the solicitors to be unauthorized, and the solicitors had omitted until too late to make the application, the court refused to apply the payments on the costs for the unauthorized business, but applied them to the costs which the company were liable to pay.^ But the law will make the application where the demand, although not strictly collectible, is supported* by a moral obligation. Thus, application will be made of a payment upon a debt from which the debtor has been discharged in bankruptcy proceedings, where the circumstances make such a disposition equitable, and where a con- trary ruling would work injustice.'' So, if a debtor owes some debts longer than six years, and others not so long, a general payment by him will be a payment on account, so as to take the older debts out of the statute.' Upon the same principle, where at, the time the payment was made, the debtor owed the creditor two demands, both then due, and afterwards, but before the appropriation was made by the court, one of these demands was barred by the statute of limitations, or • Howard & Dolman's Case, 1 Hem.' & Mill. 433. ' Hill V. Bobbins, 22 Mici 475. ' Mills V. Fowkes, 5 Bing. K C. 455 . 10 146 APPLICATION OF PAYMENTS. of non-claim, it was thought that justice between the parties seemed to require that the payment should be applied to the debt thus barred.^ And where a party was bound in two debts on two different accounts, one of which the creditor had agreed not to sue, but which the debtor had agreed to pay, and the latter made general payments, the court applied them to the non-suable account, and held the debtor for the balance of the other account.^ 2. To a certain demand. When the law is called upon to make application, the appropriation can only embrace debts or demands for certain sums, or such as can be made certain, as accounts for work and labor, or for goods sold, or the like, but not for uncertain and unliquidated damages.* In the case of a debt existing between the parties on a special contract and an unsettled book account also standing between them, and a general payment by the debtor on the special contract, it will be applied on that and not on the book account.* The Court said : " In this case there does not appear to be any debt due to the plaintiff from the defendant, except what arose out of the contract. It is true there was an un- settled account, but from this no inference can be ' Robinson v, Allison, 36 Ala. 535. " Emery v. Tichf ut, 13 Vt. 15. " Ramsour v. Thomas, 10 Ired. Law, 165. * Blinn v. Chester, 5 Bay, 166. THIED PEINCIPAL RULE— FOURTH MINOR RULE. 147 made that the defendant was in arrear on that ac- count to the plaintiff. It might as well be inferred that the plaintiff was in arrear to the defendant. There was then no debt due but that upon the con- tract. There was no need of any direction to the plaintiff to apply the payment to this debt. The law made the application of it to this." A., having a legal claim against B., on bilfe of exchange accepijpd by B., and also having possession of a deed of mortgage executed by B. to a third person, of which he might compel an assignment in equity, B. pays money to A. "on account," without prejudice "to his claim on any securities." The law will apply the payment to the bills of exchange.^ Per Lord Ellenborough : " I cannot go beyond the terms of the receipt. ' On account * there means an account on which the defendant was liable to pay, but he was liable on the bills of ex- change only. Then there was this qualification, ' with- out prejudice to any claim we have upon any securi- ties.' But they were not in a situation to make any claim on any other securities." For a similar reason it was held, in Goddard v. Hodges (1 C. & M. 33), that a general payment miist be applied to a prior legal, and not to a subsequent equitable demand. Bayley, B., said : " If there be a legal debt, and a claim which would only become a legal debt on a settlement, of the partnership accounts, ' Birch ®. Tebbutt, 8 Stark. 74. 148 APPLICATION OF PAYMENTS. and the striking of a balance, we are bound to con- sider a general payment as applicable to the legal debt." S. To cm existing demmid. In • the absence of evidence showing most unmis- takably the intention of the parties, a ge;ieral pay- ment to a creditor with whom the debtor has a running account will be referred to his existing in- debtedness, and not to future liabilities or advances.^ The doctrine, as thus enunciated, was applied to dealings between a party and his commission mer- chant.* In the case of general payments made by a tenant on account of rent, they will be applied by the law on the rent due at the time, and not on the rent then accruing.* 4. To the transaction affecting the party directly and personally. Where a party was indebted on his own account and also collaterally as surety for another party, and made payments without specifying the mode of appro- priation, it was held that, under such circumstances, the law would apply the payment to the party's own debt, and not the one for which he was surety.* ' Early ». Flannery, 47 Vt. 353. ' Harrison «. Johnston, 27 Ala. 445. ' Hunter v. Osterhoudt, 11 Barb. 33. * Newman v. Meek, 1 S. & M. Ch. 331. THIRD PRINCIPAL RULE— FOURTH MINOR RULE. 149 The same principle was applied in the case of Merrimack Co. Bk. v. Brown (12 N. H. 320), where a creditor had a mortgage to secure two or more notes, on some of which the mortgagor was principal alone, and on another he was joint principal with another person. The court ruled that the creditor could not apply the proceeds of a sale of the mortgaged premises in payment of the whole of the note, in which the two were joint principals, to the prejudice of the sureties of the other notes ; that the law would apply the property, in the first place, to the payment of the actual debt of the mortgagor. In the course of his opinion. Chief Justice Parker said : " The bank evidently had no in- terest which required the application which was at- tempted, having the same sureties on the one note as on the other ; and the law, under such circumstances, will apply the mortgaged property, in the first place, to the payment of the debt of the mortgagor and the exoneration of his sureties, and not to the payment of that portion of the indebtedness on which he was in truth a surety for Smart." By parity of reasoning, where a party holds claims in the double character of a direct right and a col- l|^eral or representative right, general payments will be applied to the debts to him in his own right. Thus, it is said, if there be no appropriation of a payment by either of the parties, the law will appro- priate it, other considerations being equal, in the first instance, to the payment of a note absolutely due to 150 APPLICATION OP PAYMENTS. the creditor, rather than of one transferred to him as collateral security only.^ But the dealings between the parties may be so shaped as to require a different adjudication by the court, and an old case is an instance of such. A. was indebted by bond (in which J. S. was bound as surety) and also by simple contract to B. A. stated an account of both debts with B., and made a bill of sale for securing the balance, which proved deficient. On a bill by the surety, it was decreed that the money arising by the bill of sale should be applied towards the discharge of both debts, in proportion, and solely upon this reason, that both of the debts had been cast into one stated account, and the bill of sale made towards satisfaction of the whole debt,^ ' Bank of Portland v. Brown, 9 Shep. 295. ' Perns v. Roberts, 1 Vem. 34. THIED PRINCIPAL RULE— FIFTH MINOR RULE. 151 FIFTH MINOK RULE. In some cases the fund out of which the money arose will direct the application. That is, if the money came from the proceeds of some particular property, real or personal, or from som^ pa/rticulwr fund, and there he a debt resting on that properly or fund, or owing in consequence of it, the debt thus described will he first discharged or re- d/medfrom the money thus raised. As where A. is indebted on bond and on judg- ment, and sells his land, and the purchaser pays a sum of money to the creditor without application, the law will appropriate it to the judgment in exoneration of the land.^ • A very old case affords a happy illustration of this principle. It is thus reported by Vernon : " On ex- ception to a master's report to whom the account in question was referred, it appeared that the defendant was an incumbrancer by judgment, and had also a debt by bond, and received £200 of the purchaser of the estate in part, but gave no notice to the purchaser that it was to be applied towards payment of the bond debt. Per curiam, it shall therefore be applied towards satisfaction of the judgment, the £200 being part of the purchase money.*^ * Gwinn v. Whitaker, 1 Ear. & J. 754 ; AUston ». Contee, 4 Id. 351. ' Brett ». Marsh, 1 Vern. 468. ' 152 APPLICATION OP PAYMENTS. The same principle runs through a much later case : A, B., an equitable mortgagee, lent the title deeds to C. D., the mortgagor, to enable him to arrange a sale of the property. C. D. was indebted to A. B., both on the mortgage and on a trade account. C. D. paid to A. B. a part of the produce of the sale, but there was no evidence of his having made any express appropriation of that payment : Hdd, that it must be understood that the payment was made on the mort- gage account, and that A. B. had no right to appro- priate it to the trade account. * Lord Langdale, Master of the Rolls, thus expressed his views on the matter : " In support of his claim, in that respect, he alleges that nothing was said as to the application of the money which he received, and he insists that in the absence of express directions he has a right to make the application most beneficial to himself. But it ap- pears to me, from the nature of the transaction, that English paid this money only in respect to the plaint- iff's right to the mortgage, and that it must, jfrom the circumstances, be understood that English meant the payment to be applied towards the satisfaction of the mortgage." ^ In Merrimack Co. Bk. v. Brown,^ a creditor held a mortgage on land to secure two or more notes, on some of which the mortgagor was principal alone, ' Young ». English, 7 Beav. 10. " 13 N. H. 330. THIBD PBINOIPAL RULE — FIFTH MINOR RULE. 153 and on one of which, he was joint principal with another person. It was adjudged that he could not apply the proceeds of a sale of the mortgaged prem- ises in payment of the whole of the note, in which the two were joint principals, to the prejudice of the sure- ties on the other notes. Chief Justice Parker said : " The bank had no right to apply the proceeds of the sale of the farm, which belonged to John Brown, in payment of the joint note of Brown and Smart, to the prejudice of the sureties on the other note. It is, in eflfect, an appropriation of the property of Brown to the payment of the debt of Smart, he being solvent^ the bank at the same time holding a debt against Brown, and attempting to enforce the collection of it from his sureties. Perhaps the bank might have made the application to Brown's half of that note, but the proceeds of the sale were sufficient to pay that in addition to the note now in suit." The principle is reiterated in Hicks v. Bingham,* where Putnam, J., declared for the court that they were "all of opinion that the respondent is bound to apply the consideration, which she received for a re- lease of a part of the mortgaged premises, towards payment of the mortgage. It was received by her in consequence of the mortgage, and the price of the land mortgaged, as well as the rent of it received by the mortgagee, ought to be applied towards the extin- guishment of the debt secured by the mortgage." " 11 Mass. 300. 154 APPLICATION OF PAYMENTS. Lord Justice Knight Bruce voiced the principle very epigrammatically in Knight v. Bowyer/ when he remarked that " it may well be that an incumbrancer is bound to apply what he receives by virtue of his security, to the security by virtue of which he re- .... • ceives it. The principle is as active in courts of law as in courts of equity, as will appear from the case of Stoveldel v. Eade.** Defendant, being indebted to the plaintiff, gave him a bill of exchange, in 1823, for ^62,500, a^d a war- rant of attorney to secure the payment ; and in 1825, by a deed reciting that he was indebted to the plaintiff in the sum of i65,000, he gave a mortgage to secure that sum and any advances to the extent of £1,000. In 1826 the estate so mortgaged was sold for £3,600, and the proceeds paid to the plaintiff. After this, the plaintiff having i&sued execution on the warrant of •attorney, the court refused to set it aside. It was claimed by counsel that the case fell within Clayton's Case, and that, therefore, the oldest item should be considered discharged ; but the court thought other- wise, Best, Chief Justice, saying: "Is there then, in the present case, any circumstance which can enable us to determine whether the payment of the j63,600 was to be in any order other than that of pri- ority ? It is clear that this sum, the proceeds of the sale of the Salmon Bridge estate, was applied towards ' 4 De G. & J. 619. ' 4 Bins'. 154. THIRD PRINCIPAL RUIiB — FIFTH MINOR RULE. 155 the discharge of the jE5,OpO, for which that estate was mortgaged, and it nowhere appears that the sum due on the bill of exchange formed any part of that sum ; on the contrary, it is treated as a separate transaction." This principle is applied also in analogous cases. Thus, when a partner in trade liable for a sole debt, contracted before his partnership, and also liable for partnership debts, pays money to the creditor on account, the creditor cannot apply such payment to the first debt if the money paid was in fact the money of the partnership.^ Lord Chief Justice Abbott gave the reason as follows : " The general rule certainly is that, when money is paid generally, without any ap- propriation, it ought to be applied to the first items #f the account, but the rule is subject to this qualifica- tion, that when there are distinct demands, one against persons in partnership and others only against one of the partners, if the money paid be the money of the partners, the creditor is not at liberty to appropriate the same to the payment of the debt of the individ- ual, for this would be allowing the creditor to pay the debt of one person with the money of others." This rule appears to possess a strong equity. It also admits of easy application, and seems to be at- tended with fewer exceptions and limitations, in its use, than any other of the rules which we are consid- ering. A case arpse recently, within the knowledge of the ' Thompson v. Brown, 1 Mood. & Malk. 40. 156 APPLICATION OF PAYMENTS. author, in the Supreme Court of New York, present- ing a very peculiar state of facts, and which, if it had proceeded to trial and adjudication would, in his opin- ion, have fallen within the rule under present con- sideration. The case, after being in court a short while, was compromised and settled. The president of a manufacturing corporation, formed under the general law of New York, and who was also a large stockholder, in the absence of funds in the treasury of the company, fitted up, with his own private means, a factory with machinery and other apparatus for manufacturing the products of the company, and also furnished funds for purchasing the raw materials which the company used in its business and for the general current expenses of the company. This was done under an informal understanding with the other officers and stockholders, that he should be reimbursed as fast as the business of the company would permit. He took the bills for the purchases of the factory machinery, &c,, in his own name, and those for the raw materials and current expenses in the name of the company. When the factory was ready for use the business of manufacturing and selling was started there, and continued for several years in the name of the company, the president being the chief manager and financial officer ther.eof. The business was conducted very informally, no books of account, in the debit and credit form, between him and the company being kept THIRD PEINCIPAL EULE— PITTH MINOR RULE. 157 by him, nor on the part of the company, although he preserved accurate private memoranda of all the trans- actions. He superintended the manufacture and sale of the products of the concern and received all payments therefor. Matters went on in this manner for about four years, the advances of this officer in the several ways mentioned exceeding his receipts from the bus- iness largely, and more than the cost of fitting the factory up with machinery, &c. Some third persons, in the meantime, got posses- sion of the factory property under execution process against the company, and trover was brought against them by the vendee of the president. The case would probably have turned upon the question whether the claim for fitting up the factory was to be deemed to have been extinguished by the course of the transactions. Neither party had, at any time, attempted to make any express application of the receipts or payments which had come into the hands of the creditor, and from the nature of the case there could not, perhaps, have been any such, for the creditor standing in the position of a trustee of the company could not have acted for himself and to the neglect and prejudice of the interests of the company, and the company had no direct representative to look after its behalf. It would thus necessarily have been a case for appropriation, by the court, upon equitable principles. 158 APPLICATION OF PAYMENTS. Had the title to the factory property been passed upon, its purchase to the company, the party advancing the money would have been a general creditor .only, or one having merely a general claim against the company, and upon such a state of facts the rule of Clayton's Case would probably have been applicable, and the items for this property being the first in point of time would have been the first to be cancelled by receipts from the sales of the company's products. But the circumstance that this property was only conditionally sold to ^ihe company and the title never passed, would present an equity which would prob- ably have distinguished it from, and taken it out of, the ordinary rule. And yet had an account, in the debit and credit form, been kept openly by the creditor, in which were entered in due form his advances or disbursements on the one side and his receipts on the other side, then, according to the case of Crompton v. Pratt (1 05 Mass. 255), supra, the rule of Clayton's Case would have been applicable, and the items in question would ' have been extinguished and the property paid for. The case cited from Massachusetts did not deny that the sale before it was a conditional sale, or decide that the conditions need not be fulfilled, but held that the course of the transactions constituted a pay- ment and showed that the condition had been per- formed. But the matter in the case under review, not THIED PEINCIPAIi EULE— FIFTH MTNOE EULE. 159 resting in the form of an account current kept by the creditor, upon which consideration the case cited from Massachusetts chiefly turned, and nothing having been done by the parties, or either of them, to impress "it with any artificial characteristics, it would seem to have been one in which the rule under consideration should be allowed to exercise a controlling influence, viz., that the source from which the moneys came should determine what items of the creditor's claim were to be treated as discharged, and which ones were to be regarded as still unpaid. K so, the action which had been instituted in the Supteme Court would seem to have been sustainable, for the receipts by the creditor having been for the manufactured products of the company, should have gone in discharge of the advances for raw materials and general expenses which had been transformed by the process of manufacture into such second form products, and not in cancellation of the items for factory machinery, none of which had been sold, but all of which remained in the possession of the com- pany up to the time of the levy. CHAPTEE XI. IN" REGAED TO PAETlfEESHIP CASES. The occasions for the appropriation of payments in partnership transactions are qtiite frequent, so much so as to justify a distinct and separate space for them, although no unusual principles or modes of applica- tion are called into requisition. In Simson v. Ingham,^ Bayley, J., after reciting the two rules of appropriation, such as, first, by the debtor, and, second, by the creditor, stated that there was a third rule, viz. : " Where one of several partners dies, and the partnership is in debt, and the surviving partners continue their dealings with, a particular creditor, and the latter joins the transactions of the old and the new firm in one entire account, then the payments made from time to time by the surviving partners must be applied to the old debt. In that case it is presumed that all the parties have consented that it should be considered as one entire account, and that the death of one partner has produced no altera- tion whatever ; " but it was held that this rule was inapplicable to the case at bar, for the reason that the creditor had separated the accounts of the new and old firm, and had applied the payments made by the •' 3 B. & c. 65. IN EEGAKD TO PARTNERSHIP OASES. 161 later firm to the indebtedness of that firm, as he had a right to do. Smith V. Wigley ^ presented a state of facts suit- able for resort to the rule enunciated by Bayley, J. W. & T., partners, doing business as news agents, be- came indebted to the plaintiff. The firm dissolved, and after the dissolution T., continuing the business, became also indebted on his separate account to the plaintiff : Held, that in the absence of any specific ap- propriation by either party, payments made by T. after the dissolution must go in reduction of the entire account, and consequently must discharge the earlier items. Lord Chief Justice Tindall, commenting on the facts, said : " I desire to be understood as not deciding this case upon the construction of the bill of particulars, but upon the general rule of appropria- tion which the law directs in the absence of any specific appropriation by the parties themselves, ac- cording to the rule laid down in Clayton's Case, Boden- ham v. Purchas, and in Simson v. Ingham. The case of Thompson v. Brown cannot apply, because Tunni- cliffe was liable to the plaintiff for the entire debt due upon both accounts." Mr. Justice Park was of the same opinion, remarking that he could not dis- tinguish the case from Bodenham v. Purchas and Sim- son V. Ingham. In Simson v. Cooke,* there was a very similar con- ' 3 Moore & Scott, 174. " 1 Bing. 453. 11 162 APPLICATION OP PAYMENTS. dition of affairs, and a like ruling was made. Lord Gifford, Chief Justice, among other things, said : " The only remaining question is, whether, on the evidence adduced at the trial, any part of the balance due from Cooke & Co. at the time of the death of Thomas Cooke is still due. Now, at the time of his death no rest or distinction was made in the accounts, hut they still went on as if nothing had happened, and the remittances subsequent to the death of Thomas Cooke are more than sufficient to cover the balance then due. Several cases have been referred to, particularly that of Bodenham v. Purchas, which establish it as a prin- ciple that where a debtor makes no specific appropria- tion of a sum remitted to account, the creditor is bound to apply it in liquidation of the earliest balance due from the debtor. That principle applies here." In Pemberton v. Oakes,^ Hooper v. Keay,* TotQ- min V. Copland,' and Bank of Scotland v. Christie,* the facts were not distinguishable in substance from those in Smith v. Wigley and Simson v. Cooke, and a similar ruling was made in all of the cases : in the first by Lord Chancellor Lyndhurst ; in the second by the Court of Queen's Bench ; in the third by the Court of Exchequer, and in the last by the House of Lords. In Toulmin v. Copland, the rule was declared to be ' 4 Euss. 154. ' 1 Law Rep. Q. B. Diy. 178. ' 3 Y. & C. 635. < 8 CI. & Fin. 214. IN REGARD TO PARTNERSHIP OASES. 163 applicable not only between the partners themselves, but also between the partners and third persons. In Toulmin v. Copland, Lord Chief Baron Abinger gave the subject a very thorough discussion, and this is his language : " It appears that a controversy arose in what, way the balance due from the old customers to the house should be treated. By the old customers I mean those who dealt with the first firm. It ap- peared that soon after they commenced their partner- ship, balances were transferred from the books of the old firm to the books of the new, both those balances that were for the firm and those that were against the firm, so that the house of Toulmin & Copland under- took to liquidate the balances due from the house of Abraham & Richard Toulmin, and likewise proposed to the creditors of that house that they would be responsible to them for the debts due from the old house. This result is the necessary consequence of the change in the house, as will immediately be seen by attending to the operation of the accounts. A cus- tomer of the house, who might owe a certain sum of money to the old house, finds himself addressed by the new house with a statement to this effect, that the new house is now formed and they propose to carry on the same concern, and that they have transferred his balance to their accounts, and have rendered him a new account, the first item of which debits him with the balance due to Abraham & Richard Toulmin. That forms the first item on the debit side of the 164 APPLICATION OP PAYMENTS. account, and that account is opened with the new- house of Toulmin & Copland. Then they intro- duce other payments made to him and payments made by him on the credit side of the account, and at the end of the year they draw a balance, and they charge him as debtor to the new house with that balance. That balance includes the interest of the debt to the old house. The account is carried on from year to year, and in that manner for several years. Now it is quite obvious that, as between the debtor and the creditor, that balance becomes absorbed and discharged by the first payments that are made in point of time that are applicable to it, and the account assumes altogether the shape of an account between the new parties. It is no longer an account between the former house and the customer, but an account between the new bouse and the customer ; and the customer in effect engages to pay the new house what he before owed the old house, and pays accordingly upon a general account what he pays in. That is the necessary and legal consequence of the form of the account (without referring to the rule laid down by Sir William Grant in Clayton's Case, which is now become thoroughly understood and acted upon in all courts of justice). From the very nature of the ac- count, without the application of any legal rule, the old balance becomes a balance in which the new house is interested, and becomes absorbed and satisfied by the subsequent payments made, unless there be some agreement to the contrary. So, on the other hand. IN REGARD TO PARTNERSHIP OASES. 165 with respect to the accounts of the creditors of the house. Some customers of the house have money in their hands. The house fenders accounts to those customers, giving them credits for the money which the • old house owed to them, and carrying on the account with them, soliciting a continuance of their favors, and making themselves their debtors." The decision of the Court of Exchequer was affirmed by the House of Lords.^ The reasoning of Lord Cottenham, in the House of Lords, in the Bank of Scotland v. Christie, although somewhat lengthy, is worth transcribing here. " The question which it seems expedient to consider in the next place, is whether, at the time of the date of the second bond, anything was due to the Bank of Scot- land from the estate of Thomas Allen alone. The bond of the 30th of March, 1832, was to secure repay- ment to the bank of any balance to the extent of 20,000?., which might be due to the bank from the firm of Robert Allen & Son, in which Thomas Allen was a partner, in respect of advances and an accommo- dation to be afforded to them by the bank. Thomas Allen died in September, 1833, and beyond all doubt by that event the firm of Robert Allen & Son, as it had up to that time existed, was dissolved so far as it affected the bank. That the business was to be con- sidered as going on as before, for the purpose of set- tling between the surviving partners -and the estate of ' 1 West, 164. 166 APPLICATION OF PAYMENTS. the partner deceased, by special agreement between the partners, cannot affect the question ; and it is also quite clear, that the security which Thomas Allen so gave to the bank, to secure the repayment of advances made to the firm in which he was a partner, that is to himself and his partners, could not be used as a secu- rity for advances made after his death to a firm in which he was not a partner, that is to the persons who had been his partners, whether they continued the old style and firm or adopted another. Now it is not in dispute that the payments made by the surviving part- ners, with whom the account was continued, after Thomas Allen's death, to the bank, without any spe- cific appropriation prior to the date of the second bond, exceeded the amount of the debt due to the bank at the time of Thomas Allen's death, and the ap- pellants admit that there were periods between the time of Thomas Allen's death and the date of the sec- ond bond at which there was no balance due to the bank, and that at the date of the second bond there was only a balance of 400^. with interest due, so that there is no ground upon which it can be maintained that the debt due at the death of Thomas Allen was not paid at the date of the second bond, except that of the bond of 1832 being available to secure advances made after the death of Thomas Allen, for which there is no pretence. It seems to have been supposed by some of the learned judges that the case of Devaynes V. Noble (Clayton's Case) was not applicable to the IN EEGARD TO PARTNERSHIP OASES. 167 present, because this was a case of credit and not of deposit. Those learned judges recognize the law of Devaynes v. Noble as applicable to Scotland, as indeed the case of Spiers v. Houston (4 Bli. 515) assumes it to be. It is to be regretted that the subsequent de- cisions, which have taken place in England upon that subject, were not brought under the consideration of those learned judges. If they had been I have no doubt but that the application of the principle, in its fuU extent, to this case, would have been recognized by them. Many such cases have occurred in this country, but it is sufficient to mention Pemberton v. Oakes, Bodenham v. Purchas, and Simson v. Ingham, because in one or other of those cases all the circum- stances occurred which have been supposed to distin- guish this case from the case of Devaynes v. Noble. "Without, therefore, calling in aid the fact that the whole debt, at the time of Thomas Allen's death, was destroyed by the balance due to the bank from the continuing firm having ceased to exist, such debt so due at Thomas Allen's death would have been dis- charged by the application of the subsequent payments of such debt, such payments having been made with- out any appropriation by the parties paying, and hav- ing been carried by the parties receiving such pay- ments to the account kept by them, consisting of the old and new transactions, and constituting, therefore, a continuing account, and from which appropriation it was not competent for the bank to remove such pay- 168 APPLICATION OF PATMBNTS. ment at a sulbsequent time, when the consequences were seen, as was decided in Bodenham v. Purchas.'.' In Brooke v. Enderby ^ and Scott v. Beale,^ this principle was extended to the case of a new party coming into the partnership, and declared to be not limited to the knowledge, by the customers of the old firm, of the fact of such new entry. Erie, Chief Jus- tice, in Scott V. Beale, referring to Bodenham v. Pur- chas and Clayton's Case, observed, that in none of the cases was knowledge by the customer, of the entry of the new partner, ever considered as an ingredient in the question of his liability. The rule, as thus extended, was applied by the Court of Common Pleas, in Geake v. Jackson,* to a mining company conducted on the cost book principle. The doctrines which we have been considering have been accepted by the courts of this country. In AUcott V. Strong,* it was decided by the Su- preme Court of Massachusetts, that if A. receives partnership notes in payment of his demands against the firm, and after its dissolution opens a ranning account with the continuing partner, by whose consent the amount paid by A., to take up said notes upon their dishonor, is charged in such running account, it is the duty of the jury, in a suit by A. on such notes against the retiring partner, to apply -any general pay- ' 3 Bfod. & Bing. 70. " 6 Jurist. (N. S.) 559. ' 36 L. J. (C. P.) 108. ' 9 Cush. 333. IK REGARD TO PARTNERSHIP OASES. 169 ments made by the continuing partner to A., after the notes are so charged, to the earliest items of debit in said account, and if the general payments so made are sufficient to extinguish the notes and all earlier items in the account, to find such notes were paid. Shaw, Ch. J., in the course of his opinion, used .the following language : " This point was elaborately discussed, and a great many authorities were cited in regard to it, but it seems to depend on well settled principles. The outstanding debts of the dissolved firm were charged by their creditor, Whitney, to the partner who continued the business. Now, according to the rule laid down in the absence of other proof, such a charge transfers the account to the party under- taking to pay it. The earliest credits in the accounts must be applied to meet the earliest debits, and if those debits are joint they are met and extinguished by the credits. This was decided in Clayton's Case, Bodenham v. Purchas, and Farnum v. Boutelle (IS Mete, 159). It is the ordinary way in which ac- counts are managed at the dissolution of copartner- ships." The Supreme Court of Connecticut gave the ques- tion a many sided discussion in Fairchild v. Holly.* In an action of book debt against B. C.