being called upon in behalf of the annuitants, the debtor made a general payment, without any specific appropriation at the time; it was held, that the circumstances showed his intention to apply it to the annuities, and that the creditor was therefore not at liberty to ascribe it to his private debt.1 So, if there be two debts, and the debtor pays, without appropriation, a sum precisely equal to what remains due on one of them, but greater than the amount of the other, this will be regarded as having been intended in discharge of the former debt.2 So, if there be two debts, the validity of one of which is disputed, while the other is acknowledged, a general payment will be presumed to have been made on account of the latter. But this right of the debtor to appropriate his payment is not without some limitation. Thus, for example, he cannot apply it to the principal only, where the debt carries interest; for, by law, every payment towards such debts shall be first applied to keep down the interest.1 (a)

§ 531. By creditor. The right of appropriation by the creditor, where the debtor makes none, is subject to some exceptions. Thus, if one debt was due by the debtor as executor, and another was due in his private capacity, the creditor shall not ascribe a general payment to the former debt, for its validity will depend on the question of assets.5 So, if one of two debts was contracted while the debtor was a trader within the bankrupt laws, and the other afterwards, the creditor will not be permitted to apply a general payment to the latter, so as to expose the debtor to a commission of bankruptcy. So, if one of the creditor's claims is absolute, and the other is contingent, as if he is an indorser or surety for the debtor, who makes a general payment; the creditor will be bound to appropriate it to the absolute debt alone. (b) If one of two claims is legal and the other equitable, the creditor is

1 Shaw v. Picton, 4 B. & C. 715.

2 Robert v. Garnie, 3 Caines, 14; Marryatts v. White, 2 Stark. 101. Tayloe v. Sandiford, 7 Wheat. 20, 21.

Gwinn v. Whitaker, 1 H. & J. 754; Frazier v. Hyland, Id. 98; Tracy v. Wikoff, 1 Dall. 124; Norwood v. Manning, 2 Nott & McCord, 395; Dean v. Williams, 17 Mass. 417; Fay v. Bradley, 1 Pick. 194.

5 Goddard v. Cox, 2 Stra. 1194.

Meggott v. Mills, 1 Ld. Raym, 287; Dawe v. Holdsworth, 1 Peake, 64. 7 Niagara Bank v. Rosevelt, 9 Cowen, 409, 412.

(a) Payment upon conditions not objected to binds the payee to those con ditions. Hall v. Holden, 116 Mass. 172.

(b) See Upham v. Lefavour, 11 Met. (Mass.) 174, 185; Alden v. Capen, 5 Met. (Mass.) 268.

bound to apply the payment to the former.1 If a partner in trade, being indebted both as a member of the firm, and also on his own private account, pays the money of the firm, the creditor is bound to apply it to the partnership debt.2 And the accountbooks of the creditor, with proof that the entries were contemporaneous with the fact of payment, are competent evidence in his favor, to show to which of two accounts he applied a general payment.3

§ 531 a. Principle of the rule. The principle on which these and other exceptions are founded seems to be this: that the debtor, by waiving his right of appropriation in favor of the creditor, could not have intended that it should be exercised to his own injury; but, on the contrary, that he relied on the creditor's making an appropriation to which he could not reasonably or justly object. The creditor, therefore, never acquires the right to apply a payment with a view merely to his own interest or convenience, unless the debtor has had an opportunity to direct its application by having the money pass through his own hands, or under his own control. And upon the above principle it has been held, that where a general payment was made to a creditor who held three promissory notes against the debtor, all which were within the bar of the statute of limitations, the creditor was not at liberty to apply a part of the money to each of the notes, so as to revive his remedy upon them all; but must make his election of one only, and apply the payment to that one alone.1 (a)

1 Birch v. Tebbutt, 2 Stark. 74; Goddard v. Hodges, 1 C. & Mees. 33; s. c. 3 Tyrw. 259. But where the equitable debt was prior to the other, the creditor has in one case been permitted to apply the payment to the former. Bosanquet v. Wray, 6 Taunt. 597. And see also Bancroft v. Dumas, 6 Washb. 456; ante, § 529, n.

2 Van Rensselaer v. Roberts, 5 Denio, 470. 3 Thompson v. Brown, 1 M. & Malk. 40.

(a) The doctrine that the creditor may make application of payments, if the debtor has failed to do so, is unquestioned. Wittkowski v. Reid, 84 N. C. 21; Brice v. Hamilton, 12 S. C. 32; Nash v. Hodgson, 31 Eng. L. & Eq. 555. And he may do so by his attorney or agent. Carpenter v. Goin, 19 N. H. 479.

The limitation, however, to his right, i. e. that he must make the application most favorable to the rights of the debtor, is more doubtful. It has been held that a creditor receiving payments from his debtor, without any direction as to their

4 Ayer v. Hawkins, 19 Vt. 26.

application, may appropriate them to any debt which he holds against the debtor, although such application is not the one most favorable to the debtor. Thus, the creditor may apply the payment to a debt barred by the statute of limitations, or of imperfect obligation. Philpott v. Jones, 4 Nev. & Man. 14; Rohan v. Hanson, 11 Cush. (Mass.) 44; Haynes v. Nice, 100 Mass. 327; Ramsay v. Warner, 97 Mass. 13; Pond v. Williams, 1 Gray (Mass.), 630. Again, it has been held that a creditor to whom a debtor owes two debts may apply a payment to the unsecured debt, where

§ 532. Time of appropriation. At what time the creditor must exercise this right of appropriation, whether forthwith, upon the receipt of a general payment, or whether at any subsequent time, at his pleasure, is not clearly settled by the English decisions; but the weight of authority seems in favor of his right to make the election at any time when he pleases. And this unlimited right has been recognized in the United States; subject only to this restriction, that he cannot appropriate a general payment to a debt created after the payment was made.2

§ 532 a. Appropriation rightfully made, conclusive. After a payment has been rightfully ascribed to one of several debts, it is not in the power of either party alone to change it. But if both parties consent, the ascription may be changed to another debt; in which case the indebtment discharged by the former appropriation of the money is revived.3 (a)

§ 533. Appropriation by law. Where neither party has applied the payment, but it is left to be appropriated by law, the general principle adopted by the American courts is to apply it as we have already stated, according to the intrinsic justice and equity of the case. But this principle of application is administered by certain rules found by experience usually to lead to equitable results. It has sometimes been held, that the appropriation ought to be made according to the interest of the debtor, such being his presumed intention. This is the rule of the Roman law, and probably is the law of modern continental Europe; and it has

1 Clayton's Case, in Devaynes v. Noble, 1 Meriv. 605, 607; Ellis on Debtor and Creditor, pp. 406-408; Mills v. Fowkes, 5 Bing. N. C. 455, per Coltman, J.

2 Mayor, &c. of Alexandria v. Patten, 4 Cranch, 317; Baker v. Stackpoole, 9 Cowen, 420, 436. And see Marsh v. Houlditch, cited in Chitty on Bills, p. 437, n. (c), 8th ed.; Upham v. Lefavour, 11 Met. 174, 184; Watt v. Hoch, 25 Penn. St. 411.

3 Rundlett v. Small, 12 Shepl. 29. And see Codman v. Armstrong, 5 Shepl. 91. Poth. Obl. Part 3, c. 1, art. 7, § 530; 1 White's New Recopil. B. 2, tit. 11, pp. 164, 165; Van Der Linden's Laws of Holland, B. 1, c. 18, § 1, Henry's ed. p. 267; Grotius Introd. to Dutch Jurisp. B. 3, c. 39, § 15, p. 458, Herbert's Tr.; Clayton's Case, in Devaynes v. Noble, 1 Meriv. 605, 606; Baker v. Stackpoole, 9 Cowen, 435; Civil Code of France, art. 1253-1256; Gass v. Stinson, 3 Sumn. 99, 110.

the other is secured. Harding v. Tifft, 75 N. Y. 461; Upham v. Lefavour, 11 Met. (Mass.) 174; Wilcox v. Fairhaven Bank, 7 Allen (Mass.), 270; Bean v. Burne, 54 N. H. 395.

(a) Chancellor v. Schott, 23 Pa. St. 68; McMaster v. Merrick, 41 Mich. 505. So when the creditor, with the consent of a

debtor, has applied payments to the discharge of a debt which is founded on an illegal transaction, i. e. an illegal sale of liquors, the debtor cannot afterwards retract his consent and refuse to allow such application. Brown v. Burns, 67 Me. 535; Feldman v. Gamble, 26 N. J. Eq. 494; Caldwell v. Wentworth, 14 N. H. 431.

been recognized in several of the United States.1 (a) But, on the other hand, the correctness of this rule, as one of universal application, has been expressly denied by the highest authority. For as, 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 that he is content with the manner in which the creditor will exercise it; so, if neither party avails himself of his power, in consequence of which it devolves on the court, it would seem equally reasonable to suppose that both were content with the manner in which the court will exercise it; and that the only rule which it can be presumed that the court will adopt is the rule of justice and equity between the parties.2 Therefore, where a general payment is made without application by either party, and there are divers claims, some of which are but imperfectly and partially secured, the court will apply it to those debts for which the security is most precarious. (b) So, where there are items of debt and credit in a running account, in the absence of any specific appropriation, the credits will ordinarily be applied to the discharge of the items of debt antecedently due, in the order of the account. (c)

1 Pattison v. Hull, 9 Cowen, 747, per Cowen, J.; Civil Code of Louisiana, art. 2159-2161.

2 Field v. Holland, 6 Cranch, 8, 27, 28. And see Chitty v. Naish, 2 Dowl. P. C. 511; Brazier v. Bryant, Id. 477; Henniker v. Wigg, 4 Ad. & El. N. s. 792; Cowperthwaite v. Sheffield, 1 Sandf. S. Č. 416.

8 Ibid.

4 Postmaster-General v. Furber, 4 Mason, 333; Gass v. Stinson, 3 Sumn. 99,112; United States v. Wardwell, 5 Mason, 82, 87; United States v. Kirkpatrick, 9 Wheat. 720; Sterndale v. Hankinson, 1 Sim. 393; Smith v. Wigley, 3 M. & Scott, 174; Thompson v. Brown, 1 M. & Malk. 40.

(a) Thus if the debtor owes a debt secured by a mortgage and one on a simple contract to the same creditor, the court will apply payments to the mortgage. Windsor v. Kennedy, 52 Miss. 164; Moore v. Kiff, 78 Pa. St. 96.

(b) That payments should be applied to unsecured debts in order to protect the rights of the creditor, see Bowen v. Fridley, 8 Ill. App. 597; Trullinger v. Kofoed, 7 Or. 228. Where the debtor is indebted under a several liability, and also under a joint liability, and makes a payment, there being no evidence that a different appropriation was intended, or that the money was derived from the fund from which the joint liability was to be met, the law applies it to discharge the several liability, that being the appropriation

most favorable to the creditor. Liver. more v. Claridge, 33 Me. 428.

It is probable that when the courts are called on to make an application of payments, they will decide upon the circumstances of each case, and make the application which seems most equitable. Dehner v. Helmbacher, &c. Mills, 7 Ill. App. 47.

(c) When accounts are settled yearly, and the balance is each year transferred to the new account, if no appropriation is made of the payments by the parties, they must be applied in the order of priority, so that each payment shall go to discharge the earliest debt. Sonder v. Schechterly, 91 Pa. St. 83: Pickering v. Day, 2 Del. Ch. 333; Sandwich v. Fish, 2 Gray (Mass.), 298, 301; Coleraine v.

But this rule may be varied by circumstances.1 Thus, where an agent renders an account, charging himself with a balance, and continues afterwards to receive moneys for his principal, and to make payments, his subsequent payments are not necessarily to be ascribed to the previous balance, if the subsequent receipts are equal to such payments.2 Where the mortgagee of two parcels of land, mortgaged for the same debt, released one of them for the assignee of the mortgagor of that parcel, the money received for the release was appropriated to the mortgage debt, in favor of an assignee of the other parcel, notwithstanding the mortgagor was indebted to the creditor on other accounts.3 So, if one debt is illegal, and the other is lawful, or if one debt is not yet payable, but the other is already overdue, a general payment will be ascribed to the latter. (a) And if one debt bears interest, and another does not, the payment will be applied to the debt bearing interest.5

§ 534. Secured debts. The mere fact that one of several debts is secured by a surety does not itself entitle that debt to a preference in the appropriation of a general payment. And, therefore, where there was a prior debt outstanding, and afterwards a new debt was created, for which a bond was given with a surety, the

1 Wilson v. Hirst, 1 Nev. & Man. 746. 2 Lysaght v. Walker, 2 Bligh, N. s. 1. 3 Hicks v. Bingham, 11 Mass. 300; Gwinn v. Whitaker, 1 H. & J. 754.

4 Wright v. Laing, 3 B. & C. 165; s. c. 4 D. & R. 783; Ex parte Randleson, 2 Dea. & Chit. 534; McDowell v. Blackstone Canal Co., 5 Mason, 11; Gass v. Stinson, 3 Sumn. 99, 112; Parchman v. McKinney, 12 S. & M. 631.

5 Heyward v. Lomax, 1 Vern. 24; Bacon v. Brown, 1 Bibb, 334; supra, § 530.

Bell, 9 Met. (Mass.) 499; Boston Hat Manuf. v. Messinger, 2 Pick. (Mass.) 223; Allcott v. Strong, 9 Cush. (Mass.) 323; Upham v. Lefavour, 11 Met. (Mass.) 174; Millikin v. Tufts, 31 Me. 497; Thompson v. Phelan, 22 N. H. 339; Shedd v. Wilson, 27 Vt. 478; Truscott v. King, 2 Selden (N. Y.), 147; Dows v. Morewood, 10 Barb. (N. Y.) 183; Harrison v. Johnston, 27 Ala. 445. And this, though the creditor has security on some of the items, and none on the others. Worthley v. Emerson, 116 Mass. 374. But where all the payments or credits belong to one transaction, as where the credits all grow out of a single contract on which there is also a debit, these credits or payments will be applied to that debit alone, and will not be applied to items which have nothing to do with that transaction, although those items may be prior in date. Suter v. Ives, 47 Md. 520.

(a) If a creditor holds two demands, one lawful, and another positively unlawful, as a claim for usurious interest, he cannot apply a general payment by the debtor to the illegal demand, although the debtor, if he so elects, may thus apply it. Pickett v. Merchants' Nat. Bank, 32 Ark. 346; Phillips v. Moses, 65 Me. 70; Rohan v. Hanson, 11 Cush. (Mass.) 44; Bancroft v. Dumas, 12 Vt. 457; Backman v. Wright, 27 Vt. 187; Caldwell v. Wentworth, 14 N. H. 437. And in general, if the debtor has once made a payment on account of a debt arising out of an illegal transaction, or consented to the application by the creditor of a payment to an illegal debt, he cannot afterwards withdraw his consent. Brown v. Burns, 67 Me. 535; Feldman v. Gamble, 26 N. J. Eq. 494.