This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
We have seen elsewhere that if a debtor owes two or more debts to the same creditor, and makes a payment to the creditor without indicating upon which debt such payment is to be applied, the creditor has considerable latitude in applying such payment, and may even apply the payment to a debt which is barred by the statute of limitations. The question then presented is whether such payment operates to revive the debt already barred by the statute. Upon this there is a conflict of authority. The weight of authority and the better reasoning is that such application does not operate to revive a debt already barred ;1 but a strong minority of the courts hold that such an application revives a debt which has been barred.2 In some states it is held that while the creditor cannot apply payments as he pleases so as to revive debts once barred by the statute of limitations, he can apply payments made before the statute has run so as to start the statute to running anew.3 In other states it is held that the application by the creditor to specific debts not yet barred does, not start limitations to running anew.4 If the creditor has made no application of a debt due from him to his debtor upon the debt in dispute due from his debtor to him, the existence of such debt clearly does not extend limitations. The mere existence of an indebtedness in favor of A as against B is not a payment on a note held by B against A, though it may be used as a setoff.5
7 McKeon v. Byington, 70 Conn. 429; 39 Atl. 853; Gum v. .Richert, 9 Kan. App. 570; 58 Pac. 236; Stancell v. Burgwyn, 124 N. C 69; 32 S. E. 378; Bellingham Bay Improvement Co. v. Ry., 17 Wash. 371; 49 Pac. 514; Hay v. Peterson, 6 Wyom. 419; 34 L. R. A. 581; 45 Pae. 1073.
8 Harris v. Howard's Estate, 56 vt. 695.
1 Mahoney v. McSweeney, 31 N. 8. 672; Becker v. Oliver, 111 Fed. 672; 49 C. C. A. 533; Armistead v. Brooke, 18 Ark. 521; Blake v. Sawyer, 83 Me. 129; 23 Am. St. Rep. 762; 12 L. R. A. 712; 21 Atl. 834;
Ramsay v. Warner, 97 Mass. 8; Pond v. Williams, 1 Gray 630; Reeves v. Sawyer, 88 Minn. 218; 92 N. W. 962.
2 Hopper v. Hopper. 61 S. C. 124; 89 S. E. 366; McDowell v. McDowell. 75 Vt. 401; 98 Am. St. Rep. 831; 56 Atl. 98; Rowell v. Lewis's Estate, 72 Vt. 163; 47 Atl. 783; Sanborn v. Cole, 63 Vt. 590; 14 L. R. A. 208; 22 Atl. 716.
3 Blake v. Sawyer, 83 Me. 129; 23 Am. St. Rep. 762; 12 L. R. A. 712; 21 Atl. 834; Beck v. Hass, 111 Mo. 264; 33 Am. St. Rep. 516; 20 S. W. 19.