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.
The creditor may make an appropriation of a payment by his intention to make such appropriation, together with some outward and visible act which makes such intention manifest.1 An act which is in its nature ambiguous does not amount to an appropriation.2 The act of the creditor in indorsing a payment on a note, does not show an appropriation of such payment to the interest on such note.3 The act of the creditor in giving a receipt,4 or in rendering to the debtor an account which shows an appropriation,5 amounts to an appropriation. The legal effect of the act, as well as the express language which is used, may be considered in order to determine whether a payment has been appropriated or not.6 The act of the creditor in rendering an account on which a general credit is entered, is held to show an appropriation of such payment to the earliest items.7 The act by which the creditor manifests his intention to make an appropriation need not be performed with the sole, or even with the primary, intention of making an appropriation of such payment by the performance of such act.8 If the creditor has a right to make an appropriation of a payment, his act in filing a petition to recover a balance due on a specified debt amounts to an appropriation of a payment to another debt, so as to leave the balance which he seeks to recover.9 This principle has been applied to a case in which a public corporation was the creditor and in which the appropriation was not made by the officers which had charge of the finances of such public corporation, but at the trial of which no obligation as to the method of appropriating such payment was made.10
Whether the creditor must notify the debtor of an application made by himself is a question on which there is some conflict of authority, though the weight of authority is that some notice must be given to constitute an appropriation.11 A credit on a specific note, without the knowledge of the debtor, has been held not to be an irrevocable application.12 If the creditor enters the payments on a general account with the debtor so as, in law, to amount to an application to the earliest items, his secret and uncommunicated intention to apply each payment to a specific item is without effect13
1 Cory v. The Mecca , A. C. 286; State v. Blakemore, 275 Mo. 695, 205 S. W. 626; Egolf Building & Loan Association v. Cleaver, 228 Pa. St. 60, 77 Atl. 245 (obiter); Wait v. Home-stead Building Association, 81 W. Va. 702, 95 8. E. 203.
2 Fellows v. Christenaen, 28 S. D. 353, 133 N. W. 814; Wait v. Homestead Building Association, 81 W. Va. 702, 95 S. E. 203.
3 Fellows v. Chriatensen, 28 S. D. 353, 133 N. W. 814
4 Smith v. Wood, 1 N. J. Eq. 74.
5 People v. Grant, 139 Mich. 26, 102 N. W. 226.
6 People v. Grant, 139 Mich. 26, 102 N. W. 226.
7 People v. Grant, 139 Mich. 26, 102 N. W. 226.
8 Haynes v. Waite, 14 Cal. 446; State v. Blakemore, 275 Mo. 695, 205 S. W. 626.
9 Haynes v. Waite, 14 Cal. 446; State v. Blakemore, 275 Mo. 695, 205 S. W. 626.
10 State v. Blakemore, 275 Mo. 626, 205 S. W. 626.