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Claytons Case

account, paid, appropriation, creditor, payment, item and debtor

CLAYTON'S CASE. This is the name of a •case decided in I 81(3, and reported in Mer. 529 et seq. (sometimes quoted as Devaynes v. Noble), which is always referred to as the leading authority upon what is known as the " appropriation of payments " If a debtor owes more than one debt to his creditor, and pays him a. sum of money insufficient to liqunlate the whole of the debts, it is sometimes a matter of import ance, in view of the Statutes of Limitations, to know to which debts the payment is to be appropriated. From Clayton's case the following rules are derived mainly taken front the Rionan Law :---(1) A debtor making a payment has a right to appropriate it to the discharge of any debt due to the creditor , (2) it at the time of payment there is no express or implied appropriation thereof by the debtor, then the creditor has a right to make the appropriation ; (3) in the absence of any appropriation by either debtor or creditor, an appropriation is made by pre sumption of law, according to the items of account, the first item on the debit side being the item discharged or reduced by the first item on the credit side. The prin ciple of the case was thus explained (see p. 608 of the report) : " 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. Neither banker nor cus tomer ever thinks of saying, This draft is to be placed to the account of the 1500 paid in on Monday, and this other to the account of the £500 paid in on Tuesday.' There is a fund of £1.800 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 prin ciple all accounts current are settled, and particularly cash accounts. When there has been a continuation of dealings, in what way can it he ascertained whether the specific balance due on a given day has, or has not, been discharged, but by examining 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 balance ' of 11,000. It would surprise one to hear 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 in five years ago that I hold myself never to have drawn out ; and, therefore, 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 that I paid in last week.' " The Earl of Selborne, L.C., in In re Sherry, London and County Banking Com pany v. Terry (1884, 25 Ch. D. 692), said : " The principle of Clayton's case, and of the other cases which deal with the same sub ject, is this, that where a creditor having a right to appropriate moneys paid to him generally, and not specifically appropriated by the person paying them, carries them into a particular account kept in his books, he primd facie appropriates them to that account, and the effect of that is, that the payments are de facto appropriated accord ing to the priority in order of the entries on the one side and on the other of that account. It is, of course, absolutely necessary for the application of those authorities that there should be one unbroken account, and entries made in that account by the person having a right to appropriate the payment to that account ; and the way to avoid the applica tion of Clayton's case, where there is no other principle in question, is to break the account and open a new and distinct account. When that is done, and the payment is entered to that new and distinct account, whatever other rule may govern the case, it certainly is not the rule of Clayton's case The principle of Clayton's case does not apply where a person has mixed trust moneys with his own moneys in his account. The money which he first withdraws from the account is taken to be his own money, leaving the trust funds intact.