Fordham, J. B.

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University of North Carolina School of Law

NORTH CAROLINA LAW REVIEWVolume 7 | Number 3 Article 154-1-1929Effect of Payment Upon Operation of Statute ofLimitations Against a Running Account forServicesJ. B. FordhamFollow this and additional works at: http://scholarship.law.unc.edu/nclrPart of the Law CommonsThis Note is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina LawReview by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact law_repository@unc.edu.Recommended CitationJ. B. Fordham, Effect of Payment Upon Operation of Statute of Limitations Against a Running Account for Services, 7 N.C. L. Rev. 310(1929).Available at: http://scholarship.law.unc.edu/nclr/vol7/iss3/15THE NORTH CAROLINA LAW REVIEWrecordation acts forbids its making an exception in case of stock intrade, such an exception should be immediately incorporated by thelegislature in the recordation acts of North Carolina. The followingprovision of the Uniform Chattel Mortgage Act15 is offered as asuggestion:"If the mortgagee allows the goods to be placed in the mortgagor'sstock in trade-or sales or exhibition room, this shall have like effectas written consent to sell, in favor of any purchaser in the ordinarycourse of the mortgagor's business, not, however, including a pur-chaser by way of mortgage, pledge or sale in bulk or in payment ofantecedent debts."J. W. CREW, JR.EFFECT OF PAYMENT UPON OPERATION OF STATUTE OF LIMITATIONSAGAINST A RUNNING ACCOUNT FOR SERVICESIn solving a problem involving a given account it is important asa conceptual matter first to ascertain the general rules governingaccounts in order to understand the nature, and make the properclassification, of the account in question.1-Ditinction between mutual and running accounts.As usually defined a mutual account is one based upon a courseof dealing wherein each party has given credit to the other upon thefaith of his indebtedness to the other.' It is essential to a mutual1§18, par. 2 (a). Texas Revised Civil Statutes, Article 3970, is somewhatsimilar to the provision of the Uniform Chattel Mortgage Act:"Every mortgage, deed of trust, or other form of lien attempted to begiven by the owner of any stock of goods, wares, or merchandise, daily exposedto sale, in parcels, in the regular course of the business of such merchandise,and contemplating a continuance of the -possession of said goods and controlof said business, by sale of said goods by said owner, shall be deemed fraudu-lent and void." Wagons, buggies, automobiles, and the like have been treatedas stock of goods, wares, or merchandise under this statute. Supra note 12.The Uniform Chattel Mortgage Act has not been adopted in any of thestates.'Bank of Blakely v. Buchannan, 83 Ga. App. 793, 80 S. E. 42 (1913). Thefollowing definitions of running accounts appear in the later North Carolinareports: "A running and mutual account within the meaning of these issues (asto whether an action upon account was barred by the statute) is one growing,out of reciprocal dealings between the parties in which each extends credit tothe other and with the understanding, express or implied, that, on adjustmenthad, the items supplied and charged shall be allowed as proper credits." Hol-lingsworth v. Allen, 176 N. C. 629, 97 S. E. 625 (1918). "The account must be!mutual-that is, involving reciprocal rights and liabilities; open-that is, con-template further dealings between the parties; and current-that is, running with-no time limitation fixed by agreement, express or implied, with the balance tobe determined by an adjustment of credit and debit items." McKinnie Bros.Co. v. Wester, 188 N. C. 514, 516, 125 S. E. 1 (1924).NOTESaccount that each party has extended credit.2 On the other hand anordinary running account involves a situation where the extensions ofcredit have all been from one side.3 And payments by the debtor donot operate to make a running account mutual4 In a mutual accountthere is an understanding, express or implied, that, upon adjustmenthad, the items of indebtedness on each side shall be balanced againsteach other.5 The cause of action upon a mutual account accrues atthe time of the last item on either side.6 On the other hand thestatute of limitations begins to run against each item of a runningaccount when created, unless by contract or usage payment is due atsome fixed time, such as the first of each month, in which case thestatute would begin to run against all items within such period afthe end thereof. 7It seems proper to classify a claim for services rendered over aperiod of years without agreement as to the period .of service or forfixed compensation as a running account. Items of service are com-'As embodied in the North Carolina Statute, N. C. Code (1927), §421,there must have been "reciprocal demands between the parties." The sectionreads: "In an action .brought to recover a balance due upon a mutual, open,and current account, where there have been reciprocal demands between theparties, the cause of action accrues, from the time of the latest item piroved inthe account on either side." See also Robertson v. Pickerell, 77 N. C. 302 (1877).'Spencer v. Sowers, 118 Kan. 259, 234 Pac. 972, 39 A.,L. R. 365 (1925).See note 39 A. L. R. 369, 371." Brock v. Franck, 194 N. C. 346, 139 S. E. 696 (1927) ; Hussey v. Burgwyn,51 N. C. 385 (1859). And see notes (1918), 1 A. L. R. 1060, 1068 and (1925)39 A. L. R. 369, 372 for lists of authorities. If the payment is made in laboror services, if intended as a payment, it will not make the account mutual.Smith v. Hembree, 3 Ga. App. 510, 60 S. E. 126 (1908). And a payment maybe made in kind without having the effect of making the account mutual. Nor-ton v. Larco, 30 Cal. 127 (1866). But, in the absence of evidence aliunde theaccount, that the delivery of goods was to be a payment, the legal presumptionwould be that there was a sale and not a payment in kind, the effect of whichsale would be to make the account mutual. Ibid. And in Green v. Disbrow,79 N. Y. 1 (1879), it was emphatically declared that the delivery of eggs to becredited upon a store account was not a payment in kind but an item operatingto make the account mutual. There was evidence aliunde the account of anintention to make a payment in kind in Weatherwax v. Consumnes Mill Co.,17 Cal. 344 (1861) and that payment was held not to make the account mutual.It has been suggested that a cash payment in excess of the amount due on arunning account will not make it mutual. Goffe & Clarkener v. Lyons MillingCo.. 28 F. (2d) 801 (D. C. D. Kan., 1928).'Hollingsworth v. Allen, supra note 1; Stokes v. Taylor, 104 N. C. 395, 10S. E. 566 (1889). Such an understanding might be inferred from the fact thatone party, with the knowledge of the other, kept an account of the debits andcredits. Green v. Caldcleugh, 18 N. C. 320 (1835).e Supra note 2.Hollingsworth v. Allen, supra note 1; Brock v. Franck, supra note 4. Mis-souri, among other jurisdictions, has taken the contrary view. Smith v. Col-lins, 247 S. W. 457 (Mo. App., 1923); Soderland v. Graeber, 19 Ia. 765, 180N. W. 745 (1921).THE NORTH CAROLINA LAW REVIEWparable to items of goods sold under an ordinary running store ac-count. The extension of credit all runs from one side. With respectto such accounts the question arises whether a court will deem theright to compensation to accrue at definite intervals or at the timeeach item of service is performed. The former possibility has beenapproved in New York.8 The result of the North Carolina decisionsis to sustain the latter view, in the absence of a showing of some con-trolling usage in favor of compensation at some fixed period, asyearly.9 The New York rule would seem more to facilitate the workof a court in a given case because it is easier to apply. A third view,that compensation would be postponed in the entirety until servicesceased as by reason of the master's death, leads to manifestly unjustresults and was long ago rejected in North Carolina.102-The rules governing the application of payments.On this matter the law is well settled in North Carolina. "1. Adebtor owing two or more debts to the same creditor and making apayment may at the time direct the application of it. 2. If the debtordoes not direct the application at the time, the creditor may make it.3. If neither debtor nor creditor makes it, then the law will applythe payment to that debt for which the creditor's security is mostprecarious."'" And it is widely held elsewhere that where the partiesfail to direct the application the law will apply a payment to the most'Davis v. Gorton, 16 N. Y. 255 (1857).'Miller v. Lash, 85 N. C. 52 (1881). There is a dictum in Grady v. Wilson,115 N. C. 344, 20 S. E. 518 (1894), which announces the.-New York view. Butstill more recent decisions support the Lash case. Wood v. Wood, 186 N. C.559, 120 S. E. 194 (1923)."A dictum in Hauser v. Sain, 74 N. C. 552 (1876) to the effect that com-pensation was to be postponed until the death of the master terminated theservice was definitely rejected in the Lash case, supra note 9.' Sprinkle v. Martin, 72 N. C. 92 (1875). If the debtor does not direct theapplication before or at the time of payment his right to do so is waived butthe option to make the application thereby afforded the creditor may be exer-cised at any time before suit brought. Moss v. Adams, 39 N. C. 42 (1845).And where the creditor has the option he may apply the payment to a claimalready barred but such would not remove the bar as to the balance of thatclaim or other claims because it involves no implied promise to pay. I WLLIS-ToN, CO NaACrs (1920), §178; Anderson v. Nystrom, 103 Minn. 168, 114 N. W.742, 13 L. R. A. (N. S.) 1141 and note (1908). Contra: Hopper v. Hopper,61 S. C. 124, 39 S. E.° 366 (1901). In the absence of an application by the.parties the law will, as between secured and unsecured claims, apply the pay--ment to the unsecured claim. Stone v. Rich, 160 N. C. 162, 75 S. E. 1077(1912). The law will apply a payment to the interest upon a claim in prefer-ence to the principal. Riddle v. Bridgewater Milling Co., 150 N. C. 689, 64S. E. 782 (1909).NOTESprecarious claim.12 In some jurisdictions, however, the courts willapply the payment in the manner most favorable to the debtor.18The rule of application favoring the creditor, as followed inNorth Carolina would not be applicable to a mutual account. 14 Ob-viously a payment made upon a mutual account is only a credit itemto be reckoned in the final adjustment. A payment made after amutual account was closed would set the statute of limitations offanew as to the whole balance, to whichever party it was due. Butthe rule does not apply to a running account.' 5 Payments made uponan open, running account, which are not particularly applied by theparties, will, under the decided cases, be balanced against unbarreddebit items in the order of their priority.183-Effect of a payment upon the operation of the statute of limita-tions against a running account for services rendered under indefi--nite agreement.We come now to the problem which arose in a recent case beforethe Supreme Court of North Carolina. In Phillips v. Penland17there was a running account for services (as to which there was noagreed rate of compensation or fixed period of service) from some-time in 1916 till the master's death in 1926. There was a paymentof $3.00 in 1921 and another of $40.00 in 1925. The action wasbrought in 1928 against the executor of the master. The courtdeemed the 1925 payment as a recognition of all items not barredat that time and held that it started the statute running anew fromthe date of payment as to all such items (i.e., all items accruingwithin the statutory period prior to the date of payment). Plaintiff'srecovery, of course, would be subject to a $40.00 credit.On a similar state of facts the New York court has reached thesame conclusion.18 Another suggested view of the case is to regard" Watson v. Appleton, 183 Ala. 514, 62 So. 765 (1913) ; Robinson's Adm'rs.v. Allison, 36 Ala. 525, 531 (1860).", See collection of authorities in note (1902) 96 Am. St. Rep. 44, 59." See Jenkins v. Smith, 72 N. C. 296, 306 (1875).'I WOOD on LImITATIONs (4th ed., 1916), 553, 554 and cases cited.2"'Jenkins v. Smith, supra note 14. See collection of authorities in note(1902) 96 Am. St. Rep. 44, 63. The rule does not apply in the face of anunderstanding of the parties to the contrary. Miller v. Womble, 122 N. C. 135,29 S. E. 102 (1898). Compare the rule in Clayton's case, 1 Mer. 572, 608(1816).17196 N. C. 425, 146 S. E. 72 (1929).'In re Gardner, 103 N. Y. 533, 9 N. E. 306 (1886).THE NORTH CAROLINA LAW REVIEWthe payment as simply a credit item in the account, which would haveno effect upon the operation of the statute of limitations.19Looking squarely at the practical situation involved the fair as-sumption in the absence of express declaration to the contrary isthat one paying money upon an open, running account recognizes byreason of that act all the live part of the account. It is true that thelaw regards the several items of the account as so many debts20 butone making a payment upon an open, running account normallylooks at it in solido and may thus be deemed to have intended to applythe payment to all the live portion of the account. It is true that theeffect of the payment upon the operation of the statute depends uponits application. But it is fair to assume that the debtor intended to,apply the payment to all the live part of the account and it is believedthat this is the best theory upon which to explain the just decisionrendered in the Penland case.If it were to be assumed that the debtor had completely waivedhis right to make the application when he did not expressly direct it,it would be rather difficult to escape the logic of a third view of thecase. That view is that since the items of the account constituteseparate debts and the law applies payments to the most precariousclaims, in the absence of application by the parties, the oldest liveitems at the time of a payment would get the benefit of the paymentand the only effect upon the operation of the statute would be to,bring in date the balance due on any items to which the payment wasapplied and as to which it amounted to only part payment. The run-ning of the statute as to later items would not be affected according-to this view of the case. But manifestly the parties would have in-tended no such result and there is no reason to say here that the legarconsequences of acts are not necessarily what the actors expectedthem to be for the reason that the legal consequences of a paymentintended by the debtor to be applied generally to an account is to'renew the whole account that remains as a subsisting obligation, thatis, the part not barred." It'has been held in Georgia that payments made upon an open, running-account do not affect the operation of the statute of limitations. Ford v. Clark,72 Ga. 760 (1884) ; Liseur v. Hitson, 95 Ga. 527, 20 S. E. 498 (1894).'Thus it is the rule in North Carolina that, before there has been artaccount stated, the creditor may so split up the account, by separating itemsaccordingly as they composed separate transactions in their origin, so as tobring the whole account within the jurisdiction of a justice of the peace.Mayo v. Martin, 186 N. C. 1, 118 S. E. 830 (1923).RECENT CASE COMMENTSWhere a payment is made upon a running account after it hasbecome an account stated the whole claim stated is brought in date.21The law could not apply a payment to items already barred, 22 wherethe parties had failed to make the application. If the statute had runupon all the items of the account at the time of the payment the effectthereof would be to bring the whole account in date because thepayment would be one upon the account and the fact that all the itemsof the account were of the same standing would remove the reasonfor the rule as to application of payments. 23J. B. FORwHAM.RECENT CASE COMMENTSCONSTITUTIONAL LAW-ZONING--DELEGATION OF PowER-FRONTAGE CONSENT TO ERECTION OF PHILANTHROPIC INSTITUTION INRESIDENCE DisTi Ic-In State of Washington ex rel. v. Roberge,'the Supreme Court of the United States held unconstitutional thatpart of a Seattle zoning ordinance wfiich provided that in a resi-dential use-district a philanthropic home for children or old peoplecould be erected only ujon the written consent of the owners of two-thirds of the property within 400 feet of the proposed building. Suchan institution, which had stood for many years in what is now aresidential district, sought, through its trustee, a permit to replacethe old building with a new one of twice the original capacity, on thesame site. From a decision of the Washington Supreme Court dis-missing an action of mandamus to compel the city building depart-ment to issue the permit, without any attempt to obtain the requiredfrontage consent, the trustee for the home obtained a write of cer-.iorari. Held, reversed, the ordinance being in violation of the Four-teenth Amendment as an arbitrary delegation of power to the neigh-boring property owners.The validity of general zoning is now firmly established.&2 TheI See Nunn v. W. T. McKnight & Bros., 79 Ark. 393, 96 S. W. 193 (1906).' Livermore v. Rand, 26 N. H. 85 (1852). But see Fletcher v. Gillan, 62Miss. 8 (1884), where, in a case where no proof was made as to the date of apayment, it was held that the law would apply the payment to the oldest itemsthough they were barred and there were younger items not barred by thestatute." For a discussion of California cases, see Schapiro, Accounts and Statute,of Limitations (1922), 11 CAL. L. REv. 121.'State of Washington ex reL Seattle Title Trust Co. v. Roberge, 49 Sup. Ct.-50 (U. S., 1928).Village of Euclid v. Ambler Realty Co., 272 U. S. 365, 71 L. Ed. 303, 47Sup. Ct. 114, 54 A. L. R. 1016 (1926), discussed in NoTE (1927) 5 N. C. L.REv. 237; Nectow v. City of Cambridge, 277 U. S. 183, 48 Sup. Ct. 447 (1928) ;

Effect of Payment Upon Operation of Statute of Limitations Against a Running Account for Services

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Effect of Payment Upon Operation of Statute of Limitations Against a Running Account for Services

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