Meaning
Common law principles dictate that payments into a running account are presumed to be allocated against the earliest debts in order of date. This principle, established in the Clayton case, dictates that the first sum paid in is the first sum drawn out.
Allocation Method
Financial disputes over mixed funds use chronological accounting to determine which transactions are cleared first. Application of the Clayton case governs how a bank ledger is treated when multiple successive deposits and withdrawals occur. It applies primarily to active current accounts rather than distinct, separate loans.
Proportional Apportionment
Insolvency scenarios require courts to trace funds when a fiduciary has mixed client money with personal cash. While the Clayton case remains the baseline for running accounts, modern equity often overrides it in favor of a proportional share to prevent injustice among victims. This occurs when the chronological method produces unfair results for later investors.
Consequently, courts bypass the rule when distributing remaining assets among multiple defrauded parties in a pooling arrangement.
Trust Limitation
Applying chronological tracking to trust funds can lead to random results depending on deposit dates. The doctrine from the Clayton case does not govern situations where the parties intended to keep payments separate. Courts restrict its application when clear evidence of an alternative tracking method exists.
