the assumption that the debtor would desire to pay all his debts, and this disposition of the credit most nearly accomplishes that result, or, in other words, the law pursues this course, as it intends that all men shall be honest and fully perform their just obligations, and adopts this method as the one which an honest man would unselfishly choose, if left to himself to act in the premises. It simply does what the debtor should have done if prompted by just motives." Accordingly if neither debtor nor creditor applies a payment, the law will apply it to an unsecured in preference to a secured debt, or to the one for which the creditor's security is most precarious; 8 and under this rule a payment should be applied on a debt for which the debtor has given surety rather than to those he owes singly. But it has been held that a credit on a bill for the items of which a mechanic's lien is claimed, for the price of material returned, will not be regarded as a general payment, which a court of equity will credit on nonlienable items so as to uphold a lien for the contract price of those which are lienable, which does not exceed in amount the sum unpaid on the contract.10 And payments made after suit begun and attachment made ought not to be credited on the items of the account sued on, since this would unfairly prejudice the rights of the plaintiff already secured in his suit.11 The rule that the creditor is to be favored on the appropriation of undirected payments has been held to prevail over the rule that a payment will be applied to the older items first; but it will not be applied to the prejudice of a surety who has the right to insist on a payment being applied to the older items first.12 The rule in some jurisdictions is that the application of indefinite payments need not be exclusively in accordance with 65 N. H. 253, 20 Atl. 300, 23 A. S. R. 926, 37 L.R.A. (N.S.) 1203; Stone Co. 39, 9 L.R.A. 282. Note: 96 A. S. R. 56, 60. 6. Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244. Note: 96 A. S. R. 60. 7. Field v. Holland, 6 Cranch 8, 3 C. S. (L. ed.) 136; Bell v. Bell, 174 Ala. 446, 56 So. 926, 37 L.R.A. (N.S.) 1203: Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216; State v. United States Fidelity, etc., Co., 81 Kan. 660, 106 Pac. 1040, 26 L.R.A. (N.S.) 865; Burks v. Albert, 4 J. J. Marsh. (Ky.) 97, 20 Am. Dec. 209; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004. Note: 96 A. S. R. 56, 59. 8. Bell v. Bell, 174 Ala. 446, 56 So. v. Rich, 160 N. C. 161, 75 S. E. 1077, Notes: 14 Am. Dec. 694; 12 L.R.A. 712. 9. Note: 96 A. S. R. 56. 10. Haas Electric, etc., Co. V. Springfield Amusement Park Co., 236 IĤ. 452, 86 N. E. 248, 127 A. Ś. R. 297, 23 L.R.A. (N.S.) 620. 11. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889. 12. Pardee v. Markle, 111 Pa. St. 548, 5 Atl. 36, 56 Am. Rep. 299. See infra, par. 109. the interests of either party, but may be such as is just and equitable under all the circumstances of the case,13 and that a court of equity will always feel at liberty so to control their application as to prevent manifest injustice to either party.14 108. Illegal or Unenforceable Claims.-The application of a payment not having been directed, the law will as between a legal and illegal debt apply it on the legal debt.15 So the principle of law which applies such unappropriated payments first to discharge the interest due, and then reduce the principal, cannot operate in the case of usurious interest, for all interest is forfeited, eo instanti, by an agreement to pay interest at an illegal rate, and payments will not be applied by operation of law to the discharge of unlawful obligations in preference to debts justly due.16 If a part of the interest is usurious, but, although it was contracted for at an illegal rate, legal interest is still recoverable, the payment is applied first to the extinguishment of so much of the interest as is legal, and then to the principal; the usury being retained in the debt to the last, no matter how many renewals are made.17 While courts will not apply a payment to an illegal demand, as a general rule, such is not always the case when the debt is merely unenforceable as by the statute of limitations, and if equity requires it, such payment will be imputed to the barred indebtedness.18 Accordingly where one was owing another on an individual and also on a partnership account and made a general payment without any application, without protestation against further liability, and the payments amounted to more than the individual account, it was held that the court would apply the balance on the partnership account to remove the bar of the statute of limitations, although the creditor without definite knowledge of the standing of the two accounts gave the debtor credit for all payments on his individual account.19 13. Smith v. Loyd, 11 Leigh (Va.) 512, 37 Am. Dec. 621. Notes: 96 A. S. R. 61; 12 L.R.A. 712. 631, 116 14. Cain v. Vogt, 138 Ia. N. W. 786, 128 A. S. R. 216. 15. Citizens' Nat. Bank v. Forman, 111 Ky. 206, 63 S. W. 454, 757, 56 L.R.A. 673; Knox v. Williams, 24 Neb. 630, 39 N. W. 786, 8 A. S. R. 220; National Park Bank v. Seaboard Bank, 114 N. Y. 28, 20 N. E. 632, 11 A. S. R. 612; Backman v. Wright, 27 Vt. 187, 65 Am. Dec. 187 and note. Note: 96 A. S. R. 66. 16. Danforth V. National And as between an indebtedness Bank, 48 Fed. 271, 3 U. S. App. 7, 1 Notes: 8 A. S. R. 223; 56 L.R.A. 701. 17. Citizens' Nat. Bank v. Forman, 111 Ky. 206, 63 S. W. 454, 757, 56 L.R.A. 673. 18. Note: 96 A. S. R. 68. 19. Robie v. Briggs, 59 Vt. 443, 9 State Atl. 593, 59 Am. Rep. 737. due and one not due the law applies a general payment to the debt due.20 3 109. As between Different Items Generally.-In the absence of an agreement or instruction to the contrary payments should be applied to the extinguishment of those items or claims which are earliest in point of time, unless justice and equity demand a different appropriation. In the case of two liens, one specific and the other general, a payment will be applied to the older lien due and enforceable at the time the payment is made. Where a contract for goods is indivisible, payment should be applied to the sum due thereon, and not to any particular item, and matured notes arising out of the same transaction in the hands of the same creditor against the same debtor constitute but one debt, and payment made after their maturity should be applied to the whole debt. But the general rule of applying every unappropriated payment to the oldest item of debt is subject to qualification where the rights and equities of third persons are involved. 110. Running Accounts.-In cases of running accounts with many debits and credits and no balances other than for the mere purpose of making rests, payments ought to be applied to extinguish the debts according to the priority of time; so that the credits are to be deemed payments pro tanto of the debts antecedently due. 20. McWhorter v. Bluthenthal, 136 Ala. 568, 33 So. 552, 96 A. S. R. 43. 1. McGillen v. Bennett, 132 U. S. 445, 10 S. Ct. 122, 33 U. S. (L. ed.) 422; McWhorter v. Bluthenthal, 136 Ala. 568, 33 So. 552, 96 A. S. R. 43; Stewart First Nat. Bank v. Hollinsworth, 78 Ia. 575, 43 N. W. 536, 6 L.R.A. 92; Ida County Sav. Bank v. Seidensticker, 128 Ia. 54, 102 N. W. $21, 111 A. S. R. 189, 5 Ann. Cas. 945 and note; McKenzie v. Nevius, 22 Me. 138. 38 Am. Dec. 291; Miller v. Miller, 23 Me. 22, 39 Am. Dec. 597; Grasser, etc., Brewing Co. v. Rogers, 112 Mich. 112, 70 N. W. 445, 67 A. S. R. 389; Gardner v. La Fevre, 180 Mich. 219, 146 N. W. 653, Ann. Cas. 1916A 618; Beck v. Haas, 111 Mo. 264, 20 S. W. 19, 33 A. S. R. 516; Parks v. Ingram, 22 N. H. 283, 55 Am. Dec. 153; National Park Bank v. Seaboard Bank, 114 N. Y. 28, 20 N. E. 632, 11 A. S. R. 612 and note. Notes: 14 Am. Dec. 694; 96 A. S. R. 55, 70; 128 A. S. R. 221; 13 Ann. Cas. 954. 2. Grasser, etc., Brewing Co. v. Rogers, 112 Mich. 112, 70 N. W. 445, 3. Frazier v. Lanahan, 71 Md. 131, 17 Atl. 940, 17 A. S. R. 516. 4. Note: 96 A. S. R. 58. 5. Nashville First Nat. Bank v. National Surety Co., 130 Fed. 401, 64 C. C. A. 601, 66 L.R.A. 777. 6. United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199: Jones v. United States, 7 How. 681, 12 U. S. (L. ed.) 870; Nashville First Nat. Bank v. National Surety Co., 130 Fed. 401, 64 C. C. A. 601, 66 L.R.A. 777; American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889; Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; State v. United States Fidelity, etc., Co., 81 Kan. 660, 106 Pac. 1040, 26 L.R.A. (N.S.) 865; Pardee v. Markle, 111 Pa. St. 548, 5 Atl. 36, 56 Am. Rep. 299; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004; Willis v. McIntyre, 70 Tex. 34, 7 S. W. 594, 8 This is done because it is most just and equitable between the parties, and also because when no different intention has been expressed, such is presumed to be the intention of both parties, as being in accordance with the ordinary and usual course of dealing." And between banker and depositor the general rule of appropriation of payments is ordinarily applicable, and indeed it has been held that in the case of a banking account, 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, the first item on the debit side that is discharged by the first item on the credit side. The general rule is applicable only to open accounts, and does not apply where the account has been closed.10 If, after dissolution of a firm by a change in the partnership, an account is carried on as a running account with the succeeding firm, payments made to it unless specifically appropriated will go to discharge the oldest items of the account.11 A change in the method of bookkeeping is not such an interruption of the running of an account as to prevent the application of the rule of imputing a payment to the earliest items. 12 The rule, although general, is, by no means, universal. It is not an artificial or arbitrary principle, but one founded merely on the presumed intention of the parties, and is applicable only where there is no evidence suflicient to show a contrary intention,13 and will not be followed when it would be inequitable to do so.14 Accordingly it has been held to be subject to the rule that where a debtor owes debts, some secured and others unsecured, and neither debtor nor creditor has directed the application, the law will apply the payments on the unsecured debts. 15 111. Involuntary Payments.-In cases of payment in invitum, or by judicial proceedings, the creditor does not become the owner of A. S. R. 574; Smith v. Loyd, 11 Leigh 530, 15 Rev. Rep. 151, 3 Eng. Rul. (Va.) 512, 37 Am. Dec. 621; Devaneys Cas. 329. v. Noble, 1 Meriv. 530,,15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329 and note. Note: 96 A. S. R. 62. 7. Note: 96 A. S. R. 62. 8. Nashville First Nat. Bank v. National Surety Co., 130 Fed. 401, 61 C. C. A. 601, 66 L.R.A. 777. See BANKS, vol. 3, pp. 530-531. 9. Devaneys v. Noble, 1 Meriv. 530, 15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329 and note. 10. Stewart First Nat. Bank v. Hollinsworth, 78 Ia. 575, 43 N. W. 536, 6 L.R.A. 92. 11. Devaneys v. Noble, 1 Meriv. Note: 96 A. S. R. 65. 12. Note: 96 A. S. R. 65. 13. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889. 14. Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004. Note: 96 A. S. R. 64. 15. State v. United States Fidelity, etc., Co., 81 Kan. 660, 106 Pac. 1040, 26 L.R.A. (N.S.) 865. Note: 96 A. S. R. 64. the money until it is paid, and the law at the very time of the payment makes its own application, and the creditor has no opportunity to make it himself.16 And the general rule is that involuntary payments, that is, those arising on the forced sale of mortgaged or pledged property, must be applied to the relief of the debt which the property was given to secure notwithstanding there is no direction of the debtor.17 Where several obligations are secured by a mortgage, on a foreclosure sale the money received must be applied pro rata on the several obligations,18 and cannot be applied by the creditor in payment of an unsecured obligation.19 In the absence of a stipulation or agreement, or special equities, the authorities are not agreed as to how the proceeds of the sale of property mortgaged to secure the payment of several notes, and sold under the mortgage, shall be appropriated, when the notes secured mature at different times, have been assigned to different persons, and the proceeds are not sufficient to pay all of them. One class holds that the notes should be paid in the order of their assignment; 20 another that the notes should take precedence in the order of their maturity; and a third class that the proceeds should be applied pro rata in part payment of the several notes, irrespective of their dates of maturity or assignment.2 112. Partial Payments; Account Due.-In applying partial payments to an interest bearing debt which is due, the rule is to apply the payment, in the first place, to the discharge of the interest then due. If the payment exceeds the interest, the surplus goes toward discharging the principal, and the subsequent interest is to be com 16. Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302. 17. Hunt V. Nevers, 15 Pick. (Mass.) 500, 26 Am. Dec. 616; Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302; Gore v. Townsend, 105 N. C. 228, 11 S. E. 160, 8 L.R.A. 443. Note: 23 L.R.A. 467. 18. Cage v. Iler, 5 Smedes & M. (Miss.) 410, 43 Am. Dec. 521; Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302; Muskingum Bank v. Carpenter, 7 Ohio, pt. I, 21, 28 Am. Dec. 616, overruled on another point by White v. Denman, 1 Ohio St. 110. Note: 96 A. S. R. 81. seq. See MORTGAGES, vol. 19, p. 658 et 19. Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 392. 20. Penzel v. Brookmire, 51 Ark. 105, 10 S. W. 15, 14 A. S. R. 23 and note. See also MORTGAGES, vol. 19, pp. 660-661. 1. See MORTGAGES, vol. 19, p. 660. 2. Penzel v. Brookmire, 51 Ark. 105, 10 S. W. 15, 14 A. S. R. 23 and note; Cage v. Iler, 5 Smedes & M. (Miss.) 410, 43 Am. Dec. 521. Note: 33 A. S. R. 293. See MORTGAGES, vol. 19, p. 658. 10 Note: 96 A. S. R. 69, 70. See also INTEREST, vol. 15, p. 31. |