a negotiable bill or note, either of an individual or corporation, is transferred and received without indorsement or any agreement or understanding as to risk, it is a sale of such bill or note by the party delivering it, and a purchase of it with all risks by the party receiving it. It is considered in the same point of view as exchanging money for money, and the law implies, in the absence of proof to the contrary, that it was part of the original contract that such note or bill was taken in absolute payment; for if such had not been the understanding, the receiver would either have refused the note or taken some guaranty of its goodness.14 If there are circumstances showing a contrary intention it will not be considered as payment but only as collateral security, 15 and the burden is on the creditor to show such. contrary intention.16 If the debtor guarantees payment this is strong evidence, and it may be sufficient, to show that the note was not an extinguishment of the debt.17 But the rule that a note of a third person given as payment for goods purchased is prima facie accepted as payment has been limited in its application to chattels, and it has been held that such a note given by a vendee to his vendor at the time of the purchase of land does not operate as a payment so as to extinguish the vendor's lien.18 In jurisdictions wherein the rule prevails that a note of a third person given in payment of a debt is prima facie payment it is held that if the debt existed at the time the paper is received in its discharge, it is not material whether it was created at the time or had existed before. 19 91. Worthless and Void Paper; Notes Affected with Fraud.-A note of a third person will not constitute payment notwithstanding an agreement to that effect where it turns out to be of no value,20 unless the creditor specially agreed to take the risk in that particular; and even an agreement to take such risk is without effect if the debtor knew it to be of no value, and the creditor did not. The reason for 14. Corbit v. Smyrna Bank, 2 Har. (Del.) 235, 30 Am. Dec. 635, 30 Am. Dec. 635; Dille v. White, 132 Ia. 327, 109 N. W. 909, 10 L.R.A. (N.S.) 510 (stating rule); Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Whitbeck v. Van Ness, 11 Johns. (N. Y.) 409, 6 Am. Dec. 383. Notes: 10 L.R.A. (N.S.) 522; 35 L.R.A.(N.S.) 45, 46. 15. Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Whitbeck v. Van Ness, 11 Johns. (N. Y.) 409, 6 Am. Dec. 383; Gibson v. Tobey, 46 N. Y. 637, 7 Am. Rep. 397. 16. Gibson v. Tobey, 46 N. Y. 637, 7 Am. Rep. 397. Note: 6 Am. Dec. 386. 17. Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68. Note: 35 L.R.A. (N.S.) 45, 46. 18. Mansfield v. Dameron, 42 W. Va. 794, 26 S. E. 527, 57 A. S. R. 884. 19. Smith v. Bettger, 68 Ind. 254, 34 Am. Rep. 256. 20. Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Roberts v. Fisher, 43 N. Y. 159, 3 Am. Rep. 680. Note: 35 L.R.A. (N.S.) 49. 1. Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68. his is that the agreement to take the note is necessarily based on the Assumption that the note received is a valid obligation. A note agreed to be taken in payment will not cancel the debt, where the debtor was guilty of fraud or misrepresentation, and the creditor relied on such representations.3 Nor does it affect the rights of the creditor n such a case that he retained the note until the commencement of he action without taking measures to enforce its collection, or giving otice of its nonpayment, or offering to return it.1 92. Forged Notes.-The acceptance of paper in payment with orged signatures is held not to extinguish the debt, but leaves it in full force and effect, for the reason that it is of no value, and not what it vas affirmed to be by the person delivering it as payment, or believed to be by him who accepted it as such. On this point the law is well stablished. Thus the surrender by an indorsee to an indorser of a genuine note in exchange for a note forged by such indorser does not amount to a payment of the genuine note, nor extinguish the indorsee's right to recover against the maker thereof. But it has been held that where the note of a third person, received by the reditor in payment of his claim, proves to be forged, he cannot maintain an action on the original consideration, unless, as soon as the forgery is discovered, he offers to return the note, or unless he has exhausted his remedies on it with due diligence. There is one important exception to the general rule above stated, i. e., where the forged instrument bears, or purports to bear, the signature of the person accepting the same, or of his correspondents, and he is guilty of negligence in accepting a forged paper when he had superior means at hand to determine its genuineness, which were not in the power of the other party." 2. Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68. Note: 35 L.R.A.(N.S.) 72. 3. Hoopes v. Strasburger, 37 Md. 390, 11 Am. Rep. 538; Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Willson v. Foree, Johns. (N. Y.) 110, 5 Am. Dec. 195; Barnum, 23 Vt. 133, 56 Am. Hatch v. Dec. 59. Note: 35 L.R.A. (N.S.) 74. 4. Hatch v. Barnum, 23 Vt. 133, 56 Am. Dec. 59. 5. Pope v. Nance, Minor (Ala.) 299, 12 Am. Dec. 51; Pope v. Nance, 1 Stew. (Ala.) 354, 18 Am. Dec. 60; Eagle Bank v. Smith, 5 Conn. 71, 13 Am. Dec. 37; Melledge v. Boston Iron Co., 5 Cush. (Mass.) 158, 51 Am. Dec. 59; Wright v. First Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Markle v. Hatfield, 2 Johns. (N. Y.) 455, 3 Am. Dec. 446; Athens First Nat. Bank v. Buchanan, 87 Tenn. 32, 9 S. W. 202, 10 A. S. R. 617 and note, 1 L.R.A. 199 and note. Notes: 24 A. S. R. 566; 35 L.R.A. (N.S.) 72. 6. Eagle Bank v. Smith, 5 Conn. 71, 13 Am. Dec. 37. 7. West Philadelphia Nat. Bank v. Field, 143 Pa. St. 473, 22 Atl. 829, 24 A. S. R. 562. Note: 35 L.R.A.(N.S.) 72. 8. Pope v. Nance, Minor (Ala.) 299, 12 Am. Dec. 51. 9. Gilman v. Peck, 11 Vt. 516, 34 Am. Dec. 702. VIII. APPLICATION OF PAYMENTS By Debtor 93. In General. It is a well settled principle of both the civil and the common law, which is universally applied, that a debtor owing more than one debt to a creditor or a debt composed of several items has the right to direct to which debt or debts or to which item of a single debt and in what amounts a payment made by him shall be applied; 10 and it is immaterial whether the creditor does or does not agree or consent to the debtor's request.11 The reason for this rule is that up to the time of payment the money is the property of the debtor, and being such may be applied as he sees fit.12 If a 10. Alexandria v. Patten, 4 Cranch note; State v. Smith, 26 Mo. 226, 72 317, 3 U. S. (L. ed.) 633; Field v. Am. Dec. 204; Beck v. Haas, 111 Mo. Holland, 6 Cranch 8, 3 U. S. (L. ed.) 264, 20 S. W. 19, 33 A. S. R. 516; 136; United States v. January, 7 Parks v. Ingram, 22 N. H. 283, 55 Cranch 575, 3 U. S. (L. ed.) 444; Am. Dec. 153; White v. Trumbull, 15 United States v. Kirkpatrick, 9 Wheat. N. J. L. 314, 29 Am. Dec. 687; Baker 720, 6 U. S. (L. ed.) 199; United v. Stackpoole, 9 Cow. (N. Y.) 420, 18 States v. Irving, 1 How. 250, 11 U. S. Am. Dec. 508 and note; Stone Co. v. (L. ed.) 120; Jones v. United States, Rich, 160 N. C. 161, 75 S. E. 1077, 7 How. 681, 12 U. S. (L. ed.) 870; Ann. Cas. 1914C 244; Carson v. Cook National Bank of Commonwealth v. County Liquor Co., 37 Okla. 12, 130 Mechanics Nat. Bank, 94 U. S. 437, Pac. 303, Ann. Cas. 1915B 695 and 24 U. S. (L. ed.) 176; Libby v. Hop- note; Vicary v. Moore, 2 Watts (Pa.) kins, 104 U. S. 303, 26 U S. (L. ed.) 451, 27 Am. Dec. 323; Harker v. Con769; Armour Packing Co. v. Vinegar rad, 12 Serg. & R. (Pa.) 301, 14 Bend Lumber Co., 149 Ala. 205, 42 Am. Dec. 691 and note; Pardee v. So. 866, 13 Ann. Cas. 951; Bell v. Bell, Markle, 111 Pa. St. 548, 5 Atl. 36, 56 174 Ala. 446, 56 So. 926, 37 L.R.A. Am. Rep. 299; Washington Natural (N.S.) 1203; Perot v. Cooper, 17 Colo. Gas Co. v. Johnson, 123 Pa. St. 576, 80, 28 Pac. 391, 31 A. S. R. 258; Cava- 16 Atl. 799, 10 A. S. R. 553: Baum v. naugh v. Marble, 80 Conn. 389, 68 Trantham, 42 S. C. 104, 19 S. E. 973, Atl. 853, 15 L.R.A. (N.S.) 127; Ameri- 46 A. S. R. 697 and note; Wardlaw can Woolen Co. v. Maaget, 86 Conn. v. Troy Oil Mill, 74 S. C. 368, 54 S. 234, 85 Atl. 583, Ann. Cas. 1913E E. 658, 114 A. S. R. 1004; Phillips v. 889; Pickering v. Day, 3 Houst. (Del.) Herndon, 78 Tex. 378, 14 S. W. 857, 474, 95 Am. Dec. 291; Stewart First 22 A. S. R. 59; Putnam v. Russell, 17 Nat. Bank V. Hollingsworth, 78 Vt. 54, 42 Am. Dec. 478; Robie v. Ia. 575, 43 N. W. 536, 6 L.R.A. 92; Briggs, 59 Vt. 443, 9 Atl. 593, 59 Am. Bacon v. Brown, 1 Bibb (Ky.) 334, Rep. 737; Smith v. Loyd, 11 Leigh 4 Am. Dec. 640; Burks v. Albert, 4 J. J. Marsh. (Ky.) 97, 20 Am. Dec. 209; Samuel v. Samuel, 151 Ky. 235, 151 S. W. 676, Ann. Cas. 1915A 278, 42 L.R.A. (N.S.) 1155; National Mahaiwe Bank v. Peck, 127 Mass. 298, 34 Am. Rep. 368; Grasser, etc., Brewing Co. v. Rogers, 112 Mich. 112, 70 N. W. 445, 67 A. S. R. 389; Brady v. Hill, 1 Mo. 315, 13 Am. Dec. 503 and (Va.) 512, 37 Am. Dec. 621 and note: Devaynes v. Noble, 1 Meriv. 530, 15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329. Note: 31 A. S. R. 265; 96 A. S. R. 48; 12 L.R.A. 712; Ann. Cas. 1917C 582; 3 U. S. (L. ed.) 137. 11. Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695. 12. Note: 98 A. S. R. 47. debtor does direct the application of a payment, the duty is thereby imposed on the creditor to apply the money as directed,13 or return it to the debtor, 14 and if he fails to return it, it is regarded by law as having been applied as directed, no matter how the creditor in fact applied it.15 Thus it has been held that where, pending the adjustment of a disputed liability, the debtor sends his creditor money as a payment in full of the demand, it is the duty of the creditor to accept the money for the purpose for which it was offered, or to return it, and his refusal to return it will be deemed an election to accept it for the purpose offered.16 Of course an application of a payment otherwise than as directed may be ratified by the debtor.1 In the exercise of the right, a debtor may direct the payment to be applied to any debt or item of indebtedness as may be most advantageous to him,18 or he may apply it all to one debt, and need not apportion it pro rata among them.19 But it has been held that the law favors the payment of interest first to such an extent that the debtor must apply a payment thereto, though the authorities are not uniform as to this.20 In order that a payment may come within the scope of the rule permitting the debtor to direct its application it is not necessary that it should be made in money, but it may be made in services, in commodities, or in notes.1 94. Time of Making Application; Application to Illegal Demand.— A debtor desiring to avail himself of his right to direct the application of a payment must give the direction therefor either before or at the time of the payment; otherwise the right is lost, as after that time 2 13. Libby v. Hopkins, 104 U. S. 303, 26 U. S. (L. ed.) 769; Perot v. Cooper, 17 Colo. 80, 28 Pac. 391, 31 A. S. R. 258; Bacon v. Brown, 1 Bibb (Ky.) 334, 4 Am. Dec. 640; Samuel v. Samuel, 151 Ky. 235, 151 S. W. 676, Ann. Cas. 1915A 278, 42 L.R.A. (N.S.) 155; Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695. 194 U. S. Notes: 13 Am. Dec. 506; 14 Am. Dec. 694; 96 A. S. R. 47. 14. Libby v. Hopkins, 303, 26 U. S. (L. ed.) 769. 15. Note: 96 A. S. R. 48. 16. Washington Natural Gas Co. V. Johnson, 123 Pa. St. 576, 16 Atl. 799, 10 A. S. R. 553. As to the acceptance of a remittance sent as payment "in full" constituting an accord and satisfaction, see ACCORD AND SATISFACTION, vol. 1, p. 196. 17. Note: 96 A. S. R. 48. 18. Alexandria v. Patten, 4 Cranch 317, 3 U. S. (L. ed.) 633; Armour Packing Co. v. Vinegar Bend Lumber Note: 96 A. S. R. 47. 20. Note: 96 A. S. R. 69-70. 1. Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695 and note. 2. United States v. Irving, 1 How. 250, 11 U. S. (L. ed.) 120; American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889; Grasser, etc., Brewing Co. v. Rogers, 112 Mich. 112, 70 N. W. 445, 67 A. S. R. 389; White v. Trumbull, 15 N. J. L. 314, 29 Am. Dec. 687; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695. 3. Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; Stone Co. v. the money is no longer his. Accordingly it has been held that the proper and only time for the mortgagor to direct the application of the payment of a surplus of proceeds arising from the sale of the mortgaged property to the mortgagee is at the time that such property is delivered to him by the mortgagor, and that failing to make such direction then, he cannot make it subsequently, though he did not know at the time of surrendering the property that after applying it to the debt on which it was surrendered a surplus would remain in the hands of the creditor. Where one of the debts or items of an account is illegal and the others valid, the debtor may, at his option, apply a payment to either. In such a case, an appropriation upon the illegal claim is as valid and binding on the debtor as if it were legal, and he cannot subsequently, without the creditor's consent, change it, and have it applied to the legal demand. By Creditor 95. In General.-When a debtor fails to direct how a payment is to be applied the creditor may make the application as he may see fit. It is not necessary that the debts be of the same character; so where one is due on a note and the other on a running account, the creditor may apply a payment to either. Nor are the dates of the obligations material, and he may appropriate the money to the earliest Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Carson v. Cook County Liquor Co., 37 Okla. 12, 130 Pac. 303, Ann. Cas. 1915B 695 and note. 4. Note: 96 A. S. R. 72. 389, 68 Atl. 853, 15 L.R.A. (N.S.) 127; American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Čas. 1913E 889; Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; 5. Baum v. Trantham, 42 S. C. 104, Stewart First Nat. Bank v. Hollings19 S. E. 973, 46 A. S. R. 697. 6. Note: 96 A. S. R. 66. worth, 78 Ia. 575, 43 N. W. 536, 6 L.R.A. 92; Bacon v. Brown, 1 Bibb 7. Alexandria v. Patten, 4 Cranch (Ky.) 334, 4 Am. Dec. 640; Burks v. 317, 2 U. S. (L. ed.) 633; Field v. Albert, 4 J. J. Marsh. (Ky.) 97, 20 Am. Holland, 6 Cranch 8, 3 U. S. (L. ed.) Dec. 209; Samuel v. Samuel, 151 Ky. 136; United States v. January, 7 235, 151 S. W. 676, Ann. Cas. 1915A Cranch 572, 3 U. S. (L. ed.) 443; 278, 42 L.R.A. (N.S.) 1155 and note; United States v. Kirkpatrick, 9 Wheat. Blake v. Sawyer, 83 Me. 129, 21 Atl. 720, 6 U. S. (L. ed.) 199; Backhouse 834, 23 A. S. R. 762 and note, 12 L.R.A. v. Patton, 5 Pet. 160, 8 U. S. (L. ed.) 712 and note; Haynes v. Nice, 100 82; United States v. Irving, 1 How. Mass. 327, 1 Am. Rep. 109; National 250, 11 U. S. (L. ed.) 120; Jones v. Mahaiwe Bank v. Peck, 127 Mass. 298, United States, 7 How. 681, 12 U. S. 34 Am. Rep. 368; Grasser, etc., Brew(L. ed.) 870; National Bank of Com- ing Co. v. Rogers, 112 Mich. 112, 70 monwealth v. Mechanics' Nat. Bank, 94 N. W. 445, 67 A. S. R. 389; Brady v. U. S. 437, 24 U. S. (L. ed.) 176; Ar- Hill, 1 Mo. 315, 13 Am. Dec. 503 and mour Packing Co. v. Vinegar Bend note; Benny v. Rhodes, 18 Mo. 147, Lumber Co., 149 Ala. 205, 42 So. 59 Am. Dec. 293; State v. Smith, 26 866, 13 Ann. Cas. 951; Perot v. Cooper, Mo. 226, 72 Am. Dec. 204; Beck v. 17 Colo. 80, 28 Pac. 391, 31 A. S. Haas, 111 Mo. 264, 20 S. W. 19, 33 R. 258; Cavanaugh v. Marble, 80 Conn. A. S. R. 516; Parks v. Ingram, 22 |