And further a creditor cannot retain a payment to apply on future demands, leaving a prior debt unpaid."

102. Secured and Unsecured Demands.-The general rule being that a creditor receiving payments from his debtor, without any direction as to their application, may appropriate them to any legal debt which he holds against his debtor,10 a creditor holding secured and unsecured claims may apply an undirected payment to an unsecured claim,11 and is not bound to a pro rata application of it.12 Accordingly it has been held that where a mortgage does not cover the rents and profits of the land embraced in the mortgage and such rents and profits are assigned to the mortgagee, he may apply them in payment of an unsecured note held by him against the mortgagor in the absence of any direction from the latter as to the application of such payments. 13 Applying the same principle, it has been held that a creditor who holds two obligations, one of which is an individual obligation and the other of which is a joint obligation of the same debtor, may apply to either obligation, as suits his pleasure, an undilected general payment made by the debtor.14 But where there are distinct demands against a firm, and the individuals of the firm, if money of the partners is paid it cannot be applied to the individual debt; and so, vice versa, a payment by the individual cannot be credited to the partnership account, unless there is evidence of consent.15 There may be peculiar circumstances, however, under which the creditor will be compelled to apply a general payment to a secured demand. Thus it has been held that a vendor holding a condition sale instalment note against his vendee, and also a demand note, is bound, in the absence of express directions, to presume that subsequent payments are intended to be applied to the first note, where the condition of the sale will be broken if the instalments are not paid, where two instalments were paid before the demand note was given and no demand of payment of the second note was made.16

9. Baker

v. Stackpoole, 9 Cow. (N. Y.) 420, 18 Am. Dec. 508. 10. See supra, par. 95. 11. Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216; Wood v. Callaghan, 61 Mich. 402, 28 N. W. 162, 1 A. S. R. 597; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004; Puget Sound State Bank v. Gallucci, 82 Wash. 445, 144

Pac. 698, Ann. Cas. 1916A 767.

Notės: 38 A. S. R. 104; 96 A. S. R. 50; 12 L.R.A. 712.

12. Wood v. Callaghan, 61 Mich. 402, 28 N. W. 162, 1 A. S. R. 597.

13. Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736.

14. McBride v. Noble, 40 Colo. 372, 90 Pac. 1037, 13 Ann. Cas. 1202.

Notes: 96 A. S. R. 53; Ann. Cas. 1917C 583.

15. Baker v. Stackpoole, 9 Cow. (N. Y.) 420, 18 Am. Dec. 508.

Notes: 96 A. S. R. 52; Ann. Cas. 1917C 584.

16. Cavanaugh v. Marble, 80 Conn. 389, 68 Atl. 853, 15 L.R.A. (N.S.) 127.

103. Money Derived from Particular Source or Fund.-Another limitation put on the power of the creditor to apply payments is that where money is derived from a particular source or fund it. must be applied to the relief of the source or fund from which it was derived.17 IIence when money is derived from a foreclosure sale of property given to secure the payment of a particular debt it must be applied in extinguishment of that claim without any direction from the debtor.18 However, a mortgagor, if he sees proper, may consent to adopt or ratify an unauthorized application of payment made by his mortgagee creditor of the proceeds of mortgaged property to an unsecured debt. Whether the mortgagor has consented to either is a question of fact to be determined by the jury, and the burden is on the mortgagee, in either case, reasonably to satisfy the jury of such consent or ratification.19 But the rules which bind the mortgagee who sells on foreclosure, or takes possession of and sells and converts the security, have little application to a case where the payment is made from money obtained by a voluntary sale by the mortgagor. In the latter case the lien of the mortgage does not follow or attach to the money, and the mortgagee has no recourse on any other person to whom such moneys may be paid. In the hands of the mortgagor they have no character different from moneys derived from a wholly different source; and when paid over to the mortgagee in the absence of agreement or direction as to their application, the latter has the right to credit them on the unsecured debt without regard to the source from which they were obtained by the debtor.20

By Court

104. In General.-Both debtor and creditor having failed to direct the application of a payment, the authorities unanimously hold that this duty devolves on the court, according to the justice and equity

Note: 96 A. S. R. 53. 18. Boyd v. Jones, 96 Ala. 305, 11 So. 405, 38 A. S. R. 100; Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302; Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736 and note. See MORTGAGES, vol. 19, p. 656 et seq.

19. Boyd v. Jones, 96 Ala. 305, 11 So. 405, 38 A. S. R. 100.

20. Cain v. Vogt, 138 Ia. 631, 116 N. W. 786, 128 A. S. R. 216.

1. Field v. Holland, 6 Cranch 8, 3 U. S. (L. ed.) 136; United States v. January, 7 Cranch 572, 3 U. S. (L. ed.) 443; United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; Backhouse v. Patton, 5 Pet. 160, 8 U. S. (L. ed.) 82; United States v. Irving, 1 How. 250, 11 U. S. (L. ed.) 120; Jones v. United States, 7 How. 681, 12 U. S. (L. ed.) 870: National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U. S. 437, 24 U. S. (L. ed.) 176; McWhorter v. Bluthenthal, 136 Ala. 568, 33 So. 552, 96 A. S. R. 43; Union School Dist. v. Bishop, 76 Conn. 695, 58 Atl. 13, 66 L.R.A.

of the case. In this form it is rather the enunciation of a principle than of a rule for practical application. In attempting to state the rule, courts have often used general and vague expressions. Thus it has been said that the court in applying a payment should exercise a sound discretion, or that the law will apply payments according to its notions of justice, or on equitable principles, and so as to effectuate justice, and according to the intrinsic justice and equity of the case. If these expressions are to be accepted as criteria for judicial action the rule would become uncertain and varying and

would be opposed to all correct notions of judicial action. It is true that, where the parties have not made any specific application of payments, courts will make it according to the justice and equity of the case; but in doing so they are governed by certain general and established rules, and are not at liberty to adopt their own notions of what may be just and equitable in each particular case.10 In applying a payment the court is to be governed by the law of the jurisdiction where the contract was made.11 It is for the jury to apply a payment under the evidence before them and the direction of the court.12

105. Intention of Parties.-When the intention of the parties can be determined with reasonable certainty, the court will apply an undirected payment accordingly.18 No doubt the justice of each case will best be promoted by carrying out the intention of the parties. In case an expressed intention cannot be found, one may be implied from the circumstances of the case. Every presumption and rule which the courts have adopted in furtherance of their purpose to discover the "justice of each case" is subordinate to this rule of intention.14 It will be noticed that the two rules hereinafter discussed 15 are based on the supposed intention of the debtor.

106. Debtor Favored.-An examination of the decided cases bearing on the rule which should control a court in making an appropriation when the parties have made none discloses the fact that the definite principles which should guide a court are few and subject to many qualifications. The artificial rules of the civil law have sometimes been applied by American and English courts, but not with such uniformity as to furnish a safe rule of decision.16 The Roman law favored the debtor, and applied a general payment in a manner most beneficial to him.17 The civil law has been followed in England and in several jurisdictions in the United States, and the debtor is favored in every way.18 In these jurisdictions the courts hold

9. Hersey v. Bennett, 28 Minn. 86, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 9 N. W. 590, 41 Am. Rep. 271. 1913E 889.

Note: 96 A. S. R. 55.

10. Miller v. Miller, 23 Me. 22, 39 Am. Dec. 597; Hersey v. Bennett, 28 Minn. 86, 9 N. W. 590, 41 Am. Rep. 271; Pardee v. Markle, 111 Pa. St. 548, 5 Atl. 36, 56 Am. Rep. 299.

Note: 96 A. S. R. 55.

11. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889.

12. Note: 96 A. S. R. 62.

13. Becker v. Hooper, 22 Wyo. 237, 138 Pac. 179, Ann. Cas. 1916D 1041. Note: 96 A. S. R. 58.

14. American Woolen Co. v. Maaget,

15. See infra, par. 106, 107.

16. Nashville First Nat. Bank v. National Surety Co., 130 Fed. 401, 64 C. C. A. 601, 66 L.R.A. 777.

17. Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302; Smith v. Loyd, 11 Leigh. (Va.) 512, 37 Am. Dec. 621.

Note: 96 A. S. R. 59.

18. Backhouse v. Patton, 5 Pet. 160, 8 U. S. (L. ed.) 82; Snyder v. Robinson, 35 Ind. 311, 9 Am. Rep. 738; Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S.

that the law should make an application of payment in accordance with the presumed intention of the debtor, and that it must be presumed that the debtor intended to apply it to the debt that would be most beneficial to himself.19 Accordingly it has been held that where one is indebted to another on a mortgage or on a judgment, and on an open account or note, and makes a payment generally, and there has been no appropriation of such payment by the creditor, the law will apply it to the most burdensome debt; that is to say, to the mortgage or judgment, in preference to the note or open account.20 Where, however, the interest of the debtor would not be promoted by any particular appropriation, there is no ground for a presumption of any intention on his part, and the law then raises a presumption, for the same reason, that the payment was actually received in the way that was most to the advantage of the creditor. A general payment made by one on both a joint and a several debt the law will apply on the individual obligation. A general payment is always to be referred to a debt due by the payor absolutely, and as principal, rather than to one due contingently and collaterally, or held as collateral security. Although one debt may be more burdensome to the debtor than another, if it is not due the rule does not apply, and payment will be appropriated only to the debt actually due at the time. If there is an express agreement between the parties, or a course of business from which an agreement may be implied, that another rule shall control, the debtor cannot invoke the principle that a payment must be applied most beneficially to him.*

107. Creditor Favored.-The rule that the court in applying a general payment should make the application in the manner most beneficial to the debtor has not met with universal approval. On the contrary there are a great many jurisdictions in which the doctrine prevails that the court in applying a general payment will do so in a manner most beneficial to the creditor. This rule is based on

R. 775, 3 L.R.A. 302; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691; Devaynes v. Noble, 1 Meriv. 530, 15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329 and note.

Note: 96 A. S. R. 57, 59.

19. Stewart First Nat. Bank v. Hollinsworth, 78 Ia. 575, 43 N. W. 536, 6 L.R.A. 92; Phillips v. Herndon, 78 Tex. 378, 14 S. W. 857, 22 A. S. R. 59.

20. Frazier v. Lanahan, 71 Md. 131, 17 Atl. 940, 17 A. S. R. 516.

1. Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691.

2. National Park Bank v. Seaboard

Bank, 114 N. Y. 28, 20 N. E. 632, 11
A. S. R. 612.

Note: 96 A. S. R. 53.

3. Snyder v. Robinson, 35 Ind. 311, 9 Am. Rep. 738.

Note: 96 A. S. R. 57.

4. Note: 96 A. S. R. 60.

5. Central Trust Co. v. Richmond, etc., R. Co., 68 Fed. 90, 31 U. S. App. 675, 15 C. C. A. 273, 41 L.R.A. 458; Bell v. Bell, 174 Ala. 446, 56 So. 926, 37 L.R.A. (N.S.) 1203; Haas Electric, etc., Co. v. Springfield Amusement Park Co., 236 Ill. 452, 86 N. E. 248, 127 A. S. R. 297, 23 L.R.A. (N.S.) 620; Morrison v. Citizens' Nat. Bank,