due and one not due the law applies a general payment to the debt due.20 109. 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 carliest in point of time,1 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 subjeet to qualification where the rights and equities of third persons are involved.5 110. 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. 821, 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. MeIntyre, 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 sufficient 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 (Va.) 512, 37 Am. Dec. 621; Devaneys 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, 64 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. 530, 15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329. 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. 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. See MORTGAGES, vol. 19, p. 658 et seq. 19. Orleans County Nat. Bank v. Moore, 112 N. Y. 543, 20 N. E. 357, 8 A. S. R. 775, 3 L.R.A. 302. 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. 3. United States v. McLemore, 4 How. 286, 11 U. S. (L. ed.) 977; Jacobs v. Ballenger, 130 Ind. 231, 29 N. E. 782, 15 L.R.A. 169; Anketel v. Converse, 17 Ohio St. 11, 91 Am. Dec. 115; North v. Mallett, 3 S. C. 151, 2 Am. Dec. 622. Note: 96 A. S. R. 69, 70. See also INTEREST, vol. 15, p. 31. 4. Story v. Livingston, 13 Pet, 359, 10 U. S. (L. ed.) 200; Wallace v. puted on the balance of principal remaining due. If the payment falls short of the interest, the balance of interest is not to be added to the principal so as to produce interest, but interest continues on the former principal until the period when the payments, taken together, exceed the interest due, and then the surplus is to be applied toward discharging the principal, and interest is to be computed on the balance as aforesaid. This is the most general rule, and in some states has been confirmed by statute, and it is equally applicable, whether the debt is one which expressly draws interest, or on which interest is given in the name of damages.9 8 113. Before Maturity.-A different rule is held to apply where the holder receives the money before it is due and in such a case a payment should be applied to the principal. 10 But where a pay mént is made before the principal sum is due the rule of computing interest must be such that the interest of money paid in before the time must be deducted from the interest of the whole sum due at the time appointed by the instrument for making the payment. Thus the interest must be computed on the principal for the entire term and added thereto and from that sum must be deducted the amount of the payment plus the interest thereon from the date of the obligation to the date of the payment.11 But where by agreement the maker is given the option of making a partial payment before a note is due, the principal of the note becomes due pro tanto when the maker elects to exercise the right given him by the contract of making partial payment, and the payment will be applied first in discharging the interest on that part of the note he caused to mature by his own act, 12 Where the interest on the debt is usurious, payments made Glaser, 82 Mich. 190, 46 N. W. 227, 21 A. S. R. 556; Dickson v. Stewart, 71 Neb. 424, 98 N. W. 1085, 115 A. S. R. 596; Connecticut v. Jackson, 1 Johns. Ch. (N. Y.) 13, 7 Am. Dec. 471; Anketel v. Converse, 17 Ohio St. 11, 91 Am. Dec. 115. Note: 96 A. S. R. 69, 70. 5. Connecticut v. Jackson, 1 Johns. Ch. (N. S.) 13, 7 Am. Dec. 471. Note: 96 A. S. R. 70. 6. Story v. Livingston, 13 Pet. 359, 10 U. S. (L. ed.) 200; United States v. McLemore, 4 How. 286, 11 U. S. (L. ed.) 977; Wallace v. Glaser, 82 Mich. 190, 46 N. W. 227, 21 A. S. R. 556; Dickson v. Stewart, 71 Neb. 424, 98 N. W. 1085, 115 A. S. R. 596; Connecticut v. Jackson, 1 Johns. Ch. (N. Y.) 13, 7 Am. Dec. 471; Anketel v. Converse, 17 Ohio St. 11, 91 Am. Dec. 115. Note: 96 A. S. R. 70. 7. Connecticut v. Jackson, 1 Johns. Ch. (N. Y.) 13, 7 Am. Dec. 471. Note: 96 A. S. R. 70. Ch. (N. Y.) 13, 7 Am. Dec. 471. Note: 96 A. S. R. 70. 9. Story v. Livingston, 13 Pet. 359, 10 U. S. (L. ed.) 200. 10. Starr v. Richmond, 30 Ill. 276, 83 Am. Dec. 189; National Park Bank v. Seaboard Bank, 114 N. Y. 28, 20 N. E. 632, 11 A. S. R. 612. Note: 96 A. S. R. 70. See also INTEREST, vol. 15, p. 32. 11. Tracy v. Wickoff, 1 Dall. 124, 1 U. S. (L. ed.) 65. 12. Jacobs v. Ballinger, 130 Ind. 231, 29 N. E. 782, 15 L.R.A. 169. generally will be applied to discharge the principal, the stipulation for interest having no binding force.18 The law will not presume that payment of a year's interest on a note six months after due is to be applied partly for past and partly for future interest.14 Rights of Third Person 114. In General.-The right to apply payments is one strictly existing between the original parties, and no third person has any authority to insist on an appropriation of the money in his own favor, where neither the debtor nor the creditor has made or required any such appropriation.15 But it has been contended that the right of a creditor to make an application is subject to the condition that it shall not be inequitable.16 In accordance with the general rule a subsequent purchaser of property subject to a lien cannot control a payment made by his vendor to the creditor.17 Neither can a mortgagee of previously encumbered property control the application of payments made by his mortgagor.18 And one of two joint debtors. cannot control the application of a payment made by the other to the creditor who also has a claim against the other debtor individually.19 Notwithstanding the generally accepted principle of the absolute right of a debtor or creditor to apply a payment, some authorities hold that the rules regarding the application of payments cannot be enforced to the prejudice of third persons.20 Accordingly it has been held where neither party makes appropriation of payments, until the right of third persons holding under the debtor are. such as might be enforced against him, the creditor cannot thereafter so appropriate payments as to affect such rights, if, by a different appropriation, they can be protected. Likewise it has been held that one whose fraud induced another to lend money to a third to a specified amount may, in case such other largely increases the loan at his own instance and the borrower repays a portion of the loan, insist that the payment be applied in satisfaction of the portion of 13. Richmond Second Nat. Bank v. Fitzpatrick, 111 Ky. 228, 63 S. W. 459, 62 L.R.A. 599. Note: 96 A. S. R. 71. 14. Davies County Bank, etc., Co. v. Wright, 129 Ky. 21, 110 S. W. 361, 17 L.R.A. (N.S.) 1122. 15. Wyandotte Coal, etc., Co. v. Wyandotte Pav., etc., Co., 97 Kan. 203, 154 Pac. 1012, Ann. Cas. 1917C 580 and note. Notes: 96 A. S. R. 52, 74; Ann. Cas. 1917C 582. 16. Note: 96 A. S. R. 52. 17. Note: Ann. Cas. 1917C 583. 18. Ketchum v. St. Louis, 101 U. S. 306, 25 U. S. (L. ed.) 999. Note: Ann. Cas. 1917C 583. 19. Note: Ann. Cas. 1917C 583. 20. Pickering v. Day, 3 Houst. (Del.) 474, 95 Am. Dec. 291; Willis v. McIntyre, 70 Tex. 34, 7 S. W. 594, 8 A. S. R. 574. Note: 96 A. S. R. 75. 1. Willis v. McIntyre, 70 Tex. 34, 7 S. W. 594, 8 A. S. R. 574. |