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; Robię v. Ja. 575, 43 N. W. 536, 6 LR.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 (Va.) 512, 37 Am. Dec. 621 and note: J. J. Marsh. (Ky.) 97, 20 Am. Dec. Devaynes v. Noble, 1 Meriv. 530, 15 209; Samuel v. Samuel, 151 Ky. 235, Rev. Rep. 151, 3 Eng. Rul. Cas. 329. 151 S. W. 676, Ann. Cas. 1915A 278, Note: 31 A. S. R. 265; 96 A. S. R. 42 L.R.A. (N.S.) 1155; National Ma- 48; 12 L.R.A. 712; Ann. Cas. 1917C haiwe Bank v. Peck, 127 Mass. 298, 582; 3 U. S. (L. ed.) 137. 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 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.17 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. Notes: 13 Am. Dec. 506; 14 Am. Dec. 694; 96 A. S. R. 47. 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. 14. Libby v. Hopkins, 104 U. S. 250, 11 U. S. (L. ed.) 120; American 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. 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. 18. Alexandria v. Patten, 4 Cranch 8. Pickering v. Day, 3 Houst. (Del.) 317, 3 U. S. (L. ed.) 633; Armour 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 nortgaged 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.5 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. 7. Alexandria v. Patten, 4 Cranch 317, 2 U. S. (L. ed.) 633; 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; Armour Packing Co. v. Vinegar Bend Lumber Co., 149 Ala. 205, 42 So. 866, 13 Ann. Cas. 951; Perot v. Cooper, 17 Colo. 80, 28 Pac. 391, 31 A. S. R. 258; Cavanaugh v. Marble, 80 Conn. worth, 78 Ia. 575, 43 N. W. 536, 6 L.R.A. 92; Bacon v. Brown, 1 Bibb (Ky.) 334, 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 and note; Blake v. Sawyer, 83 Me. 129, 21 Atl. 834, 23 A. S. R. 762 and note, 12 L.R.A. 712 and note; Haynes v. Nice, 100 Mass. 327, 1 Am. Rep. 109; 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 note; Benny v. Rhodes, 18 Mo. 147, 59 Am. Dec. 293; State v. Smith, 26 Mo. 226, 72 Am. Dec. 204; Beck v. Haas, 111 Mo. 264, 20 S. W. 19, 33 A. S. R. 516; Parks v. Ingram, 22 or latest one at his option. A corporation which succeeds a partnership and secures a novation as to orders for goods which had been secured by the partnership may, in the absence of directions as to application of payments, apply them on the accounts due the partnership, rather than on orders filled by it. The creditor's right to make the appropriation applies only where the debtor has had an opportunity of exercising his right; and if payments are made on his account by a third person, or in such a way as to impede his right, the rule does not apply.10 While a creditor may apply a general payment on a just and valid demand, whether the correctness thereof be assented to by the debtor or not, the debt must be an actual and existing one. The reason for this is that to allow a creditor to apply payments thus made to a debt which he claimed to have against the debtor, but the existence of which the latter denied, would be to compel him to pay, perhaps, a fraudulent claim which the creditor had set up against him, without the possibility of defending against it.12 While in general the creditor may apply a payment to suit his own interests,18 there are certain limitations to this right, which are discussed in the following paragraphs. In general the right of a creditor is subject to the limitation that the application be not inequitable and such as would under the circumstances work an injustice to the debtor.14 96. Time of Application. By the civil law the right of a creditor to elect to appropriate to one of two or more accounts a payment made N. H. 283, 55 Am. Dec. 153; Baker v. Stackpoole, 9 Cow. (N. Y.) 420, 18 Am. Dec. 508 and note; 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; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691 and note; Pardee v. Markle, 111 Pa. St. 548, 5 Atl. 36, 56 Am. Rep. 299; Montague v. Stelts, 37 S. C. 200, 15 S. E. 968, 34 A. S. R. 736; Baum v. Trantham, 42 $. C. 104, 19 S. E. 973, 46 A. S. R. 697; Wardlaw v. Troy Oil Mill, 74 S. C. 368, 54 S. E. 658, 114 A. S. R. 1004; Phillips v. Herndon, 78 Tex. 378, 14 S. W. 857, 22 A. S. R. 59; Putnam v. Russell, 17 Vt. 54, 42 Am. Dec. 478; Robie v. Briggs, 59 Vt. 443, 9 Atl. 593, 59 Am. Rep. 737; Smith v. Loyd, 11 Leigh (Va.) 512, 37 Am. Dec. 621 and note; Sturtevant Co. v. Fidelity, etc., Co., 92 Wash. 52, 158 Pac. 740, L.R.A. 1917C 630; Devaynes v. Noble, 1 Meriv. 530, 15 Rev. Rep. 151, 3 Eng. Rul. Cas. 329. Notes: 31 A. S. R. 265; 96 A. S. R. 49, 52; 12 L.R.A. 712; Ann. Cas. 1915B 698; Ann. Cas. 1917C 582; 3 U. S. (L. ed.) 137. 8. Note: 96 A. S. R. 50. 9. Holloway v. White-Dunham Shoe Co., 151 Fed. 216, 80 C. C. A. 568, 10 L.R.A. (N.S.) 704. 10. Note: 96 A. S. R. 54. 11. Massachusetts v. Western Union Tel. Co., 141 U. S. 40, 11 S. Ct. 889, 35 U. S. (L. ed.) 628. Note: 96 A. S. R. 50. 12. Note: 96 A. S. R. 50. 13. Beck v. Haas, 111 Mo. 264, 20 S. W. 19, 33 A. S. R. 516. 14. Bacon v. Brown, 1 Bibb (Ky.) 334, 4 Am. Dec. 640; Phillips v. Herndon, 78 Tex. 378, 14 S. W. 857, 22 A. S. R. 59. Note: 96 A. S. R. 49. by the debtor was limited to the time of payment. If not exercised at that time, the creditor could not do so thereafter.15 In the absence of a contrary agreement between the parties, this rule prevails in jurisdictions wherein the jurisprudence is based on the civil law. Though the common law doctrines relating to the application of payments were evidently borrowed from the civil law, the civil law rule limiting the time within which a creditor may make an appropriation of a payment did not become incorporated into the common law. The early English decisions were conflicting as to the time when, the creditor must appropriate the payment.16 But to the extent that the later English cases have established the rule that the appropriation need not be made by the creditor at the time of payment, they are in harmony with nearly all of the American decisions.17 The difficulty and conflict in the cases come in deciding the question as to what particular time after an undirected payment is made the creditor must make the appropriation or lose his right. Undoubtedly the rule that he must make the appropriation within a reasonable time thereafter meets the approval of most courts.18 In applying this rule there are wide differences between the courts. Many courts hold that a creditor cannot make the appropriation after controversy on the subject has arisen between the parties,19 and a fortiori not at the trial.20 The reason supporting this rule is that if a creditar is given the right to apply payments made without designation by the debtor up to the period of controversy, he has a reasonable time to exercise his privilege and fully protect his rights. To extend his period of election beyond this point might wrong the debtor and unfairly prejudice the rights of third persons. Other courts permit a wider 15. Notes: 96 A. S. R. 72; Ann. Cas. note; Grasser, etc., Brewing Co. v. 1913E 895. 16. Note: Ann. Cas. 1913E 895. 17. Alexandria v. Patten, 4 Cranch 317, 3 U. S. (L. ed.) 633. Notes: 96 A. S. R. 72; 12 L.R.A. 712; Ann. Cas. 1913E 897. 18. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and note; White v. Trumbull, 15 N. J. L. 314, 29 Am. Dec. 687; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691. Note: 96 A. S. R. 73. 19. United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U. S. 437, 24 U. S. (L. ed.) 176; American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Cas. 1913E 889 and Rogers, 112 Mich. 112, 70 N. W. 445, 67 A. S. R. 389; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244. Notes: 96 A. S. R. 73; 12 L.R.A. 712. 20. United States v. Kirkpatrick, 9 Wheat. 720, 6 U. S. (L. ed.) 199; National Bank of Commonwealth v. Mechanics' Nat. Bank, 94 U, S. 437, 24 U. S. (L. ed.) 176; Stone Co. v. Rich, 160 N. C. 161, 75 S. E. 1077, Ann. Cas. 1914C 244; Harker v. Conrad, 12 Serg. & R. (Pa.) 301, 14 Am. Dec. 691. Note: Ann. Cas. 1913E 898. 1. American Woolen Co. v. Maaget, 86 Conn. 234, 85 Atl. 583, Ann. Čas. 1913E 889. |