Opinion
(December Term, 1845.)
1. If a debtor, who is indebted to the same creditor on different accounts, does not make the application of a payment at the time such payment is made, he can not do so afterwards.
2. If the debtor fails to make the application, the creditor may do so at any time afterwards before suit brought.
3. Where neither debtor nor creditor makes the application of the payment, the law will apply it to that debt for which the creditor's security was most precarious.
This was an appeal from an interlocutory decree of the Court of Equity of GUILFORD, at Fall Term, 1845, his Honor, Judge Dick presiding, dissolving the injunction, (43) which had been granted in the cause.
Morehead for the plaintiffs.
Kerr for the defendants.
By the pleadings it appears, that the plaintiffs, Moss and M. W. Alexander, and the defendant, Bencine, as partners, took a contract from the government for carrying the mail from Greensboro in this State, to Yorkville in South Carolina, to commence on 1 January, 1839; and that they purchased from Peck, Wellford and Co., who had been the previous contractors on the line, horses, coaches, and other stock, to the value of $6,730. In liquidation thereof they gave four bonds — each for $1,682.50, and payable on 1 May, 1 August, and 1 November, 1839, and 1 February, 1840; and the other plaintiffs, Long, D. Alexander, and Storkle, executed the bonds as sureties. A man by the name of Bowen took another mail contract in South Carolina, to commence also on 1 January, 1839, and in like manner he became indebted to Peck, Wellford Co for which he gave them four notes — each for the sum of $1,675, payable on the same days with those before mentioned. In the spring of 1839, and after Bowen had paid his note which fell due on 1 May, 1839, the defendant, Bencine, purchased Bowen's contract and stock; and part of the agreement was, that Bencine should take up Bowen's notes to Peck, Wellford Co. by substituting his own with satisfactory sureties. Accordingly, Bencine gave to Peck, Wellford Co. his three notes for the sum of $1,675 each, payable 1 August, 1 November, 1839, and 1 February, 1840, and the defendant Adams executed the notes as the surety of Bencine. A few months afterwards, the plaintiff, M. W. Alexander, and the defendant, Bencine, purchased from the plaintiff, Moss, his share of their joint contract and the stock; and part of the agreement was, that the purchasers should pay the debts to Peck, Wellford Co. in exoneration of Moss. Some time after that, Bencine purchased out the interest in the concern of the plaintiff, (44) M. W. Alexander, and agreed with him, that he, Bencine, would pay to Peck, Wellford Co. all the bonds of Moss, Alexander and Bencine.
For some years previous to 1839, Bencine had been the agent of Peck, Wellford Co., in conducting their line, and in the course of the business he became indebted to them in the sum of $2,720.59 1-4; and in liquidation thereof, he gave an acceptance 24 January, 1840, for $120.27, in part, and on 5 March, 1840, his note for $2,600.32 1-4, then payable.
In July, 1839, Bencine remitted the sum of $1,682.50 to Peck, the acting partner of Peck, Wellford Co., residing in Fredericksburg, Virginia, and he applied it in discharge of the bond of Moss, Alexander and Bencine, which fell due 1 May preceding, and charging no interest thereon. On 23 November, 1839, Bencine made a further remittance to Peck of $3,000, of which Peck applied at the time the sum of $1,713.90 in full of the principal and interest due on the bond of Moss, Alexander and Bencine, which fell due 1 August of that year, and the residue of $1,286.10 he applied as a credit to their bond for $1,682.50, which fell due on 1 November: which left a balance due on that bond of $410.12, and the whole of their bond for $1,682.50, to fall due 1 February, 1840.
Bencine made no further payment until 3 August, 1841, and he then remitted to Peck $2,024.07, with directions to apply it to his own note for $2,600.32 1-4, which he had given for the balance he owed upon his agency before 1839; and it was accordingly so applied.
Then at different times in 1842 and 1843, Bencine made eight remittances, amounting in the whole to the sum of $5,396. 37, without any directions as to the application; and they were by Peck, Wellford Co. entered generally to the credit of Bencine in account, without applying any one of them to a particular debt; though with an intention as Peck states in his answer, and as Bencine says he expected, that it (45) should be ultimately applied, in the first place, to the satisfaction of the balance due on the note of Bencine himself, and his acceptance for $120.27 to Peck, Wellford Co. At those periods, Bencine was in possession of a large property and none of the parties suspected his credit, unless the plaintiff Moss might have done so. In the latter part of the year 1843, however, it was ascertained that he was not able to pay his debts, and he made an assignment.
In July, 1844, Peck came to Greensboro for the purpose of settling the business with Bencine. They did so by applying, by consent, the said sum of $5,396.37, first to the debts for which Peck, Wellford Co. held no security but the note and acceptance of Bencine alone; and they applied the residue thereof to a part payment of each of the three notes for $1,675, given by Bencine and by Adams as his surety, which left a balance due on each of them, including interest to 11 July, 1844, which amounted in the whole to the sum of $1,951.83. The sum due for principal and interest up to the same day, on the two bonds aforesaid of Moss, Alexander and Bencine, which fell due 1 November, 1839, and 1 February, 1840, was then ascertained to be $2,644.17. Peck at first expressed a reluctance to make any particular application of the money, except to the debts for which he had only the personal security of Bencine. But Bencine urged the application that was made, upon several grounds: First, that Adams was his surety, and never had any interest in the matter, while Moss and M. B. Alexander had been once principals, and had made a profit in selling out to him; secondly, that he had paid the sum of $4,651.10, which had been applied to the bonds given by Moss, Alexander and Bencine, in exoneration of the two former, and if the remaining sum, not before applied, should then be applied to the bonds to which Moss and Alexander were parties, those persons would get the benefit of all the payments that had been at any time made, and (46) Adams have no benefit of them whatever, and sustain a total loss: and thirdly, that, although the notes given by the two sets of persons, were payable at the same days, the contract with Bowen had been made, and the notes, in which Adams was surety, had been given, before Bencine's contract of purchase from either Alexander or Moss. Finally, Peck declared that he would concur with Bencine in making the application, provided Adams would then pay the notes which had his name on them, and also pay the balance that would then remain on the bonds of Moss, Alexander and Bencine, namely, the sum of $2,644.17, and take an assignment of those bonds without recourse to Peck, Wellford Co. To that proposition, Adams assented, and the application of the payments was made accordingly; and the two bonds of Moss, Alexander and Bencine, endorsed to Adams, who advanced for them the full sum thus appearing to be due on them, and instituted an action at law on them against the obligors.
The present bill was then filed by all the obligors, except Bencine, against that person, Peck, Wellford Co., and Adams, praying for a perpetual injunction. The bill states that Peck knew that Bencine had become the sole owner of the line, in which the plaintiffs had been concerned, and had engaged with them to pay the whole debt, and thereby made himself the sole principal debtor; that soon after the sale by Moss, he informed Peck by letter, that he feared Alexander was about to fail, and requested him to collect the bonds forthwith, and that Peck replied, that two of the bonds were paid in full, and on the third $1,286.10, and that he was not at all uneasy about the safety or payment of the balance; that Bencine soon afterwards informed Moss that he had paid all those bonds except the sum of $1,200, and that he had promised Peck to pay that balance out of his next quarter's mail pay; that he, Moss, being induced by those representations of Peck and (47) Bencine, to believe that he was in no danger, gave himself no concern about the bonds, and was prevented from keeping an eye on the affairs of Alexander and Bencine, and saving himself before they were ruined, as he might and would have done, if he had not been thus lulled into security. The bill charges, that, in the belief of the plaintiffs, Bencine made payments to Peck, which were applied to those bonds and discharged them; but that they were not entered on the bonds, but only in a book, or that receipts were given for them, expressing the application, which were afterwards suppressed; and that the payments made on those bonds were in July, 1844, fraudulently transferred from them and applied to the notes on which Adams' name was.
The answer of Peck denies that he received from Moss or wrote to him a letter, of the purport stated in the bill; and there is attached to it a letter from Moss to Peck, dated 2 February, 1841, in which he mentions that he had sold his interest, and that the bonds were to have been changed; that he had learnt that they had not been changed, but that not long before, Bencine had stated to him that he had nearly paid them off; and he requested Peck to inform him what payments had been made. The answer then sets forth a copy of Peck's reply, which is dated 10 February, 1840, and states the four bonds of $1,682.50 each, and the credits of $4,651.10, which extinguished two of the bonds, and made a payment of $1,286.10 on the third, leaving a balance of principal on the two unpaid bonds of $2,078.90, as set forth in the letter. That is the whole of the letters, and the answer denies that any other ever passed between these parties, or that the defendant was ever requested to sue on the bonds, or represented that he was secure of the payment. The answers of Peck and Bencine deny that any part of the other payments were directed by Bencine to be applied, or were by him or by Peck applied to the bonds of Moss, Alexander and Bencine, or to any other debts, until they were applied on 11 July, 1844, as befor [before] (48) stated; and that they were not transferred from one debt to the other.
The answer of Adams is to the same effect, as far as he has any knowledge or belief; and it states that this defendant was induced to advance the balance due on the plaintiffs' bonds to Peck, Wellford Co., and to take an assignment of them, in order to prevent Peck from unjustly refusing to apply any of the money, remitted to him, to the notes on which he, Adams, was — as the only means in his power to a void a total loss. The injunction, which had been granted on the bill, was dissolved on the motion of the defendants, and an appeal allowed to the plaintiffs.
Those parts of the bill, which charge a misrepresentation to the plaintiff, Moss, as to his liabilities or concealment from him on that subject, or that payments were in truth made on the bonds with his name on them, which are the subjects of this controversy (except the sum of $4,651.10 which was applied to them) are, all, directly and satisfactorily denied. The cause therefore turns upon the rule of law, as to the application of indefinite payments. The defendant, Adams, stands in the shoes of his endorsers, Peck, Wellford Co. as he took the bonds over-due; and he is, of course, no worse off than they would be. The payments were made in 1842 and 1843, and they were finally applied on 11 July, 1844, by the debtor and the creditor concurring.
We do not find it anywhere said, that the debtor, if he fail to make the application at the time of the payment, can do so afterwards, although the creditor may not then have appropriated it. We suppose he can not, for, by not exercising the power when he parted from the money, he allows (49) it to devolve on the creditor, and submits to his exercise of it, if the latter will do it at all. The debtor, it would seem, could not therefore claim to resume the power. There could be no doubt, that the concurrence of both the parties in an application of payments ex post facto, would be effectual between them, although the rule was, that the creditor must exercise his power, that is, of his own motion, at the time of the payment, or within a reasonable time thereafter. For the law makes the application, on the failure of the parties to do it, on the presumption of the interest and intention of one or the other of the parties; and therefore it would give way to an actual application by both of the parties, as furnishing direct evidence and superceding the necessity for presumption. That would, probably, be the rule of law, even where sureties were concerned. But, if the law were, that the debtor, or creditor must, when such acts by himself and upon his single right, apply the payment when it is made, it would be an interesting question, whether in equity those two parties could subsequently, by concurring in the application, prevent the application by the law, so as to affect the rights of sureties. It would seem that on principle the insolvency of the debtor tied his hands and made it his duty to let the law operate between his sureties and his creditor, as things stood upon the happening of his insolvency. But we do not find it necessary to dispose of that question, as we believe the present case is to be decided against the plaintiff upon the rights of the creditor, independent of the assent of the debtor.
It has been sometimes thought, that the creditor lost his option as to the application, unless he acted on it at the time of the payment. The doctrine of our law upon the subject, is supposed to have been borrowed from the civil law, in which the rules certainly were, that if neither the debtor nor the creditor elected at the time of payment, the law applied it, and did so upon a presumed intention of the debtor, and, (50) therefore, according to his interest, and to the most burdensome debt: as, to that carrying interest or secured by a penalty, before one that was not; and when the debtor could have no interest, as where the debts were alike, the application was made to the elder. It may be remarked, then, that if this were a case in which the creditor had not effectually applied the payments, because done out of due time, yet the applications made here were just such as the law would have made, according to the rule of the civil law. All the debts were secured alike, and drawing interest at the time of the payments; and the debt of Bencine, secured by his own name alone, though due upon securities more recent, was in fact contracted a considerable time before any of the others; and, though the other two classes of securities were payable at the same days, and the bonds of Moss, Alexander and Bencine were given to Peck, Wellford Co. before those of Bencine and Adams, yet the former class became Bencine's own debt and payable by himself exclusively, after he had given the notes in substitution for Bowen's — he having purchased from Bowen before he did from Moss. But we are at liberty to pass by this point, also, for the same reason, that we did that respecting the concurrence of Bencine and Peck in the application in July, 1844. For, although the common law may be indebted to the civil law for the leading rule, which gives the option first to the debtor, and then, in succession, to the creditor, and to the law; yet it is certain, that the Roman law has not been followed throughout, but the English and American courts have departed from it in several instances, and, indeed, reversed it, and allowed the creditor to make his election long posterior to the payment, and after material changes of the circumstances of the parties; and, in other instances, the law has applied payments according to the interest and presumed intention of the creditor, as for example, to the debt not bearing interest, or the one more precariously secured, or one barred by the statute (51) of limitations or the like. This doctrine was discussed, and first particularly explained by Sir William Grant, in Devaynes v. Noble, 1 Meriv., 528; Clayton's case, 570, 604. He did not conclusively decide any point on it; but he noticed the principal cases which had then been decided, and, although, as he remarked, they were not all reconcilable, it seems sufficiently plain, that, in his opinion, the weight of the authorities and principle authorized the creditor not only to apply a payment to what debt he pleased, but to make the application when he thought fit; and, further, that, in the absence of express appropriation by either party, the presumed intention of the creditor is to govern. The last case that had then been decided was that of Peters v. Anderson, in the Common Pleas, 5 Taun., 596, in which it was held, that, if not made specifically, the creditors may at any time elect that a payment shall retrospectively receive its application to the debt, for which his security was the worse. The old case of Meggott v. Mills, Ld. Ray., 287, and that of Dawe v. Holdworth, Peake N. P., 64, are there said by Chief Justice Gibbs to go on an exception founded on bankruptcy. Since that time, there have been a number of cases, which seem to settle the question definitely in England and establish that the creditor may make the appropriation at any time before suit brought. Bosanquet v. Wray, 6 Taunt., 597; Bodenham v. Purchas, 2 B. and Ald., 39; Simson v. Ingham, 2 B. and C., 65; Philpott v. Jones, 2 Adol. and Ell., 41. and Mills v. Fowkes, 5 Bingh. N.C. 455. In Philpott v. Jones, the plaintiff could not have recovered on one of his debts, which was for spirits sold on credit, contrary to a statute; yet he was allowed to apply an indefinite payment to that debt; and Chief Justice Denman said he might so apply it at any time. The same language is used by all the Court in Simson v. Ingham, except that Judge Best said, the creditor must appropriate the payment in reasonable time, and (52) except that it was agreed by all the Judges that it must be before action. In the case of Mills v. Fowkes, which is the latest that has fallen under our notice, all the other cases are brought forward; and it was there held, that where one of two debts is barred by the statute of limitations, the creditor may subsequently apply a payment to that debt, and then recover the other. The old argument was revived again, that, where the creditor failed to make the appropriation at once, he could not do it, but the law did it afterwards. But Chief Justice Tindall replied, that the decisions were clearly the other way, and that the receiver had a clear right to apply a payment "at any time before action."
Prior to those modern decisions, the questions arose in the courts of this country, and the doctrines were distinctly laid down, which have since prevailed in England. In Alexandria v. Patton, 4 Cranch, 317, Patton owed Ladd for goods sold to him, and also for the proceeds of goods sold by Patton, as auctioneer. He made a payment, which Ladd ex post facto applied to the former debt, and then, as relator, instituted a suit against Patton and his sureties on a bond given to secure his fidelity as auctioneer. On the trial the jury was instructed, that, although Ladd might apply the payment which Patton had omitted to apply, yet that "it must have been recent and before any alteration had taken place in the circumstances of Patton:" which denotes, that Patton had then become insolvent. The judgment was reversed in the Supreme Court, and Chief Justice Marshall in giving the opinion said, the error was in holding, that the creditor's election was lost, if not immediately exercised. It is not said in that case, that it may not be lost by any delay to make it. But, if the creditor be not obliged to declare his option immediately, to what other period can he be restricted? The only limitation must be that laid down in the English cases; namely, suit brought. For when a person brings suit, he must be taken to bring it on his demand as it then stands, and he can not subsequently change it. In accordance with which the Supreme Court also held in (53) United States v. Kirkpatrick, 9 Wheat., 720, that the creditor could not elect at the trial or after suit brought. And upon the question, concerning the application to be made by the law, where the parties omit, the same eminent Judge in 1810 laid it down in Field v. Holland, 6 Cranch, 8, that it would be to the debt, for which the creditor's security was most precarious.
It follows from what has been said, that the payments were properly appropriated, in the first instance, to the debts for which the creditors hold only Bencine's own note and acceptance; and that the application by the creditors of the residue to the notes given by Bencine and Adams, is conclusive and can not be controlled by the Court. It is important that the law should be settled on these points; and it is, perhaps, of more consequence that some certain rule should be established, than that it should be any one in particular — so that debtors may fully know the consequences of not availing themselves of the power of applying a payment when it is made, and allowing it to devolve on the creditor.
Perhaps it had been well to adhere to the original rule of the civil law, as more simple in itself, easily understood, and in its uniform operation doing as much justice, upon the whole, as any others however modified. But, with no previous predilection for them, we find the exceptions to it, on the points involved in this case, so firmly established in the tribunals of the common law, that we have no choice but to adopt them also; and possibly they were necessary to the advancement of credit in our more commercial ages, by affording to the creditor more facilities for securing himself upon the failure of his debtors.
The injunction was, therefore, properly dissolved, and it must be so certified to the court of equity; and the plaintiff must pay the costs in this Court.
PER CURIAM. ORDERED TO BE CERTIFIED ACCORDINGLY.
Cited: Ramsour v. Thomas, 32 N.C. 168; S. v. Thomas, 33 N.C. 254; Jenkins v. Beal, 70 N.C. 442; Sprinkle v. Martin, 72 N.C. 93; Vick v. Smith, 83 N.C. 82; Lester v. Houston, 101 N.C. 609; Young v. Alford, 118 N.C. 220; Raymond v. Newman, 122 N.C. 54; Miller v. Womble, Ib., 139.
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