CHAPTER XIV.

OF PAYMENT.

SECTION 1.- What Amounts Thereto.

THIS would seem, at first view, to involve no question of difficulty or of any considerable importance; but, in its discussion, the highest courts of different States have expended much time, in listening to argument and in learned discussion; and, starting from the same premises, have arrived at quite different results and conclusions. For example. A. purchases of B. goods to the amount of $10,000, and delivers him, intending it to be in payment, current bank notes, which at the time of the transaction were worthless, the bank having failed, of which both parties were entirely and equally ignorant. Was it a payment? If so, B. has effectually deprived himself of title to his goods, without receiving any actual and valuable consideration therefor. If not, A. has deprived himself of the opportunity of giving circulation to the bills, while they were current in the community

as money.

A high judicial authority (the late Chief Justice Gibson of Penn.) in Bayard vs. Shunk, 1 Watts & Serg. 92, with his usual clearness gives a strong, vigorous and rather convincing opinion, that payment in such notes would be conclusive upon B. in discharge of the debt, though the notes were of no value as above stated. On the other hand, the late Judge Story, in his work on Promissory Notes, (pp. 125, 477, and 641), concludes, that the weight of reason and authority is in favor of the payment in such cases being considered null. Cases in Vermont, New Hampshire and Maine, sustain the views of Judge Story; and there are cases in Alabama, Georgia and other States, sustaining the views of

Judge Gibson. The question has frequently been discussed in the courts and by elementary writers, but may be considered unsettled.

Again, what is the effect of receiving a promissory note for a pre-existing debt? And 1st, where the note received is that of the debtor. In most of the States it is generally no satisfaction of the demand, and, at most, only prima facie evidence of payment, rendering it necessary that the creditor should account for it, and show that it has not been paid, before he can recover upon his account. When, however, it is thus accounted for and brought into Court unpaid, the prima facie case is met; in most of the States the law making no presumption, in the absence of an express agreement, that it was intended to be in payment and discharge of the previous debt. In Massachusetts and Maine, a negotiable note of the debtor discharges the pre-existing debt for which it is given; the reason given being, that the note may be transferred to a third person, thereby creating a new creditor, and that the debtor ought not to be held liable to two persons at the same time. Probably, in all the States, it would be held payment, where the creditor has negotiated it for value without rendering himself liable as endorser or otherwise. In New York, the note of the debtor is payment of a debt, 1st, where receipt is given in full and the creditor is unable to surrender the note to be cancelled. 2d, where it is actually taken upon an agreement that it shall be in payment of the debt.

The note of a third person, when transferred to a creditor, is presumed to be in payment; and operates as a payment, when it is so understood by the parties, by giving credit therefor. Where a debtor endorses such note of a third person, on its transfer in payment his liability is simply that of an endorser, and he will be held only upon evidence of proper demand and notice.

The transfer to a creditor of counterfeit bills of a solvent bank, or fictitious bills of a non-existing bank, or spurious and worthless coin, will not operate as payment unless received by a party, who by reason of official position or other

wise is bound to recognize the genuine ;-as, where a private banker, authorized to issue bills as currency, receives a bill purporting to be issued and signed by him, he is bound to know whether it be his own signature, and if he receives it as such is not entitled to demand its value upon offering to return it; so, the receipt by a cashier of counterfeit bills upon his own bank binds the bank. In other cases in which the party, as we have stated, would not be bound by it as payment, he must return, or offer to return it, within a reasonable time, to the person from whom he received it, and demand its redemption. In analogy to the liability of a bank, which has innocently received its own forged paper and is bound thereby, the acceptor of a forged draft or bill is bound by his acceptance; that act precluding him from afterwards disputing the bill, on the ground that he is bound to know his drawer's handwriting. The same rule holds, where a bank pays a forged check to an innocent holder, the bank must bear the loss, on the principle that its officers are bound to know the handwriting of its customers.

SECTION 2.

Where Payment should be Made.

In promissory notes, and frequently in other contracts, the place of payment is expressly agreed upon. In such cases, the express stipulation of course controls, and if the maker of a note is at the place stipulated during business hours of the day of payment, and the creditor is neither personally present nor represented by any agent authorized to receive payment, endorsers and all persons secondarily liable will usually be discharged; but the obligation of the debtor still remains, and the debt would thereafter be treated as payable at the residence of the payee, or wherever he might personally be found by the maker, and the liability of the maker would be the same as upon a note payable upon demand without specified place of payment. The creditor may sue the Imaker without special demand, and this can be prevented only by actual payment or tender of the amount due. In the absence of any express stipulation as to place of payment,

it must be made at the residence or place of business of the creditor. It is not the duty of the creditor to look up his debtor and demand payment, but the debtor must find the creditor and make payment or tender, at the peril of suit.

SECTION 3.

Of the Application of Payment.

If one owing several debts makes to his creditor a general payment, it may be an important question, to which of these debts the payment shall be applied. One of them may be secured, while another is not; or, one may carry interest, while another does not; or, one may be barred, or about to become barred, by the statute of limitations, and others not. The payor may, undoubtedly, appropriate his payment, at the time of making it, as he may prefer and direct, and where he does not exercise this right, the creditor may, at the time of payment, exercise his election and appropriate as he may prefer. But, in case neither party at the time of payment makes an application, and at a future time the parties differ in reference to the question, to which debt the payment shall be applied, the legal rule regulating the matter is not always easily arrived at. If the court can ascertain, either from the words of the parties, the circumstances of the case, or from any local usage or usage of trade, what was the probable intention and understanding of the parties, at the time of the payment, that intention will be carried into effect. If no such means of ascertaining the intention exist, it is the duty of the court to direct such application of the payment as will in its judgment best protect the rights and interests of both parties. It may perhaps safely be said, the law will presume this to have been the intention of the parties.

If the debts differ in date, a court would probably apply the first payment to the oldest debt, until that is extinguished, and so apply the successive payments in the order of their dates. Where one debt is due and another not, application will of course be made to the former. A debtor makes payment generally on a note or account drawing interest; the payment will first be applied to extinguish the interest then

due, the balance, if any, to the principal. Where one debt arises out of a lawful contract, and the other out of a usurious or otherwise unlawful one, application will be made to the legal demand.

One owes a private debt, and the firm in which he is a

partner is also indebted to the same creditor. He makes a general payment; the law will enquire, whether the fund from which he pays it is private or partnership. If A. owes a debt to B. on B.'s own account, and another debt to B. as trustee, and A. makes a general payment, without directing its application, the law will compel him to apply it to both debts, in proportion to their amount.

This results from the principle, stated in the chapter on agency, which requires, that the agent shall take the same care of the property and interests of his principal as of his

own.

Where there is a single account, or a succession of dealings which are treated as a single account, this question will not arise, but a general payment will be applied in discharge, in succession, of the items as they arise. The debtor is to have, in all cases, an opportunity to direct the application; hence, where collections are made by an attorney to whom the client, whose money is collected, is indebted, it was held, that the attorney as creditor could not make the application, as the client had not had the opportunity first of directing it

himself.

The law will seize upon any indication of the intention of the parties, as, where the sum paid agrees in amount with one debt and not with another, where one debt is due from the debtor personally and the other as executor, these circumstances will, as in the case of the legality of one and illegality of the other, determine the application. If several notes are joined in one suit and the execution recovered is satisfied only in part, a surety on one of the debts may insist upon a proportional application of the money to the debt for

which he is liable.