Harrison v. First National Bank of Huntsville
| Decision Date | 01 March 1915 |
| Docket Number | 221 |
| Citation | 174 S.W. 553,117 Ark. 260 |
| Parties | HARRISON v. FIRST NATIONAL BANK OF HUNTSVILLE |
| Court | Arkansas Supreme Court |
Appeal from Madison Chancery Court; T. H. Humphreys, Chancellor reversed.
STATEMENT BY THE COURT.
Appellants borrowed $ 2,000 from the First National Bank of Huntsville with which to purchase a stock of merchandise for their partnership of Harrison & Neal Bros., and executed the following note therefor;
Two thousand & no/100 Dollars for value received, negotiable and payable at its office in Huntsville, Ark., without defalcation or discount, and with interest from date until paid at the rate of 10 per cent per annum. If the interest be not paid annually it shall become a part of the principal and bear the same rate of interest.
After the execution of the note, Noah and Conrad Neal sold their interest in the partnership to S. C. Harrison, who assumed the payment of said note as consideration therefor. The bank was advised of this arrangement and consented thereto with the understanding that said Noah and Conrad Neal remain bound on the note as sureties until a new note was executed, or until the stock of merchandise was sold.
Harrison sold the stock of goods to Ray Hanson about the 10th of November, 1913, for the sum of $ 1,906.32, Hanson having made arrangements with appellee bank before the purchase thereof for the sum with which to pay therefor, gave a check for said sum payable to the order of S. C. Harrison, who forwarded it to appellee bank with a letter directing that it be credited upon his note as follows:
The bank claimed Harrison owed four other notes besides the one upon which the Neals were security, the largest being for $ 400. It received the check and claiming not to understand upon which note it was directed to be applied, placed it to the credit of S. C. Harrison and thereafter charged the amount of his overdraft and the amount of the other four notes against it and credited the note sued on with the balance $ 1,016.55. It claimed that Harrison came to the bank within a few days after the check was received in the letter and placed to his credit and agreed to the payment of the overdraft and the other notes out of the proceeds thereof which was then done.
Harrison denied having made any such agreement or application of the money and also that he had given any check against the amount as credited to his account.
The bank brought suit on the original note and appellants set up the fact that the note was paid by the check for the amount thereof virtually with the direction to so apply it. They alleged that the money for which the note was executed was originally borrowed with which to purchase the stock of goods, that the interest of the Neals in the stock of goods purchased was sold to Harrison for the amount due by them upon the note, who agreed to pay the note in consideration thereof; that later the bank loaned the money to Hanson with which to buy this same stock of goods all the while knowing that the note given for its purchase in the first instance had not been paid, and that the sureties were to continue bound only until Harrison could dispose of the stock of goods and pay same off. That they were discharged as sureties by the appropriation of the payment of the check given by Hanson as made by the direction in Harrison's letter to the bank, and that Harrison was insolvent.
The cashier of the bank admitted lending Hanson the money with which to buy the Harrison stock of goods and that it also knew that the Neals had sold out their interest in the stock of goods to Harrison in consideration that he would pay the note sued on and agreed to stand security until it was paid or satisfied.
It appears that the bank had also loaned Harrison some other small amounts of money with which to purchase other goods that were added to the stock.
The chancellor found that Harrison directed the application of the payment of the proceeds of the check to his smaller notes and overdraft in the bank and that appellants were not entitled to have same appropriated to the payment of the note sued on and rendered judgment for the balance due after crediting same with the remainder of the proceeds of the check from which the smaller notes and overdraft were paid, and from this judgment the appeal is prosecuted.
Decree reversed in part and affirmed in part.
W. N. Ivie, for appellants.
The rules of law as to application of payments which are applicable to the facts here, are thus stated: "Where the payment, with the knowledge of the creditor, is derived from a third person, or from a fund connected with the secured debt, it must be applied thereto."
"Where once apropriated by either party, or both, to the secured debt, the application can not be changed as against the surety." 30 Cyc. 1252.
The debtor has the primary and paramount right to direct the application of payments. Id. 1228, 1230, 1231; 98 Ark. 459; 54 Ark. 446.
When appellee received and accepted the check, with the directions how to apply the same, it became a credit on the note to which appellee was directed to apply it, as a matter of law. If it did not intend to apply the check as directed, it was appellee's duty to have refused to accept and cash it. 94 Ark. 158; 98 Ark. 269. The parties can not, even by mutual agreement, change an application to the prejudice of a third person without his consent. 73 P. 94; 31 Ill. 350; 4 Mich. 192; 28 Me. 81; 56 S.C. 435.
Appellee, pro se.
The fund was not derived from a third person, neither was the check connected with the secured debt within the meaning of the law. See, 98 Ark. 459, cited by appellants.
The right to make application is confined to the debtor and...
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