J. & G. Const. Co. v. Freeport Coal Co.

• Decision Date: 09 May 1963
• Docket Number: No. 12185,12185
• Citation: 147 W.Va. 563,129 S.E.2d 834
• Court: West Virginia Supreme Court
• Parties: J. & G. CONSTRUCTION COMPANY v. FREEPORT COAL COMPANY.

Page 834

129 S.E.2d 834

147 W.Va. 563

J. & G. CONSTRUCTION COMPANY v. FREEPORT COAL COMPANY.

No. 12185.

Supreme Court of Appeals of West Virginia.

Submitted Jan. 22, 1963.

Decided Feb. 19, 1963.

Dissenting Opinion Feb. 26, 1963.

Rehearing Denied May 9, 1963.

Syllabus by the Court

1. A debtor, at the time he makes payments upon his indebtedness, has the absolute right to direct to which of his debts the payments shall be applied by the creditor and, in general, if the debtor does not designate the manner in which the payments must be applied, the creditor to whom the payments are made may apply such payments as he may choose to apply them.

2. When the finding of a trial court in a case tried by it in lieu of a jury is against the preponderance of the evidence, is not supported by the evidence, or is clearly wrong, such finding will be reversed and set aside by this Court upon appellate review.

3. The burden rests upon the debtor to prove that the debtor directed the creditor to apply payments to particular portions of an account between them and that the direction was made known to the creditor.

Baker & Armistead, Charles G. Baker, Charles S. Armistead, Morgantown, for appellant.

Hale J. Posten, Albert M. Morgan, Morgantown, for appellee.

HAYMOND, Judge.

The decision of the controlling question presented by this appeal will determine the proper application of three payments by the defendant, Freeport Coal Company, a corporation, upon certain indebtedness of the defendant which resulted from its sale, as a broker, during the month of December 1946, of a quantity of coal produced by the plaintiff, J. & G. Construction Company, a corporation. After repeated unavailing requests of the plaintiff for payment by the defendant of the purchase price, less its commission, the plaintiff instituted an action of trespass on the case in assumpsit against the defendant in the Circuit Court of Monongalia County on June 1, 1956, to collect the amount of the unpaid indebtedness which, according to the bill of particulars and the affidavit filed with the declaration, was $29,281.52.

On October 16, 1956, the defendant by counter affidavit admitted that it owed the sum of $10,570.00 and judgment in that amount was rendered in favor of the plaintiff. The defendant by its counter affidavit denied that it was indebted in any amount other than that admitted and filed its plea of the general issue to the residue of the plaintiff's claim. The plaintiff was insistent that the case be tried as to the residue of its claim at the January 1957 term of court, but upon payment of $5,000.00 by the defendant on February 8, 1957 and its assurance of additional payments and a final payment of any balance of the indebtedness by September 15th of that year, the trial of the case was continued for that term of court to enable the defendant, whose records were in unsatisfactory condition, to ascertain from the records of the plaintiff the amount, if any, owed by the defendant in excess of the amount of the judgment. On each of the dates of July 20, 1957 and August 28, 1957, the defendant paid the plaintiff $2,500.00. The two $2,500.00 payments and the original $5,000.00 payment of February 8, 1957, were made by checks accompanied by vouchers which bore the notation 'payment on account'.

The defendant entertained the mistaken belief that the account between the parties was covered by a written contract; but when it discovered in October 1957 that the transaction was not based upon a written contract and that the account was barred, the defendant filed its plea of the statute of limitations on October 30, 1957.

Not having received any further payments the plaintiff, on September 6, 1960, caused an execution to be issued on the judgment. On September 16, 1960, by letter of that date, the attorney for the defendant tendered to the plaintiff a draft of the defendant for $1,153.95 in full payment of the judgment, which the defendant contends should be credited with the three payments previously made by it. The tender of the amount of the draft was refused and the draft was returned by the attorney for the plaintiff by letter of September 20, 1960. On October 3, 1960, the defendant moved to quash the execution on the ground that the three payments, which should be applied and credited on the judgment, and the tendered but rejected payment in the sum of $1,153.95 together constituted full and complete payment of the judgment. The circuit court, after a hearing, without making any specific finding as to the effect of the notation on the vouchers in the proper application of the payments made by the defendant, sustained its motion and by judgment rendered October 16, 1961, quashed the execution. From that judgment this Court granted this appeal upon the application of the plaintiff.

The plaintiff contends that the notation 'payment on account' on the voucher which accompanied each of the three checks issued and delivered by the defendant constituted a direction by the defendant, the debtor, that the plaintiff should apply each of the three payments to the portion of the account not covered by the judgment; that if such notation did not constitute such direction the defendant did not direct the plaintiff how to apply the payments made by the defendant and, in consequence, the account being free from dispute, the plaintiff had the right to apply the payments as it should choose to apply them; and that it chose to apply such payments, and did apply them, to the portion of the account which was not covered by the judgment.

On the contrary the defendant insists that the notation on the vouchers constituted a specific direction to the plaintiff to apply each payment as a credit on the judgment; that if such notation did not constitute an express direction, the plaintiff was required to apply the payments to the undisputed portion of the account represented by the judgment; and that the plaintiff was not entitled to apply the payments to the portion of the account not covered by the judgment because that portion of the account constituted a disputed account between the parties.

A well settled and widely recognized rule is that the debtor, at the time he makes payments upon his indebtedness, has the absolute right to direct to which of his debts the payments shall be applied by the creditor and that, in general, if the debtor does not designate the manner in which the payments must be applied, the creditor to whom the payments are made may apply such payments as he may choose to apply them. Preston County Coke Company v. Preston County Light and Power Company, W.Va., 119 S.E.2d 420; The Tildesley Coal Company v. American Fuel Corporation, 130 W.Va. 720, 45 S.E.2d 750; Wait v. Homestead Building Association, 81 W.Va. 702, 95 S.E. 203, 21 A.L.R. 696; Ryan v. Casto, 76 W.Va. 314, 85 S.E. 553; 40 Am.Jur., Payment, Sections 110 and 117; 70 C.J.S. Payment §§ 52 and 57. In Ryan v. Casto, 76 W.Va. 314, 85 S.E. 553, this Court held in point 1 of the syllabus that 'A debtor, at the time of making payments, has the absolute right to direct to which of his debts payments shall be applied, but if he then omits to exercise the right, the creditor to whom the payments are made may thereafter make application thereof according to his pleasure.'

Another well settled rule is that when no appropriation of payments has been made by the debtor or the creditor the court will apply them according to the principles of justice and equity in the particular case. Ryan v. Casto, 76 W.Va. 314, 85 S.E. 553; Buster and Beard v. Holland, 27 W.Va. 510; Norris v. Beaty, 6 W.Va. 477; Smith v. Loyd, 38 Va. (11 Leigh) 512, 37 Am.Dec. 621. This Court has held that if there has been no direction by the debtor and there has been no application of the payment by the creditor the court will apply the payment to that portion of the indebtedness which is least secured and, when the portions of the indebtedness are equally secured, to the oldest portion of the indebtedness. The Tildesley Coal Company v. American Fuel Corporation, 130 W.Va. 720, 45 S.E.2d 750; Poling v. Flanagan, 41 W.Va. 191, 23 S.E. 685. In 70 C.J.S. Payment § 73, the text contains this language: 'Where neither the debtor nor the creditor directs the application, the law will apply a payment on the debt which is least secured or for which the security is most precarious.' In the absence of any direction by the debtor or of any special application of the payment by the creditor, the law will apply the payment made by the debtor to the oldest portion of the account or to such portions of the account as would otherwise be barred by the statute of limitations. Preston County Coke Company v. Preston County Light and Power Company, W.Va., 119 S.E.2d 420; Peale v. Grossman, 70 W.Va. 1, 73 S.E. 46, Ann.Cas.1913C, 1373; Ryan v. Casto, 76 W.Va. 314, 85 S.E. 553; Hanly v. Potts, 52 W.Va. 263, 43 S.E. 218; Genin v. Ingersoll, 11 W.Va. 549. See also 40 Am.Jur., Payment, Section 125; 70 C.J.S. Payment § 72b. In In re American Paper Company, D.C., 255 F. 121, the court said: 'When the security is the same, the state and federal rule is to apply the payment first to the oldest obligation. When the security is not the same, the rule is to apply the payment first to the obligation least secured, or whose security is most precarious.' There is also authority for the proposition that when the court is called upon to determine to which of several debts a general payment should be applied, the court should not apply it to an item or a debt which is in dispute between the parties, since to do so would be to aid one of the parties to the detriment of the other. Standard Surety and Casualty Company of New York v. United States of America for the use and benefit of Vic Campbell, C.C.A., 10th Cir., 154 F.2d 335, 164 A.L.R. 935. See also Annotation III, 164 A.L.R. 941, 942.

The evidence indicates clearly that the three payments, accompanied by...