National Bank of Commerce v. Garn et al. [Vol. III, N. S. applied the remainder upon the part secured, leaving this balance, as he claims, of unsecured indebtedness. The question, therefore, left for our determination is, whether or not this petition discloses that the $3,000 first loaned has been paid. If the petition discloses that it has been paid, then it does not state any cause of action against the guarantors. It shows that there was a liability of $3,000, arising upon loans exceeding $3,000, i. e., upon the first $3,000; and unless it discloses that this has been paid, there is a cause of action stated in the petition. It was held in Birdsall v. Heacock, supra, that under circumstances like those there appearing, payments made by the principal on account will be applied in satisfaction of the first purchase, and the consequence will be a discharge of the guarantor's liability; and it is urged by counsel for defendants in error that the payments which have been made here from time to time in the various ways shown by the petition, should be so applied, in discharge of the guarantor's liability that, as a matter of law, they should and must be so applied; and that, notwithstanding the averments of the petition that they have been otherwise applied, the law will make the application in such a way as to work the discharge of the guarantors. Whether the applications stated of these payments were made with or without authority from the principal debtor or guarantors is not stated in the petition. It is silent upon that subject. That the application has been made is all that is stated. I read on the subject of the application of payments, from an old edition of Brandt on Suretyship and Guaranty, Section 286: "When the liability of a surety or guarantor is for the debt of another, such liability, of course, ceases upon the payment of the debt. With reference to the application of payments, the general and well known rule is, that a debtor who owes several debts to the same creditor has the right at the time of making a payment to apply it to any one of the debts as he pleases. If he makes no appropriation of a general payment, the creditor may apply it as he sees fit. And where it is not appropriated by either the debtor or the creditor, the law will apply it according to the justice and equity of the case. The mere fact that there is a surety for one of the debts will not make any difference in this rule, when a payment is made in the principal, where the principal debtor pays part of the principal sum due, and the whole of a highly usurious rate of interest stipulated for, the surety is bound by this application of payment. Where a mortgage or other security is given by a principal to secure several debts due one creditor, for one of which debts a surety is liable, and there is no agreement or anything to indicate the intent of the parties as to how the proceeds of the security shall be applied, the creditor may apply such proceeds to the payment of the debts, for which the surety is liable. When three notes are secured by a trust deed, and the two first due are also signed by a surety, the creditor may, after the maturity of all the notes, apply the proceeds of the trust premises to the payment of the note last due, on which there is no surety. The fact that he required sureties on the two first notes, was evidence that he was not satisfied with the security of the trust deed. Principal and surety were liable for a debt, and afterwards the principal obtained further advances from the creditor, at the same time depositing with him certain copper to secure his indebtedness, but without specifying what indebtedness. The principal failed, and the creditor, against the objection of the surety, applied the proceeds of the copper to the payment of the subsequent advances. Held: He might lawfully do so. As the principal made no application of the payment, the creditor had the right to apply it as he pleased, upon the ordinary principle which entitles a creditor in the absence of any direction from the debtor paying, to apply the money he receives to whichever of several debts arising he pleases." Notwithstanding this limitation in this written guaranty, it was competent for the company to borrow money from the bank. It was competent for the bank to give credit to the company and competent for the company to discharge such indebtedness by paying it; and to pay it without reference to the fact that it was indebted to the bank upon certain other loans, on account of which these guarantors had become bound; and we hold that payments made by the debtor company to the bank on other loans would not necessarily, as a matter of law, be creditedwould not be required to be credited-upon the loan on account of which these guarantors were bound. The case differs somewhat from the case of a general open account, like that in Birdsall v. Heacock, supra; for the general National Bank of Commerce v. Garn et al. [Vol. III, N. S. rule is that where there is a general open account, and payments are made thereon generally (as in that case), the application shall be made upon the oldest item of the account. We know of no reason why this debtor company may not have gone to the bank and made any of these loans of hundreds and thousands of dollars and agreed to pay them, either at a date subsequent to that at which the first loan became due and payable, or at an earlier date, and actually have paid them when they matured or at some other time, without regard to the fact that there was another indebtedness existing upon which the guarantors were bound, and without offering such guaranty. The petition discloses no direction from anybody as to the application to be made of payments, but states that payments were made and that the creditor bank applied the payments as stated, upon the unsecured indebtedness. It does not appear from the petition that the bank violated any rights of the guarantors in so doing. It is possible that it did. It is possible that some reason existed why those payments should have been applied and why a court of law or equity even now would require that they should be applied upon the first indebtedness; but that reason is not disclosed in the petition, and if it exists, it must be brought forward by an answer. The petition sets forth that the debtor company failed; that the bank proved up its claim for $6,538.82 upon these several notes of $475, $3,200, $2,200, and $550 which were given in extension-or some of them were-of the balance due upon the first $3,000 borrowed, and upon the other amounts first borrowed, making up the $8,200. Of the property which went into the hands of the receiver of the company, the bank received as its distributive share, $879.79; of that which went into the hands of the receiver who was appointed in the proceedings to enforce statutory liability of the stockholders of the insolvent company, it received as its share upon these claims, the sum of $6,839.82. The question arises whether the petition discloses a state of facts which would require the application of the money thus received in any particular way, or requires that it should go into any particular channel. We think it does. In Bank v. Cheney (unreported), the court held that where there were various claims presented on behalf of the bank, upon some of which Mr. Cheney was surety, and upon others of which he was not, and there was a dividend paid to the bank upon their several claims, it was not competent for the bank to apply that dividend in such a way as to extinguish the unsecured claims presented and allowed, and leave the claims upon which Mr. Cheney was surety without any payment having been made thereon. Our view of the matter, without any authorities being presented at that time, was that the different claims should pro rate; that the court had allowed these different claims, and that the dividends were upon the different claims, and that when the dividends were paid, the application should be made pro rata upon the different claims, and we enforced that rule. In looking into the case, we find authority in support of that ruling, although we found none at that time. In 7 Bingham, 489, I read the syllabus: "The defendant guaranteed plaintiffs against debts to be contracted by L. M. to the extent of 400 pounds. L. M. became indebted to plaintiffs to the amount of 625 pounds, upon which by a composition with his creditors, he paid them 8 shillings 7 cents on the pound, leaving due to the plaintiffs out of their whole claim 336 pounds. The defendants being sued for that sum upon their guaranty-Held: That they were entitled to deduct from it 171 pounds, 13 shillings and 4 pence, the amount of the dividend of 8 shillings 7 cents on the pound upon 400 pounds." The matter is very well argued out by Kirdle, Chief-Justice, and the reasoning is very satisfactory to us. I do not take time to read it. I call attention to another decision in line with that, in 5 Moore & P., 327. I will not stop to read it, but will simply say that the same doctrine is announced and applied. So that we hold that the amounts received from these receivers upon this balance of indebtedness of nearly $5,000 should be applied pro rata upon the different claims presented and allowed; not only that received from the receiver of the insolvent company, but that received from the other receiver, who had collected from the stockholders on account of their statutory National Bank of Commerce v. Garn et al. [Vol. III, N. S. liability. We do not understand that the latter fund should be treated differently from any other to which the creditors might resort. We do not understand that the bank had any peculiar or special interest in that fund that these guarantors can not as well assert for their benefit-that these guarantors would not be subrogated to in the event they discharged the indebtedness, and sought relief against the debtor; and therefore we hold that both of these funds should be treated, as a matter of law, as having been applied in that way. Nevertheless, it is not apparent that that would extinguish this indebtedness. It might still leave a balance of the first $3,000 unpaid. That balance may turn out to be as great as the balance claimed in the petition, or it may be less, or there may be nothing remaining unpaid of the first $3,000 loaned. This may depend upon the amount, if anything, of the first $3,000 loaned carried into these renewal notes. The transaction in the way of loans and payments and applications of payments up to the making of these last notes, are not set forth specifically in detail, but the petition avers that there is a balance of the secured indebtedness carried into these renewal notes and yet unpaid, and therefore we are of the opinion that the petition states a good cause of action, and that the court of common pleas erred in sustaining this demurrer. The judgment will be reversed and the cause remanded. G. P. Voorhees, for defendant in error. |