It appears on the face of the bond that W. II. Smith was a surety, and we declare that to be a fact. From the view we take of the case, that fact does not very materially affect the merits of the case.
The principal, C. S. Smith, when he forwarded cotton to the plaintiffs, did not make any specific application. The plaintiffs, on the receipt of the cotton made no specific application; on the contrary they entered the receipts of cotton from time to time, as items in a running account against C. S. Smith, in which he was debited, by the amounts advanced, and credited with the proceeds of the cotton received, and closed up the matter by anaccount stated, setting out the items of debit and credit. In Jenkins Co., v. Beal, 70 N.C. 440, it is held, that when one holds two distinctdebts, one secured by mortgage, and the other without security and the debtor makes a payment, but does not apply it to the one debt or the other. the creditor has a right to apply it as a credit on the unsecured debt, and if he does not make the application specifically, the law will make the presumption that he applied it to the "most precarious debt," as it is termed, that is, to the unsecured debt. That case does not apply, for here there are not distinct debts and a distinct payment, but a running account in which the money advanced is charged as items of debit, and the proceeds of the cotton is entered as items of credit, without any reference to the fact, that the plaintiffs held the bond sued on as a collateral security for the first items of debit.
Had the plaintiffs made a specific application of the cotton received, to the items of debit outside of the items secured by the bond, it would have raised the question whether he would be allowed, in equity, to do so, to the prejudice of a surety who was bound to see that a certain amount of cotton was *Page 307 delivered by his principal, and had a right to expect, that whatever cotton was delivered should be allowed as a credit in discharge of his bond. This question, however, does not arise, for the plaintiffs made no specific application of the cotton, but entered the several lots of cotton received as items in a running account, embracing the whole as one transaction, served up in an account stated and rendered.
In Boyden v. Bank of Cape Fear, 65 N.C. 13, it is taken to be settled. "In adjusting a running account between a bank and its customer the rule is, the first money paid in is the first money paid out; the first item on the debit side is discharged or reduced by the first item on the credit side."
This principle applies with full force to a running account between a commission merchant and his customer, and the fact that it was so understood and acted on by the plaintiffs is proved by the account stated.
The fifth and sixth exceptions are allowed.
This makes it unnecessary to consider the other exceptions, for the exceptions allowed discharge the liability of the defendant, W. H. Smith, leaving a large balance to be applied to the indebtedness of C. F. Smith. There will be judgment in favor of W. H. Smith, and the judgment below is reversed as to him.
PER CURIAM. Judgment accordingly. *Page 308