On Rehearing.
FrauenThal, J.The appellant has filed a motion for a rehearing of this cause, and bases his motion upon the ground that his answer sufficiently sets forth a plea of payment, and that the testimony of the plaintiff sufficiently establishes a payment of all that portion of the indebtedness which is secured by the mortgage.
Upon further examination we are of the opinion that the plea of payment is sufficiently made. If the plea was too indefinite or uncertain, it was the duty of appellee to request a more definite and detailed allegation, if he desired it. And we are also of the opinion that -the testimony of the plaintiff and the account which he has introduced present sufficient evidence to determine the issue made on the plea of payment.
From this testimony it appears that when the defendant on January 2, 1905, executed the three notes, aggregating $500, and the mortgage to secure that amount of indebtedness, he bad then only received $30.69 of merchandise, and was actually indebted to plaintiff in no larger amount. These notes were really executed to cover that debt and also merchandise and moneys which the plaintiff had agreed to furnish to the defendant in the future.
According to the agreement of the parties, the sole consideration of these notes and of this mortgage was the merchandise which had been and would thereafter be furnished to the defendant. In accordance with that understanding, the plaintiff did furnish to the defendant during the year of 1905 merchandise and moneys to the amount of $500; and then, without further understanding as to security, continued to furnish additional items of merchandise on the account. All the items thus furnished were kept by plaintiff upon a running account upon his books. The first item of that account is the item of $30.69 above referred to; and in the regular order of their dates all the other items furnished to the defendant upon these notes and mortgage are charged upon this account. And thus the plaintiff continued to furnish to the defendant merchandise and moneys during the years of 1905, 1906 and 1907, all of which were entered upon this running account and aggregated $1,187.65. So that the first items of the account to the amount of $500 were the consideration of and represented the above three notes, and constituted the indebtedness that was actually secured by the mortgage; and these items, being thus charged upon the running account, were in truth and effect the three notes; and the legal result of thus charging these items, which represented these notes, upon the account was in effect to charge the notes themselves upon the account as of the date when the items so furnished and charged would equal the amount of the notes. And the account was one continuous running acconut. At the time the payments were made no direction was made by the defendant as to the application thereof; and there was no agreement as to any special application of any of the payments. The plaintiff did not apply any of the payments to any special indebtedness. But the payments were entered generally as credits upon the running account. All the payments aggregated $634.12, and the items and dates thereof were as follows:
October 28, 1905, By cotton, 2,325 lb. at 10 1-2. .$244.12
January 29, 1906, By cash.................. 25.00
February 10, 1907, By deposit G'er. Nat. Bank.. 225.00
February 28, 1907, By cash ................ 40.00
July 1, 1907, By cash...................... 100.00
At the date of the first above payment all the items charged on the account amounted to $574.35. Of these items $500 were represented by the said three notes aggregating the same amount. At the date of the last payment the total of the items charged on the account amounted largely in excess of $1,000.
The rule relating to the application of payments is that the debtor at the time of making payment to his creditor has the primary and paramount right to direct the application thereof to such debt or demand as he may choose, whether same is secured or unsecured. If the debtor does not at the time of making the payment direct its application, then the creditor has the right to make the application. But in event such application is made by neither, and the payment is entered generally as a credit on a running account as of the date of payment, then the law makes the application, and applies the payment in liquidation of the oldest item of the account. Cross v. Johnson, 30 Ark. 396; Johnson v. Anderson, 30 Ark. 755; Price v. Dowdy, 34 Ark. 285; Hughes v. Johnson, 38 Ark. 294; Kline v. Ragland, 47 Ark. 111; Lazarus v. Freidheim, 51 Ark. 371; Dunningtom v Kirk, 57 Ark. 598; Fort v. Black, 50 Ark. 256; Goldsmith v Lewine, 70 Ark. 516.
This rule is founded upon the reason that this manner of application of the payments more surely represents the intention of the parties. But under such circumstances, before there can be an application of a payment to one of the debts o,r to any item of debt, should there be several, such debt should be due and payable; otherwise it would be presumed to be the intention of the parties to apply the payment to that debt only-which is actually due and payable at the time of the payment. If the debt is not due at the date of such pa)ment, then it is not in contemplation of law the oldest item of the account, although it is the oldest item of charge. In such case the determination of the oldest item of the account is not fixed by the date of the charge alone; but it must be first in the date of its charge and also payable at the date of the payment, before application of such payment shall be made to such debt. 30 Cyc. 1243; Frazier v. Lanahan, 71 Md. 131; Wolford v. Andrews, 29 Minn. 250; McMillan v. Grayston, 83 Mo. App. 425.
In this case the items of the account which represented and went to make up the notes matured when the notes matured; the maturity of the notes fixed the time when, according to the agreement of the parties, the items represented by and the consideration of the notes should be paid; and until then no action could have been brought for their recovery. Therefore these items in the account were in truth and effect payable as of the date of the maturity of each note of which it was the consideration.
On October 28, 1905, when the first payment was made of $244.12, the account amounted to $574.35; of this account $500 was represented by three notes, and was therefore not payable on the date of the said first payment. But the balance of the account, towit: $74.35, was then payable; and therefore the payment should be applied to that part of the account. When so done, it would leave a balance of $169.77 of the payment. The only debt that the defendant then owed 'to the plaintiff was these three notes; and, inasmuch as defendant then made a payment, it will be presumed that the parties intended that it should be applied on these notes, although none of them had then matured, because that was the only indebtedness then owed by defendant. Applying this balance to the payment of -$169.77 on •the first note leaves a balance thereof of $40.23, and this became payable January 1, 1906. On January i, 1907, the second note for $200 matured, so that on this later date items on the account to the amount of $240.23, represented by the two notes, became payable, and were therefore the oldest items subject to payment on the account on that date.
The payments made thereafter should- therefore be applied to these items representing the amount due on the two notes. The payments after January r, 1907, amounted to $365, and were more than enough to pay these items of the account amounting to $240.23, which represented the balance due on the two notes; and when so applied the said two notes were fully paid. But at the date of the last item of payment — July 1, 1907 — the last note for $100 had not matured, that note maturing January 1, 1908. At the time of this last payment there were other items of charge on the account greatly in excess of all the payments. Inasmuch as this last note matured subsequent to -the last payment, it was not at the date of these payments in legal contemplation the oldest item on -the account, and therefore these payments should be applied to those other and older items of the account which were actually payable; and, inasmuch as these other items exceed all payments, the note for $100 was not paid. This note bore interest from its date at the rate of 10 per cent, per annum. But the consideration thereof was not furnished until August 16, 1905. It should bear interest at the above rate only from that date.
It follows therefore that the two notes for $200 each have been paid; and that the third note for $100, with interest as above indicated, has not been paid. To that extent only should a lien be declared upon the land by virtue of said mortgage. Tor the balance of the indebtedness, -towit, $785.53, the plaintiff should have a personal judgment only against the defendant.
The motion for the rehearing of this cause 'is granted, and the former judgment of this court is modified so as to conform to this opinion.
The decree of the Lonoke Chancery Court is reversed, and this cause is remanded with directions to enter a decree in accordance with this additional and modified opinion.