
    MARY J. NEIDIG, Adm’x of Isaac Neidig, v. JAMES WHITEFORD.
    
      Decided June 23rd, 1868.
    
    Mortgages ; release ; loss of lien ; parol explanation. Future advances ; judgments and mortgages to secure. Payments ; appropriation. Witnesses ; in own behalf ; not admissible against administrator of deceased party.
    On March 30th, 1854, W. mortgaged land to N. to secure the payment of $2,500. On July 24th, 1856, he confessed judgment in favor of A. On March 18th, 1857, W. and wife executed a deed of the same property to L. On the following day N. executed a release to W., reciting therein payment of the mortgage debt, and some days afterward L. executed a mortgage for $4,000 to N. Held:
    
    *That N., by releasing the mortgage from W., reciting payment of the mortgage debt, lost the lien of the mortgage, although the mortgage debt may not have been paid; and the second mortgage must be postponed to liens attaching to the property prior to its date, 
       pp. 182-183
    The release was not susceptible of parol explanation, to connect the released mortgage with that subsequently executed by L., to N., to give the latter precedence over the judgment in favor of A.
    pp. 182-183
    A judgment as well as a mortgage, may be taken to secure future advances and liabilities when such is a constituent part of the original agreement under which it was entered; and any future advances not exceeding the amount of the judgment made thereunder, will be covered thereby.  p. 183
    Under the Act of 1864, ch. 109, where an administrator is a party to the suit, the other party contesting the claim cannot testify in his own behalf,  p. 184
    A debtor has the right, if he so elect, to make the application of payments in the first instance, and if he omit so to do, the creditor may make the appropriation; but if neither make any appropriation, the law appropriates the payment to the earliest, and generally the most onerous debt,  p. 185
    On July 24, 1856, W. confessed judgment in favor of A., as collateral security for such balance 'as was due the latter on account at that date. There was a running account between the parties, commencing before the date of the judgment, kept alone by the creditor, and which continued until May, 1857. Subsequently to the date of the judgment, large and numerous, credits were entered in the account, greatly exceeding in amount the balance due on the account at the time the judgment was rendered. Held:
    
    That the judgment was discharged by the subsequent payments on account. ' p. 188
    The judgment was taken as collateral security only, and it follows, if the principal debt for which it was intended as security be paid, the judgment is functus officio, and no longer capable of being enforced, 
       p. 185
    Appeal from the Circuit Court for Frederick County, sitting in equity.
    The questions presented in this case, arise from a contest between the appellant and the appellee, as to the equitable distribution of the money, the proceeds of the sale of the real estate of Joseph A. Lechlider, an insolvent, each claiming as creditor a prior lien. On the 30th of March, 1854, James M. Weddle, a former owner of this real estate executed a *mortgage to the appellant’s intestate for $2,500, with interest, payable on the 1st of April, 1865. On the 24th of July, 1856, Weddle confessed judgment to the appellee for $3,500, with interest thereon from the day of its date. At the time of confessing this judgment, Weddle was conducting a merchant mill on the premises, and was indebted to the appellee in account current in their dealings as factor and principal, on advancements upon consignments of flour; these dealings continued until May, 1857, accounts being rendered and balances struck at stated periods upon the current dealings — the amount for which the judgment was rendered as security being kept in the account, and no reference being had to it in ascertaining the balances. In this condition of things, Weddle negotiated a sale of his land to Lechlider, the insolvent petitioner, and obtained and placed on record on the 19th of March, 1857, a release of that date of Neidig’s mortgage of March, 1854. Six days afterwards, on the 25th of March, 1857, a deed from Weddle and wife to Lechlider, dated j8th March, 1857, was recorded, and on the 4th of April following, a mortgage from Lechlider to Neidig was recorded, bearing date 24th of March, 1857, for $4,000, payable in four annual instalments, with interest on each as respectively due.
    Parol testimony was offered in the case by Neidig, first, to connect the mortgage of 1854, for $2,500, which had been released on the record under seal, with the mortgage by Lechlider to him for $4,000, dated March 24th, 1857, in order to establish identity between the two claims, and to make the mortgage of 1857 reach back and override the appellee’s judgment of July, 1856, and also for the purpose of explaining the judgment, and to show that it was taken only for the then existing balance on the account current between Weddle and the appellee, and then to show that by the course of dealing between them, the then existing balance so secured, had been extinguished by the subsequent payments on the account current, according to the order of their date. This testimony was excepted to by the appellee. To rebut this testimony, *the appellee proved that he took the judgment to stand as a collateral security upon the existing, and any and all future balances that might exist in the course of their dealings; and further, that no application of current payments had ever been suggested or made on the judgment. He also proved that he had a final settlement with Weddle in September, 1857, at which it was ascertained, that the unpaid balance was $2,265.58, and then for the first time was the judgment brought into the account between the parties, and the sum of $1,466 was credited upon it as a mere mode of squaring the account, and leaving the judgment to stand as a security for the definite balance remaining upon their dealings, which had then been closed, and in strict conformity with the original understanding between them ; and the memorandum of that credit on the docket, was pursuant to that understanding. To this evidence the appellant excepted. The auditor made two reports under instructions, Audit B awarding the proceeds of the sale of the land to the appellee as the holder of the prior lien, and Audit A awarding them to the appellant. By agreement, the court passed a fro forma decree and order ratifying Audit B in favor of the appellee, and rejecting Audit A. From this decree and order the present appeal was taken. Under the agreement and final order of the court, every question in the case was referred to this court on appeal.
    The cause was argued before Stewart, Miller, Alvey and Robinson, JJ.
    
      Grayson Eichelberger and Joseph M. Palmer, for the appellant, contended :
    That the judgment confessed by Weddle in favor of the appellee had been extinguished and discharged by payments credited in the accounts current between them, and was not therefore a lien, at the date of the application of Lechlider for the benefit of the insolvent laws, upon the real estate which he purchased from Weddle.
    
      *William M. Merrick, for the appellee :
    Parol testimony is not admissible to connect the mortgage of 1854 with that of March, 1857, or to vary the record of land titles to the detriment of creditors. The release under seal of the mortgage of 1854, deliberately made and acknowledged by the appellant’s intestate, extinguished that mortgage, and the debt which it secured, and let in the judgment of the appellee as the oldest lien on the property. In a controversy with strangers to the instrument, parties cannot insist that it does not express what it was intended to express, nor as against creditors can a mistake be shown and reformed. Hunt v. Rousmanier, 1 Pet. 1; Henderson v. Mayhew, 2 Gill, 393; Young v. Frost, 5 Gill, 287; Woollen v. Hillen, 9 Gill, 185.
    If parol evidence were admissible, it would establish that by the arrangement between Neidig, Weddle and Lechlider, there was an express agreement to accept Lechlider in place of Weddle, as debtor to Neidig, and, by force of that agreement, the original debt of $2,500 was extinguished, and the debt of Lechlider to Neidig was a new debt, resting alone upon Lechlider’s personal responsibility, and the new liens created by him. Tatlock v. Harris, 3 Term, 180; Wilson v. Coupland, 5 B. & Aid. 228; Cuxon v. Chadley, 5 B. & C. 591.
    Parol testimony is not admissible to vary the effect of the judgment and the agreements of record in relation thereto. Shepherd v. Bevin, 9 Gill, 36.
    There never was any appropriation by the parties of current payments, to the extinction of the judgment in question.
    
      
       As to payment and loss of liens, see cases cited in Alderson v. Ames, 6 Md. 52, note (b). See also Gardenville Assocn. v. Walker, 52 Md. 455. The right of substitution cannot operate to the prejudice of intervening incumbrancers; cf. Milholland v. Tiffany, 64 Md. 464.
    
    
      
       Cited in Robinson v. Consol. Real Estate Co., 55 Md. 109; see also note (d) to Winchester v. B. & S. R. R. Co., 4 Md. 231.
    
    
      
      
        Cf. Whitridge v. Whitridge, 76 Md. p. 62; the opinion of Phelps, J., of the Circuit Court of- Baltimore City.
    
    
      
       As to the appropriation of payments, see Trustees, etc., v. Heise, 44 Md. 472; Harris v. Hooper, 50 Md. 550; Hammett v. Dudley, 62 Md. 157. See also Calvert v. Carter, 18 Md. 74-75, note (d).
      
      The law never makes an application of payment when the parties have already done so. This rule applies even in the case of an application to an item in an account current which is not recoverable in an action at law; Dickey v. Perm. Land Co., 63 Md. 171.
    
    
      
      
        Cf. Williams v. Bank, 72 Md. 441.
    
   Alvey, J.,

delivered the opinion of the court.

There can be 110 question but that Neidig, by releasing the mortgage from Weddle, reciting payment of the mortgage debt, lost the benefit of the lien or charge created by that mortgage, although the mortgage debt may not, in fact, have been paid. And it is equally certain that the release is *not susceptible of parol explanation in order to connect the released mortgage with that subsequently executed by Lechlider to Neidig, of the same property, for $4,000, and thus to create an equity by which the latter mortgage may be allowed to overreach the judgment in favor of Whiteford, of the 24th of July, 1856, and take precedence of it in the distribution of the proceeds of the mortgaged property. By the release, the mortgagee lost the priority of lien created by the first mortgage, and the second mortgage must be postponed to all liens attaching to the property prior to its date. Woollen v. Hillen, 9 Gill, 185. If, therefore, Whiteford’s judgment created a valid lien, and remains unsatisfied, it takes precedence of Neidig’s mortgage, and is entitled to have, under the arrangement made by the insolvent trustee with the purchaser, the proceeds of sale of the mortgaged property applied to its payment.

Upon this judgment two questions arise :

1st. What was the true character and object of the judgment ? and

2nd. Whether it has been paid and discharged by the subsequent course of dealing between the parties thereto.

■ x. It is now settled that a judgment, as well as a mortgage, may be taken to secure future advances and liabilities when such is a constituent part of the original agreement under which it was entered; and any future advances, not exceeding the amount of the judgment made thereunder, will be covered thereby. The question, therefore, is, was there a definite and certain agreement entered into at the time of confessing the judgment by Weddle, that it was to secure future advances or balances on account between the parties? We think this question must be answered in the negative.

The judgment itself furnishes no evidence that such was its character and object. On the contrary, it would rather show that it was rendered to secure a then subsisting debt. It was for $3,500, with interest thereon from the day of its date. Weddle was, at the time of confessing the judgment,*indebted to Whiteford in or about the amount for which the judgment was rendered; and Weddle swears positively that it was not intended to secure future advances, or balances, but was given as collateral security for his then indebtedness to Whiteford. And this is corroborated by the order filed on the 1st of September, 1857, whereby the parties stated, that on settlement of open accounts between them on that day they ascertained a balance of $1,466, to be due to Weddle, “ which is to be credited on the judgment for thirty-five hundred dollars, confessed by said James W. Weddle in favor of the said James Whiteford, for an antecedent indebtedness.” This paper was signed by both parties, and the judgment was released to the extent of $1,466, the amount then admitted to be found due to Weddle on settling accounts. If the judgment were really taken to secure future advances or balances, it would seem natural to suppose that the language of this order of the 1st of September, 1857, would have been different, and such as would have aptly characterized the judgment. It is true, Whiteford himself swears that the judgment was taken solely for the purpose of securing balances that might be ascertained to be due from time to time on account current. But his evidence, looking to his relation to these proceedings, cannot be allowed to outweigh all the other facts and circumstances of the case. Besides, he is excepted to as an incompetent witness, and Neidig being dead, and his administratrix a party contestant of the claim, we think the exception well taken, under the Act of 1864, ch. 109; and his testimony, or at least so much of it as was elicited on his own examination, must, therefore, be excluded. And upon the whole evidence, legally before us, we fail to discover any thing sufficient to overcome the prima facie character of the judgment, the positive testimony of Weddle, and the other corroborative circumstances of the case. We conclude, therefore, that the judgment was intended only as collateral security for the indebtedness of Weddle to Whiteford at the time of its rendition.

2. Supposing the judgment to be so intended, and not to secure future advances, or balances on account, the question *then is, has it been discharged. The amount for which it was rendered as security, was kept in the account, and there has been no reference made in ascertaining the balances to the judgment whatever. The account was a continuous one, commencing before the date of the judgment, and terminating in May, 1857. Large and numerous credits were entered in the account between the parties since the date of the judgment, amounting to many times more than sufficient to pay and extinguish the balance due on the account at the time the judgment was rendered. What is the effect of these credits, in the account, on the judgment? The judgment was taken as collateral security only, and it follows, if the principal debt for which it was intended as security be paid, the judgment is functus officio, and is no longer capable of being enforced. This is the legal consequence. The question, therefore, resolves itself into one of application of payments. And in reference to the principle governing such a case as this, the law is clear. The general rule is, that the debtor has the right, if he so elects, to make the application of payments in the first instance, and if he omits so to do, the creditor may make the appropriation; but if neither make any appropriation, the law appropriates the payment to the earliest and, generally, the most onerous debt. Mills v. Fowkes, 5 Bing. N. C. 455; Gwinn v. Whitaker, 1 H. & J. 754; Dorsey v. Gassaway, 2 H. & J. 402. Here there has been no appropriation of payments by either debtor or creditor; but the account between them; kept alone by the creditor, has been treated as one entire or continuous account; and, in such case, 'payment is deemed, in legal contemplation, to be made in discharge of the earlier items of the account, so that the-creditor cannot select any particular items and appropriate the payment to their discharge, to the exclusion of the earlier items in the account. This was decided in Bodenham v. Purchas, 2 B. & Ald. 39; and because that case is so analogous to this in many of its facts, it is deemed not inappropriate to state it somewhat at large. *There a bond was given to several persons constituting a banking firm, conditioned for the re-payment of the balance of an account, and of such further sums as the bankers might advance to the obligor. One of the partners died, and a new partner was taken into the firm, and at that time a considerable balance was due from the obligor to the firm. Advances were afterwards made by the bankers, and payments made to them on account by the obligor. The latter was credited by the new firm with the several payments, and charged with the original debt and subsequent advances as constituting items in one entire account, and the balance due at the time of the partner’s death was considerably reduced, and that reduced balance, by order of the obligor, was transferred by the bankers to the account of another customer, who, with his assent, was charged with the then debt of the obligor. The person so charged having become insolvent, the surviving partners of the original firm brought their action upon the bond; and it was held that as they had not originally treated it as a distinct account, but had blended it in the general account with other transactions, they were not at liberty so to treat it at a subsequent period; and that having received, in different payments, a sum more than sufficient to discharge the debt due upon the bond at the time of the death of the deceased partner, that the bond was to be considered as paid. Bailey, J., in delivering his opinion, said: “ The parties balance their accounts every three months, and in the next quarterly account, they bring forward the balance of £1,420, and make it an item in one entire account, subsisting between these parties. The account goes on from 1810 till 1813; and the then balance is treated as one entire balance of one entire account, as the result, of all the transactions between the parties in the intermediate time. The plaintiffs were not bound to have so treated it at Havard’s death, but having done so, there is not any authority for saying that they are now at liberty to apply the several payments in reduction of the debt incurred by the subsequent advances, *to the exclusion of the bond debt. It certainly seems most consistent with reason, that where payments are made upon one entire account, that such payments should be considered as payments in discharge of the earlier items.” And Abbott, J., in delivering his opinion, refers to Clayton’s Case, x Merivale, 572, which is a leading case upon the subject, and quotes the language of Sir William Grant, as decisive of the question before him. The passage quoted from the opinion of Sir William Grant, was that in which he said: “ In such a case,” (that is a running account, )“ there is no room for any other appropriation than that which arises from the order in which the receipts and payments take place, and are carried into the account. Presumably, it is the sum first paid in that is first drawn out. It is the first item on the debit side of the account which is discharged or reduced by the first item on the credit side. The appropriation is made by the very act of setting the two items against each other. Upon that principle, all accounts current are settled, and particularly cash accounts.” In this case, as in the case just stated, the balances ascertained at each periodical rest, wrere charged in the subsequent parts of the continuous account, and, at the close, the balance is then ascertained as an entire result of all the transactions between the parties in the intermediate time between the commencement and close of their dealings.

The same principle of appropriation of payments was adopted by the Supreme Court of the United States, in U. S. v. Kirkpatrick, 9 Wheat. 720, where that court said: “ In cases like the present, of long and running accounts, where debits and credits are perpetually occurring, and no balances are otherwise adjusted than for the mere purpose of making rests, we are of opinion that payments ought to be applied to extinguish the debt according to the priority of time; so that the credits are to be deemed payments pro tanto of the debts antecedently due.” And the same principle was re-asserted, by the same court, in Jones v. U. S. 7 How. 681, after an examination of all the authorities.

*We are of opinion, therefore, that the judgment, having been given as collateral security for such balance as was due to Whiteford on account, at the time it was confessed, is discharged by the subsequent payments on account ; it appearing that such payments or credits greatly exceed in amount the balance for which the judgment was given.

The order appealed from will be reversed and the cause remanded, that further proceedings may be had in the premises.

Order reversed and cause remanded.  