
    
      Smith v. Loyd.
    January, 1841,
    Richmond.
    [37 Am. Dec. 621.]
    (Absent Tucker, P., and Stanaed, J.)
    Payments — Application by Court — By What Governed. —Where one is indebted to another for several debts, and the debtor mates payments, without directing to which of the debts they shall be applied, and the creditor mates no particular application of the payments when received; there is no settled rule that the payments shall be applied either according to the presumed intention of the creditor, or according to the presumed intention of the debtor, or that the payments shall be applied in the manner most beneficial to the one, or the other; but it devolves on the court to apply the payments according to the justice of the particular case, with a view to all its circumstances.
    Same-Same— Same. — In general, where several debts are due, and payments are made without specific application, by either debtor or creditor at the time, the payments ought to be applied to extinguish the debts according to priority of time.
    Loyd, a merchant of Alexandria, having many debts due to him from persons residing in the counties of Loudoun and Fau-quier, employed Smith, an attorney at law, to collect the same for him. Smith proceeded to collect, and was many years engaged in collecting, the debts; and he made remittances to Loyd, from time to time, on account of his collections. But when the parties came to settle their accounts, irreconcileable differences arose between them. Therefore, Loyd brought a suit against Smith in the superior court of chancery of Winchester, to have the accounts settled before a commissioner under the direction of the court; and Smith readily submitting to account, the court referred the accounts between the parties to a commissioner.
    Many and various points of dispute arose before the commissioner. Some of them were mere questions of fact; such as the justice of. some of the debits to Smith, particularly, the charge to him of a debt, due from one Respass; the rate of commission on the moneys collected by Smith, which should be allowed him as compensation for the service; and the amounts he should be charged with, on account of interest which he had collected, or ought to have collected, along with the principal debts, from the debtors. Others related to the application of the remittances made by Smith to Loyd, to, the payment of the debts contracted by the attorney to the client, from time to time, by, reason of his collections, and the manner of stating the interest account: and these only need be stated.
    The commissioner stated in his report, that “where Smith had exercised his right to direct the application of the moneys paid by him, the commissioner so applied them; but where no application had been made by Smith, the commissioner had applied the payment to the discharge of the debts of longest standing.” But in the account actually stated and reported, it did not appear that he had carried out this principle ; or rather, it did not appear, how he had applied it to the accounts. In numerous instances (it seemed, indeed, in all) he charged Smith, not with the amount of his collections composed of principal and interest, but with the original debts he had undertaken to collect, and with interest upon them, computed to a stated period. In some instances, having charged Smith with the debts, he credited him with payments made on account of them at the dates when made; stating the debts and interest, and applying the payments first to the interest and then to the principal, as in the ordinary case of debtor and creditor; and then carrying the balances of principal to Smith’s debit, and computing inter'est on them-to the stated period. In this way, he ascertained an aggregate balance of principal, and an aggregate of interest, due, at the stated period, from Smith to Loyd; and thenceforth, he stated the account between the parties, as in the ordinary case of debtor and creditor, applying Smith’s payments at the dates when made, first to the extinguishment of interest, and the excess to the principal, and charging Smith with interest on the balance of principal to the close of the account
    
    Smith filed many exceptions to the report, some to the details, and some to the principles of the account; in particular, “he excepted to the mode of making up the entire account, by which an aggregate • sum was made up against him, by the addition of several small debts through a course of years, bearing interest throughout that time, and by which an application was made to extinguish the interest on the aggregate sum, instead of making the payments extinguish those items of the aggregate sum, which the payments when made would have extinguished.”
    The cause coming on for hearing before chancellor Browne, upon the report and the exceptions, he overruled the particular exception above quoted, without giving any reason for overruling it; but sustaining some of the exceptions to the details of the amount, he recommitted it to the commissioner to be reformed. And the account being reformed accordingly, shewed a balance due from Smith to Loyd, of 1135 dollars, with interest on 772 dollars, part thereof, being principal, from the 29th August 1829.
    Smith filed numerous exceptions to the reformed report. And the cause was finally heard before chancellor Tucker, upon the reformed report and the exceptions thereto; whereupon, he overruled the exceptions, on the Aground that they either related to matters contained in the original report and not then excepted to, or impeached the reformed report in particulars wherein it conformed with the opinion of chancellor Browne, which he did not think himself at liberty to revise; and he decreed, that Smith should pay Loyd, the sum of 1135 dollars with interest on 772 dollars part thereof &c.
    Smith then presented a petition for a rehearing, chiefly on the ground of injustice done him in the manner of applying his payments, and consequently in stating the interest account. Upon which chancellor Tucker said — “I disagree indeed with chancellor Browne as to the mode of stating the account. The error seems to me to be this: Loyd puts into Smith’s hands to collect, the bonds of A. B. C. and D. due 1st January 1820. In 1825, Smith receives 120 dollars principal and interest due from A. and immediately remits it. I think it should be applied to A.’s debt; in which case principal as well as interest is paid. But the commissioner, in conformity with the opinion of chancellor Browne, applies it to the interest accrued on all the bonds, say 120 dollars, so that there are only 10 dollars left to sink the principal. Now, as the commissioner charges Smith with all the debts as soon as due, and interest from the time they were due, this operates to keep alive principal sums which should be extinguished.” But as there was a difference of opinion between him and chancellor Browne, rather than an error in the report of the commissioner, who had conformed (as he ought to have done) with chancellor Browne’s opinion, he thought it best to deny the rehearing, and to put Smith at once to his appeal.
    Upon this, Smith prayed an appeal from the decree; which was allowed.
    R. C. Stanard, for the appellant.
    R. C. Nicholas and Robinson, for the ap-pellee.
    
      
      *The reporter lias stated the general scheme of the account as he understands it, and as Chancellor Tucker and this court seem to have understood it. But he is by no means sure, that it has been correctly understood. It is, indeed, difficult to ascertain any distinct principle on which the commissioner proceeded in stating the account. — Note in Original Edition.
    
    
      
      The president sat in the cause in the court below, and Stanard, J., had been counsel in it.
    
    
      
      Payments — Application.—On this question, the principal case is cited in footnote to Chapman v. Com., 25 Gratt. 721; Howard v. McCall, 21 Gratt. 209, and foot-note-, Dingle v. Cook, 32 Gratt. 272; Coles v. Withers, 33 Gratt. 204; Pope v. Transparent Ice Co., 91 Va. 87, 20 S. E. Rep. 940; Norris v. Beaty, 6 W. Va. 482, 484; Merchants’ & Mechanics’ Bank v. Evans, 9 W. Va. 389; Genin v. Ingersoll, 11 W. Va. 559; Buster v. Holland, 27 W. Va. 531.
    
   *ALLEN, J.,

after disposing of several controverted points touching matters of detail, said — As to the application of payments, where no specific application was made by the parties, and where it does not appear upon what claim the money was received, generally speaking, the debtor has the right to make the application. If he fails to do so, the creditor, having different debts, may make the application as he chooses. These are familiar and well settled rules. But where neither party makes the application, and the question is referred to the court, upon what principle is the adjustment to be made?

According to the civil law, the presumable intention of the debtor was resorted to, as the rule to determine the application : and in the absence of any express declaration by either, the enquiry was, what application would be most beneficial to the debtor. In England, the question would seem to be still unsettled. The leading cases are reviewed by the master of the rolls in Clayton’s case, 1 Mer. 605, and he remarked, “that the cases set up two conflicting rules, the presumed intention of the debtor, which, in some instances at least, is to govern, and the ex post facto election of the creditor, which in other instances is to prevail;” and concluded that he would be much embarrassed were the point necessarily to be decided in that case. The question has arisen in several cases in the supreme court of the U. States. In Field v. Holland, 6 Crunch 27, that court said, that “if the application is made by neither party, it becomes the duty of the court, and in its exercise a sound discretion is to be exercised. It cannot be conceded that this application is to be made in a manner most advantageous to the debtor. If neither party avails himself of his power, and it devolves on the court, it would seem reasonable, that an equitable application should be made. And it being equitable that the whole debt should be paid, it cannot be inequitable to extinguish *first those debts, for which the security is most precarious.” And in accordance with those principles, the application was made in a manner most beneficial to the creditor. In the U. States v. Kirkpatrick, 9 Wheat. 737, the court said, “if both parties omit, the law will apply the payments according to its own notions of justice:” And in that case, they were so applied as to operate beneficially to the sureties of the debtor and against the creditor. The same proposition is laid down by justice Story in IT. States v. Wardwell, 5 Mason 82. If neither party makes the application, the law will adjust it, by its, own notions of the equity and justice of the particular case. The point has not been decided (so far as I can discover) in Virginia. In the absence of any express authority, I incline to the opinion, that the position taken by the supreme court, is, upon the whole, the best. No general rule applicable to every case could be adopted and adhered to, without producing great hardship. Men keep their accounts loosely: scarcely any case occurs, which does not vary, in some material circumstances, from every other case. Justice to creditor, or debtor, would frequently require exceptions to any specific rule that might be adopted; and these exceptions would multiply with the ever varying dealings and transactions of individuals, until at length the rule itself, and the particular cases in which it could apply, would become exceptions. If the parties, having the power, fail to use it, they cannot complain that the law, not conforming itself to the presumed intentions of either, makes the application according to the justice of the particular case, in view of all the circumstances attending it.

How should the payments have been applied, so as to have done justice to the parties in the case before us? The mode adopted is most favourable to the creditor. A number of claims were added together, interest computed on the principal of each, and the credits applied, *first to liquidate this interest. In this instance, the rule adopted must operate injuriously to the debtor. For the debts so added together, appear, in most instances, not to have been collected when charged to the attorney. The debtors when they did make paj'ments to him, would, in most cases, paj’ a part, and in some, the whole, of the claims. Every such payment would therefore reduce the amount upon which the attorney could collect interest. If, when he- makes payment to his client, the credit is applied to the aggregate of interest accruing on many claims, the whole of the principal is an Interest-bearing fund against him, whilst he receives interest but upon a portion of the principal from the original debtors. By this operation, the client receives more than his attorney could collect. Even if the precise period at'which all the claims were collected could be ascertained with absolute certainty, it seems to me this mode of-application should not be adopted, where the relation of attorney and client exists; though as between ordinary debtor and creditor, it may be right to apply the credit first to the interest of the debt. In this'case, the attorney was not the original debtor; but the effect of the mode adopted in stating the account, is to substitute him as the debtor of his client in the place of the original debtors, and by a consolidation of the debts to improve the condition of the creditor. It is true, that when he receives it, he holds the money of his client in his hands. But he should not be subjected to the rule which applies between ordinary debtor and creditor, unless a disposition is manifested to appropriate the money" of the client to his own use.

The application made by the report conflicts with another rule established bjr the cases above cited; and that is, that in cases of "long standing accounts, where debits and credits are constantly occurring, and no balances are struck otherwise than for mere purposes of making rests, the payments ought to be applied to extinguish *the debts according to priority of time. In this case, no regular account was made out between the parties: but that does not affect the principle. The matter rested in account; there were debits on one side for claims collected, credits on the other for money paid. These claims on either side, must be brought into the account whenever it is adjusted. And this principle, recognized by all the cases, must govern the application of the payments. Por that, it is held,' is the legal result of carrying the credits in-o the general account. I think, therefore, that upon the justice of the case, as well as upon authority, the credits, in this irstance, should have been applied to the items charged, according to priority of time; and that the exception of the defendant to the mode of stating the account was well taken and should have been sustained.

Iam therefore of opinion, that the decree should be reversed. That the defendant’s exception to the charge against him for the debt of Eespass, should be sustained. That the cause be remanded, in order that the accounts may be recommitted with instructions to charge the defendant with the claims at the time the same were collected by him, taking the period up to which the defendant, in the account filed with his answer, has calculated interest upon them, as the period of collection, where the contrary is not shewn: if the account so filed by him omits any claim which he has collected, and there is no evidence of the time of payment, to charge it to the defendant, within a reasonable time for collection after it was placed in his hands; and if it does not appear when the money was paid, or the claim placed in his hands, then he should be charged with it within a reasonable time for collection after it became due. That the commissioner ascertain the amount of each claim, including principal and interest, when collected, or when chargeable to the defendant; and after deducting five per cent, for commission, calculate interest upon the *whole amount of the claim against the defendant, allowing in each case four months for the defendant to make remittances ; and that he apply the payments, where no specific application was made by the parties, and it does not appear upon what claim they were received by the defendant, to the items as they are charged in the account, in the order of time in which they stand charged, applying the credits, first to the extinguishment of the interest, and the residue to the principal of such item.

The other judges concurred. Decree reversed, and cause remanded &c.  