This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 491.— M & Co. are in the habit of discounting with their bankers sight drafts against shipments of produce to the United States. One of the drafts for $75, was returned dishonoured and charged to the account of M & Co., increasing their overdraft to $150. Some time afterwards the firm sent the bank for discount their note for $100, endorsed by another party, and the proceeds of this note were remitted by the bank to M & Co. When the note fell due the firm sent the bank $100 to take it up, but the bank credited the amount instead to the overdrawn account and protested the note. Would the bank have recourse to the endorser ?
Answer.—Upon the statement that the $100 was sent the bank to pay the note, the bank would have no right to apply it upon the other debt. The debtor has the right, when paying money, to appropriate it to any indebtedness which he may specify, and the creditor cannot change the appropriation without the debtor's consent. Therefore the note of $100 must be regarded as paid and the endorser discharged.
On the general subject of appropriation of payments the case In re Exchange Bank; The Queen v. Ogilvy, will be found instructive. (Journal, Vol. 5, p. 258.)