Where the money paid is trust money the general principles of trusts must be applied. The original beneficiary may insist on the trust against any one but a purchaser for value without notice; and the question resolves itself into this: Is the creditor such a purchaser? Clearly he cannot be if when he received the money he was aware of the trust on which it was held by the debtor. There can be no doubt that the money must be applied in payment of the claim in which the beneficiary was especially interested.51 If the creditor was not aware of the facts, the question is whether cancellation of an antecedent debt is such giving of value as to cut off equities. It is generally so held in the law of commercial paper;52 and the result do not allow the creditor to make such an application.55 So where a partnership and an individual partner are indebted to the same creditor it has been held that a payment of money belonging to the partnership made without direction for its appropriation must be applied to the firm debt, though it did not appear that the creditor knew the source of the money.56 Were it not for the fact that considerable time may elapse before the creditor discovers that the money was impressed with a trust, and that in the meantime his ability to collect one or more of his claims may have diminished, the reasoning supporting this result would be entirely convincing.
50 Colerain v. Bell, 9 Met. 499; Chapman v. Commonwealth, 25 Gratt. 721; Grafton v. Reed, 34 W. Va. 172, 12 S. E. 767.
51 Peterson v. Shain, v Calif. Unrep. 122; Anerican Express Co. v. Lesem, 39 HI. 312; Harding v. Tifft, 75 N. Y. 461, 465; Farr v. Weaver (W. Va.), 99 S. E.
395. See also Eorbly v. Springfield Inst, for Sav., 245 U. S. 330, 38 S. Ct. 88, 62 L. Ed. 326.
52 See supra, Sec.1146. The New York Court which has (until the question was settled by the Negotiable Instruments Law) declined to treat the transfer of commercial paper for an should a fortiori be the same where money is paid instead of negotiable paper transferred, if the debtor in terms agreed to an improper application. Where, however, no agreement is made between the debtor and creditor for a specific application of the payment, the only reason for allowing the creditor by his own application of the money to put himself in the position of a purchaser for value is that in reliance on his supposed right to make any application he sees fit he may have changed his position unfavorably in reference to the collection of his claims. This argument is also all that can be said in favor of treating a transfer of property or negotiable paper to secure an antecedent debt as a transfer for value; but the Negotiable Instrument Law, adopting the view previously prevailing in a majority of jurisdictions, has enacted that such a transfer is a transfer for value;53 and if the argument is sound for negotiable paper, it should more clearly be so for money. This view is supported by decisions which hold that even though the debtor received the money in question from a third person for the express purpose of paying a particular debt, the creditor may apply it to another, if he was ignorant of the trust.54
On the other hand, it may be argued that the right of a creditor to apply a payment as he pleases in the absence of directions from the debtor is a somewhat artificial rule of law devised to enable the courts to dispose of a difficulty arising where no directions is given; and that the rule should not be applied where it works injustice to third persons. It may even be supposed that a contractor by whom the money is directly paid intends to pay it, as he has agreed with the owner of a building to do, in discharge of a claim of a sub-contractor which is secured by a lien against the building. To allow the sub-contractor, if the contractor fails to express this intention, to apply the payment to another account and assert a lien against the building enables him not only to deprive the owner of the building of protection, but also to put the contractor in the position of a fraudulent and dishonest person; and some courts antecedent debt as a transfer for value has gone very far in treating the payment of money for such a debt as cutting off equities. See Harding v. Tifft, 75 N. Y. 461.
53 See supra, Sec. 1146.
54 Sheppard v. Steele, 43 N. Y. 52,60, 3 Am. Rep. 660; Harding v. Tifft, 75 N. Y. 461.