This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
In the absence of facts differentiating debts, it has been held that the law will apply payments pro rata.1 If no practical difference exists in legal effect between an appropriation made without legal authority and one made in accordance with law, the law will not interfere to change the appropriation as made. Thus if two notes are secured by a mortgage, application by the creditor of a payment to the last to fall due instead of to the first is not prejudicial to the debtor, where, even if such payment had been applied to the first note, a balance would be due thereon, which, by the terms of the mortgage would make the second note due and payable at the option of the mortgagee.2 If the debtor owes two notes of equal amounts to the same payee, secured in the same way and indorsed to two different holders, and he directs a payment due to him from the indorsei to be applied on one of such notes, the application of such pay ment to the other note is in no way prejudicial to the debtor and is binding.3
2 United States v. January, 7 Cranch (U. S.) 572.
3 Pratt's Appeal, 41 Conn. 191; Helm v. Commonwealth, 79 Ky. 67.
4 Colerain v. Bell, 9 Met. (Mass.) 499; Merchants' Ins. Co. v. Herber, 88 Minn. 420; 71 N. W. 624; (criticising, Pine County v. Willard, 39 Minn. 125; 12 Am. St. Rep. 622; 1 L. R. A. 118; 39 N. W. 71).
5 Cross!ey v. Stanley, 112 la 24;
84 Am. St. Rep. 321; 83 N. W. 806.
6 Memphis City Bank v. Smith. 102 Tenn. 467; 52 S. W. 149.
7 Green Bay Lumber Co. v. Thomas, 106 la. 420; 76 N. W. 749.
8 McCown v. Westbury, 52 S. C. 421; 29 S. E. 663; rehearing denied, 30 S. E. 142.
1 Turner v. Hill, 56 N. J. Eq. 293; 39 Atl. 137.