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.
The civil-law rule requires the law to apply payments for the benefit of the debtor in accordance with his presumed intention.1 This rule naturally prevails in jurisdictions whose law is based on the civil law;2 but it has been adapted in some of the states whose law is common-law; and where this rule is followed, the law applies a payment to the debt which is most burdensome to the debtor.3 Under this rule, payment will be applied to a. secured debt,4 as one secured by mortgage,5 or chattel mortgage.6 Payment will be applied to a debt which bears interest in preference to one which does not,7 and to one bearing a higher rate of interest in preference to one bearing a lower rate.8 If a trustee who is individually indebted to a beneficiary makes payments to him in excess of the income arising from the trust fund, it will be presumed that the excess is to be applied to the individual debts.9
13 Parker v. Dantzler Foundry & Machine Works, 118 Miss. 126, L. R. A. 1918F, 795, 79 So. 82.
1 "The doctrine of the civil law upon this subject has been adopted in this state." McLaughlin v. Green, 48 Miss. 175, 205; Poindexter v. La Roche, 15 Miss. (7 S. & M.) 699; Hamer v. Kirk-wood, 25 Miss. 95; Parker v. Dantzler Foundry & Machine Works, 118 Miss. 126, L. R. A. 1918F, 795, 79 So. 82.
2 Sanz v. Lavin, 6 Philippine 299; Slaughter v. Milling, 15 La. Ann. 526.
3 Kentucky. Scott v. Fisher, 20 Ky. (4 T. B. Mon.) 387.
Maryland. Clark v. Boarman, 89 Md. 428, 43 Atl. 926.
Mississippi. Parker v. Dantzler Foundry & Machine Works, 118 Miss. 126, L. R. A. 1918F, 795, 79 So 82.
Pennsylvania. Harker v. Conrad, 12 S. & R. (Pa.) 301, 14 Am. Dec. 691.
Vermont. Roakes v. Bailey, 55 Vt. 642.
Texas. Stanley v. Westrop, 16 Tex. 200.
4 Louisiana. Gillard v. Huval, 22 La. Ann. 426.
Maryland. Clark v. Boarman, 89 Md. 428, 43 Atl 926.
Mississippi Windsor v. Kennedy, 62 Miss. 164.
Tennessee. Bussey v. Gant, 29 Tenn. (10 Humph ) 238; Blackmore v. Gran-bery, 98 Tenn. 277, 39 S. W. 229.
Vermont. Robinson v. Doolittle, 12 Vt. 246.
5 Frazier v. Lanahan, 71 Md. 131, 17 Am. St. Rep. 516; Neal v. Allison, 50 Miss. 175. In the language of the Louisiana courts, payment will be imputed to the debt-bearing mortgage. New Orleans Ins. Co. v. Tio, 15 La. Ann. 174 [citing, Forstall v. Blanchard, 12 La. 61; Dunlap v. Tarkington, 5 La. Ann. 569.
6 Windsor v. Kennedy, 52 Miss. 164. 7 Scott v. Fisher, 20 Ky. (4 T. B.
Mon.) 387; Bussey v. Gant, 29 Tenn. (10 Humph ) 238.
8 Massachusetts v. Western Union Telegraph Co, 141 U. S. 40, 35 L. ed. 628; Mangarity v. Shipman, 82 Va 784.
9 Calvert v. Carter, 18 Md. 73.
If A orders goods from a corporation, intending to use a claim against the corporation as a set-off against the price of such goods, not knowing that a receiver has been appointed for the property of such corporation, and if A, after knowledge of the appointment of such receiver, orders other goods, a general payment made by A to the receiver will be applied upon the indebtedness due from A for goods purchased after knowledge of the receivership, and not upon the earlier debt, since A did not intend to pay such debt except by use of such set-off.10
Even where payments arc to be applied in the manner most beneficial to the debtor, payments must be applied to interest first.11