Title: Gayer and Gayer

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  February 20, 1998

IN THE SUPREME COURT OF THE STATE OF OREGON

In the Matter of the Marriage of
EARLA GAYLE GAYER,

	Petitioner,

	and

SCOTT H. GAYER,

	Respondent.

___________________________________________________________

STATE OF OREGON ex rel
EARLA GAYLE GAYER,

	Petitioner on Review,

	v.

SCOTT H. GAYER,

	Respondent on Review.

(CC 15686; CA A90051; SC S43884)

	On review from the Court of Appeals.*

	Argued and submitted April 30, 1997.

	Russell Lipetzky, of Saucy & Lipetsky, P.C., Salem, argued
the cause and filed the petition for petitioner on review.

	Karen A. Feil, of Law Office of James M. Habberstad, The
Dalles, argued the cause for respondent.  James M. Habberstad
filed the brief for respondent on review.

	Hardy Myers, Attorney General, Virginia L. Linder, Solicitor
General, and Jas. Adams, Assistant Attorney General, Salem, filed
a brief on behalf of amicus curiae State of Oregon. 

	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Graber, Durham, and Kulongoski, Justices.**

	VAN HOOMISSEN, J.

	The decision of the Court of Appeals is affirmed in part and
reversed in part.  The judgment of the circuit court is affirmed
in part and reversed in part, and the case is remanded to the
circuit court for further proceedings.

	 *Appeal from Wasco County Circuit Court,

	  James C. Donnell, Circuit Judge pro tempore.

	  144 Or App 328, 927 P2d 158 (1996).

	**Fadeley, J., retired January 31, 1998, and did not
participate in this decision.

		VAN HOOMISSEN, J.

		The issues in this domestic relations case are whether
a support obligor, who has a support arrearage, is entitled to
direct how support payments will be applied and, if so, whether
the obligor (father) in this case directed how his support
payments would be applied.  The trial court ruled that father
could and did direct how some of his support payments would be
applied.  The Court of Appeals affirmed without opinion.  In the
Matter of the Marriage of Gayer and Gayer, 144 Or App 328, 927
P2d 158 (1996).  For the reasons that follow, we affirm in part
and reverse in part the decision of the Court of Appeals.

		The parties divorced in 1981.  Petitioner (mother) was
awarded custody of their two children.  The dissolution judgment
required father to pay $300 monthly per child for child support
and $500 monthly for spousal support for three years.  Within a 
month after the dissolution, father began failing to meet his
monthly support obligations. 

		In 1983, the court ordered father's employer to
withhold $400 monthly from his wages commencing July 1, 1983,
"for the support of" the parties' children.  The trial court's
order indicates that the $400 per month wage assignment is for
"continuing current child support."  In 1985, the court modified
the dissolution judgment, requiring father to pay $362.50 monthly
child support, retroactive to January 1, 1985.  Thereafter,
father's monthly payments exceeded the principal amount due each
month for current child support.

		In 1991, mother contacted the Wasco County District
Attorney seeking information about renewing the 1981 support
judgment.(1)  However, based on the District Attorney's advice,
mother did not try to renew the judgment at that time.  

		In March 1992, father began paying $575 monthly.  In
October 1993, father's current wife sent a letter to the Wasco
County District Attorney stating:

	"[Father and I] have continued to send [mother] $575.00
with $362.50 being ordered for the two children and the
rest being applied to spousal support arrears.  We
intend to continue to send this amount until the
arrears are paid in full."(2)

		In 1994, mother obtained a renewal of the judgments
against father for unsatisfied child support arrearages.  Both
parties thereafter sought to amend the renewed judgments.  Father
objected that he had not received credit for all the payments
that he had made. 

		At a hearing in 1995, another dispute arose over how
much interest father owed on the spousal and child support
arrearages.  As of the date of the 1995 hearing, father had paid
in excess of the total principal amounts due mother for spousal
and child support.  The focus of the dispute, thus, was on the
amount of interest owed for spousal and child support
arrearages.(3)  Father did not dispute that mother was entitled to
receive interest on the arrearages.  He argued, however, that
some of the interest that he owed was no longer recoverable
because the earliest judgments had expired. 

		After the 1995 hearing, the trial court first ruled
that father could direct how to apply his support payments.  The
court found: 

	"[N]either party exercised their authority to direct
the application of a payment prior to the Court orders
of June, 1983.  Payments received prior to [June 1983]
should be credited by operation of law to the earliest
matured debt.  These debts are judgments which consist
of both principal and interest.  The common law rule
requires that the interest on the oldest judgment be
paid first and then the principal.

		"The most reasonable interpretation of the June,
1983 orders is that beginning July, 1983 the $400 per
month should be credited against the current monthly
child support.

		"Beginning January, 1985 $362.50 should be
credited against the current obligation and any surplus
should be credited to unpaid arrearages of child
support first to interest then to principal on the
oldest obligation first.

		"Beginning in June, 1985 any amounts paid in
excess of $400.00 should be applied to the oldest child
or spousal obligation, first to interest then to
principal.[(4)]

		"This procedure to be followed until March of
1992, when [father] directed that when he pays $575.00
per month it is his intention that $362.50 should be
applied to current child support and $212.50 to spousal
support, again, first to interest, then to principal on
the oldest obligation."(5)  (Citations omitted.)

		Mother appealed, and the Court of Appeals affirmed
without opinion.  We allowed mother's petition for review.

		Mother contends that the trial court erred in ruling
that, when a support arrearage exists, the support obligor has a
right to direct how to apply his payments and that the obligee's
consent is not required.  She argues that, in the absence of an
express agreement between the parties, all payments for spousal
and child support, unlike commercial debts, apply to the
principal and accrued interest on the earliest accruing support
obligation.

		Father argues that a child support payment applies
first to the current month's obligation, then to the earliest
matured debt owed the obligor.  He posits that, if child support
is not applied to the current month's obligation, an obligor in
arrears always will be in contempt as to that obligation.  The
question presented in this context is one of first impression for
this court.(6)

		ORS 107.135(6) provides in part:

		"The [dissolution judgment] is a final judgment as
to any installment or payment of money which has
accrued up to the time either party makes a motion to
set aside, alter or modify the decree, and the court
does not have the power to set aside, alter or modify
such decree, or any portion thereof, which provides for
any payment of money, either for minor children or the
support of a party, which has accrued prior to the
filing of such motion."

See also Hansen v. Hansen, 272 Or 686, 688, 538 P2d 935 (1975)
("[t]he law is well established that each installment which comes
due and remains unpaid under a divorce decree providing for
alimony or child support constitutes a separate and final
judgment") (emphasis added; citations and footnotes omitted). 

		The common law rule respecting the application of 
payments is settled in this state.  In Fatland v. Wentworth &
Irwin, 149 Or 277, 280-81, 40 P2d 68 (1935), a commercial
contract case, this court explained:

		"It is a rule of general application upon which
this as well as all other courts are agreed: 'That the
party paying may direct to what the application is to
be made.  If he waives his right, the party receiving
may select the object of appropriation.  If both are
silent, the law must decide.'

		"And so it has been settled in this state that:
'When a debtor owes a creditor more than one obligation
he may, at or before making a payment, direct upon
which debt the credit should be applied, but, if he
give no instructions in respect to the matter, the
creditor may apply the payment on account of any demand
he may have against him.'  It is also well settled in
this state that, in the absence of directions from the
debtor, the creditor has the right to apply a payment
upon the secured or unsecured account, as he sees
fit[.]  And where there is an account, the creditor can
apply the payment to the unsecured portion of the
account[.]  It also was held that where neither party
had made the application, the court may make it and, it
doing so, will apply the payment to the first unsecured
debt[.]"  (Citations omitted.)

		In Fowler v. Courtemanche et al., 202 Or 413, 426, 274
P2d 258 (1954), another commercial contract case, this court
recognized that, in the absence of a statute or an agreement by
the parties to the contrary, the common law rule regarding the
application of payments made by a debtor to a creditor is as
follows:  "(1) A debtor who makes payment to his creditor having
two or more claims may designate the claim to which the payment
is to be applied; (2) if the debtor fails to do so, the creditor
may make the application;[(7)] [and] (3) if neither of them makes
the application, then it is the duty of the court to make it." 
If the court can determine with reasonable certainty the
intention of the parties, either express or implied, the court
shall apply payment accordingly.  See id. at 443.  Generally,
when neither the debtor nor the creditor directs application of
the payment and the court cannot infer the intention of the
parties, payment is applied to the earliest matured debt.  Id. at
444-45.

		A debtor who chooses to direct payment to a particular
debt must manifest to the creditor an intent to do so "at or
before the time of payment."  Johnson Lbr. Corp. v. Leonard et
al., 192 Or 639, 668-69, 236 P2d 926 (1951) (quoting Restatement
of the Law, Contracts, § 387); Block v. Love, 136 Or 685, 692, 1
P2d 588 (1931) (same) (citations omitted).  The debtor's intent
need not be manifested in express words, but may be deduced from
acts and other circumstances.  Johnson, 192 Or at 670 (citing
Restatement of Contracts, § 387, comment e).  Unless the debtor
is under a duty to apply the payments in a particular way, the
consent of the creditor is not required.  Id. at 668 (citing
Corbin on Contracts, § 1231 ("'a debtor can tender a payment on
his own terms and the creditor must receive it on those terms or
not at all'")); see also Anderson v. Griffith, 51 Or 116, 120, 93
P 934 (1908) (creditor has duty to obey debtor's command to apply
payments in a particular way).  As a general proposition of
common law, the money belongs to an obligor until he or she makes
each payment to the obligee.  See Wolf v. Aero Factors Corp., 126
F Supp 872, 880 (SDNY), aff'd 221 F2d 291 (2d Cir 1955) ("a
debtor, on paying money to his creditor, may direct that the
payment be applied to a particular debt, because the money is his
and he controls its application"); see also Schreiber v.
Armstrong, 70 NM 419, 374 P2d 297, 299 (1962) (a debtor has power
to determine the application of any money tendered to the
creditor, and has the right to say to which of several demands
the payment shall be applied).  

		Mother notes that Fatland and Fowler were commercial
cases and that, in Fowler, this court relied on the Restatement
of Contracts which, she argues, should not be a controlling
source of authority in a domestic relations case.  Mother further
argues that the parties in a support case are not dealing at arms
length, there is no contract involved, the support obligee often
is a financially disadvantaged party and, by definition, the
support obligor has failed to pay on time and in full.  However,
mother cites no authority holding that the foregoing distinctions
dictate that the usual common law rule should not apply in a
domestic relations context, and we have found none.  We are not
persuaded that the common law rule loses its validity merely
because it is applied in a domestic relations context.  The fact
that the parties once were married does not control the manner in
which support payments will be applied.  A support obligee's
potential financial disadvantage does not affect this analysis;
the obligee in a commercial context also may be at a financial
disadvantage to the obligor.  Nor are we persuaded by mother's
argument that the trial court's ruling will lead to
insurmountable accounting problems.  Although the accounting in
this case may be complex, because of the extent of the
obligation, the method prescribed by the trial court is
straightforward. 

		The State of Oregon, appearing as amicus curiae,
advocates a rule that all child support payments are to be
applied first to the current monthly child support obligation and
only then to accrued child support arrearages, oldest arrearage
first.(8)  Amicus points out that, under both federal and state
regulations, when an obligee is receiving or has received
assistance from the state, amounts collected by the state for
child support are allocated first to the current monthly
obligation.(9)  The state argues for "consistency" between those
regulations and the common law.  

		Although the administrative regulations resolve
questions of application of payments, they primarily serve to
establish the proper distribution of child support.  When the
recipient of child support is receiving public assistance, the
state has a direct interest in ensuring that monies received from
the obligor are distributed according to the priorities set forth
in OAR 461-195-0244.  However, when, as here, the obligee is not
receiving, and has not received, public assistance, the state
does not have a direct interest in how such payments are applied. 
We do not find that the text, the context, or the purpose of OAR
461-195-0244 provides a principled basis for departing from the
traditional common law rule with respect to debts arising from
support obligations.

		Accordingly, we hold that the trial court did not err
in ruling that father could direct the application of his monthly
support payments.

		Mother next contends that the trial court erred in
concluding that father had directed the application of his
support payments.  We disagree.  A debtor's intent need not be
manifested in express words, buy may be deduced from acts and
other circumstances.  Johnson, 192 Or at 670.  There is evidence
in the record from which the trial court deduced that father
directed that some of his payments should be applied in a
particular manner.  

		We disagree, however, with the trial court's ruling
that that application of father's payments dates back to March
1992, when he began paying $575 monthly.  An obligor may not
direct the application of past payments, but may direct payment
only "at or before" making a payment.  Block, 136 Or at 692. 
Thus, the October 1993 letter to the Wasco County District
Attorney applies only to payments made on or after that date.  

		That leaves only the issue of interest computation. 
Father argues that the parties intended that none of the excess
payments would be applied to accrued interest.  The trial court
ruled against father on that question, and we find no legal basis 
in the record for overturning the trial court's ruling.  The
trial court correctly applied the payments in excess of the
monthly obligations first to accrued interest on the oldest
judgments, and then to principal.  See First National Bank v.
Courtright, 82 Or 490, 498-99, 158 P 277, 161 P 966 (1916)
(payments are applied first to interest and then to principal);
see also Devux Corp. v. General Motors Corp., 749 F2d 1020, 1025
(3d Cir 1984) (same).  

		In summary, with the exception of the trial court's
ruling that the application of father's payments dates back to
March 1992, with which we disagree, we find no error.  Because
the trial court did not establish a specific amount of accrued
support arrearage, including interest, and because we reverse in
part, we remand the case to that court for further proceedings.

		The decision of the Court of Appeals is affirmed in
part and reversed in part.  The judgment of the circuit court is
affirmed in part and reversed in part, and the case is remanded
to the circuit court for further proceedings.

1. 	ORS 18.360(1) provides in part:

		"Whenever, after the entry of a judgment, a period
of 10 years elapses, the judgment and any docketed or
recorded lien thereof shall expire.  However, before
the expiration of 10 years the circuit or district
court for the county in which the judgment originally
was entered, on motion, may renew the judgment and
cause a notation in the register and the judgment
docket indicating the renewal of the judgment to be
made.  The renewed judgment and any lien thereof expire
10 years after entry of the renewed judgment."

The 1993 Oregon legislature amended the law with respect to child
support payments.  Or Laws 1993, ch 763, §§ 2,4 (codified as ORS
25.700).  ORS 25.700 now provides in part:

		"(1) Notwithstanding ORS 18.360 and 107.126, any
judgment that results from an unpaid child support
obligation under a child support judgment entered after
January 1, 1994, and any docketed or recorded lien
thereof, expires 25 years after entry of the child
support judgment.  The judgment and any docketed or
recorded lien thereof may not be renewed.

		"(2) A judgment that results from an unpaid child
support obligation under a child support judgment
entered before January 1, 1994, and any docketed or
recorded lien thereof, may be renewed for a 10-year
period as provided in ORS 18.360.  The court may enter
an ex parte order renewing the judgment.  This
subsection does not authorize the renewal of a judgment
that has expired before January 1, 1994."

2. 	Mother does not argue that the letter to the Wasco
County District Attorney was not notice to her of father's
purported direction as to how to apply his support payments.  We
discuss elsewhere whether that letter was an effective direction.

3. 	There is no dispute at this time as to what amounts of
support father paid in any given month. 

4. 	Beginning in January 1985, father's child support
obligation had been reduced to $362.50 monthly for the two
children.  We assume that any amount that he paid in excess of
that amount would be applied to the oldest child support
arrearages, interest first.

5. 	The trial court's amended judgment, however, does not
establish a specific amount of support arrearages.

6. 	Two Court of Appeals cases cited by the parties are
distinguishable.  In Switzer v. Switzer, 50 Or App 411, 416, 623
P2d 1142 (1981), the court held that the parties mutually
intended to apply husband's payments to specific obligations.  In
Keene v. Keene, 23 Or App 688, 691, 543 P2d 693 (1975), the
parties stipulated as to how husband's payments would be credited
to his account.  In this case, there was no similar agreement
between the parties.

7. 	Mother never directed that father's payments be applied
in a particular manner.

8. 	Amicus is involved in child support through a number of
avenues and, thus, has an interest in clarifying the common law,
statutes, and administrative rules that bear on the enforcement

9. 	The Oregon Department of Human Resources has been
granted statutory authority to promulgate rules for the operation
of child support programs if required by federal law or
regulation relating to child support programs.  ORS 409.020(2). 
The Oregon Administrative Rules track the federal requirement
that child support payments be applied first to current monthly
child support obligations and then, as to any excess, to
arrearages.  45 CFR § 302.51.