No. 80-55 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

GENERAL ELECTRIC SUPPLY COMPANY, 

Division of General Electric Co., 

A Corporation, 

Plaintiff and Respondent, 

MONTANA AUTOMOBILE ASSOCIATION, a 

corporation; BRUCE D. JAMISON, d/b/a 

JAMISON CONSTRUCTION, et al., 

Defendants and Appellants. 

Appeal from: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone. 

Honorable Charles Luedke, Judge presiding. 

Counsel of Record: 

For Appellants: 

Joseph P. Hennessey argued and Larry Grubbs, argued, 

Billings, Montana 

Harrison, Loendorf & Poston, Helena, Montana 

For Respondent: 

Fred Dugan argued, Billings, Montana 

Submitted: September 15, 1980 

Decided: SEP 9 0 19w 

Filed: - SRF 3 fl f$@ 

Clerk 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of the 

Court. 

The defendant Montana Automobile Association (MAA) appeal s 

from a judgment entered in District Court following a nonjury 

trial. The district judge found that the plaintiff was entitled 

to recover $2,956.80, plus costs and attorney fees in a lien 

foreclosure. 

Defendant MAA contracted with Jami son Construct ion 

(contractor) to erect a building on MAA's real property in 

Billings, Montana. During the fall of 1977, the now bankrupt 

subcontractor Clawson purchased electrical material s on open 

account from the plaintiff General Electric Supply Company (GE) 

for the MAA job. Clawson already owed GE a large sum of money 

for materials purchased during the summer of 1977 for other jobs, 

but the amount was not yet such as to alarm GE. But by December 

1977, GE became concerned about Clawson's now overdue accounts. 

GE contacted Clawson by phone to make arrangements with him to 

pay at least $37,749.69 on his account of over $100,000, or GE 

threatened to stop extending credit. On December 29, 1977, at 

the time that Clawson was paid for the MAA job by the contractor, 

Clawson made the payment of $37,749.69 on his GE account. GE 

applied this check to the past due accounts of $37,749.69, and 

did not apply it to the accounts reflecting material s purchased 

for the MAA job--none of which were past due at that time. 

Appellant contends that this application of funds was contrary to 

Clawson's instructions. 

In February 1978, GE filed a materialman's lien against 

MAA for failure to pay for the electrical supplies. Suit was 

later brought to enforce the lien, and judgment was entered in 

favor of GE. We affirm. 

The issues presented to this Court for purposes of appeal 

all relate to one central question: Did the District Court err 

in finding that a valid lien existed against MAA? 

Both parties to this action agree that if the materials 
used in the construction of the MAA building were supplied by GE 

but were not paid for that GE has a valid basis for a lien. But, 

appellants contend that GE was notified that Clawson's payment to 

GE was to be applied to the MAA account; therefore the MAA debt 

should be considered as having been paid. 60 Am Jur 2d Payment 

$5 81, 82; Monidah Trust v. Hruze (1922), 62 Mont. 444, 449, 

205 P. 232, 233-234. 

A creditor is bound by the instructions given to him by 

the debtor as to the application of a payment. Section 

28-1-1106, MCA, sets out the creditor's duties: 

"Application of performance when there are 

several obl igzions. Whenever a debtor under 

several obliqations to another does an act bv 

way of performance, in whole or in part, which 

is equally applicable to two or more of such 

obligations, such performance must be applied as 

follows: 

"(1) If, at the time of performance, the intention or desire of the debtor that such performance should be applied to the extinction of any 

particular obligation is manifested to the 

creditor, it must be so applied. 

"(2) If no such intention or desire is then 

manifested, the creditor, within a reasonable 

time after such performance, may apply it toward 

the extinction of any obligation performance of 

which was due to him from the debtor at the time 

of such performance . . ." 

In order to find that the creditor (GE) erred in applying 

Clawson's payment to the past due accounts, then, it was necessary 

for the District Court to find that Clawson "manifested" his 

"intention or desire" to GE that the $37,749.69 payment be 

applied to the MAA account. Clawson contends that GE knew or 

should have known how the check was to be applied. 

Based on the evidence presented at trial, the district 

judge found that materials valued at $2,956.80 were supplied to 

MAA, and that the notice to the creditor as to payment was not 

sufficient to deem the MAA account paid. These findings must be 

presumed to be correct and will not be set aside unless clearly 

erroneous. Rule 52(a), M.R.Civ.P. A review of the evidence 
shows some conflict, but this Court will not 

" ' substitute its weighing of the evidence for 

that of the trial court. When there is a 

conflict in the evidence, the findings of the 

trial court are presumed to be correct if supported by substantial evidence. "' Kosmerl v. 

Barbour (1979)~ Mont. , 589 P.2d 1017, 1019, 36 

St.Rep. 210, 213. 

The evidence at trial on the question of notice came primarily from GE's principal witness Mr. Resch, and from Mr. 

Clawson. Resch, a credit and collection specialist for GE in 

Salt Lake City testified that GE routinely follows instructions 

from a debtor as to the application of funds. If no special 

instructions are given by the debtor, GE normally deletes the 

oldest account items first. He testified to such a procedure in 

this case. In December 1977, Resch contacted Clawson by phone 

about his past due account--none of which was MAA related. At 

that time, $37,749.69 was 90-120 days in arrears on an account 

total of over $100,000. Resch's testimony was that Clawson gave 

him no instructions on the phone as to application of his next 

payment, nor did Resch ever receive any instructions from the GE 

employees in Bill ings. Clawson testified otherwise: 

"Q. And do you recall the discussions you had 

with Mr. Resch concerning your account during 

that general area of December 29th of '77 or 

shortly -- A. I spoke to him on the phone, and 

he said that we had to have this amount of money 

in. Otherwise, they were going to close the 

account. So I told him that when I get the 

check from Jamison Construction [the contractor 

on the MAA job] and Hanson Kelly Construction, I 

will bring it in. 

"Q. So you definitely remember saying that you 

were going to get your money from those two 

sources? A. They were the only two I had left 

-- Yes, I do -- the only two that I had money 

coming from." 

Clawson testified further to having discussed this same 

matter with an employee in the Billings GE office prior to making 

the payment, and that at the time of making payment, he told the 

employee: "They paid me. Now here's yours." Clawson's 

understanding was that the payments would go to pay off the MAA 

job and the Hanson Kelly job. 
The record does not contain any testimony from the 

employee in Billings, and in fact, it is not clear as to 

whether the check was hand-delivered to GE by Clawson or if it 

was mailed to GE in Salt Lake City. Nonetheless, the check used 

to pay the $37,749.69 contained no notation as to how it was to 

be applied or as to the source of the funds. Clawson did not 

endorse the check from the contractor (Jamison) directly over to 

GE, but rather deposited Jamison's check and wrote a separate 

check to GE. Additionally, even if GE had been told that the 

funds in question came from Jamison Construction, the record does 

not show that GE necessarily knew of the connection between 

Jamison, Clawson and the MAA job. The GE invoices pertaining to 

the MAA job were designated "AAA" but no mention of Jamison 

Construction was on the invoices. Based on this testimony, the 

District Court Judge found: 

"There is some uncertainty as to whether the 

check was delivered locally or whether it was 

mailed to Salt Lake City, but, in any event, it 

was delivered to plaintiff without anything 

being expressly said at that tme as to what portion of the account it was to apply upon. In 

retrospect, Clawson, of AAA Electric, testified 

that he assumed it would go to pay off the jobs 

from which the payment to him had come under his 

comment at the time of delivery, 'I got mine, 

now here is yours.' However, the discussion in 

which the $37,749.69 payment became fixed re1 ated 

to the September and October balances, none of 

which involved the Montana Automobile 

Association job. So, application of the payment 

to the September and October balances did not 

operate to extinguish liability for the purchases of supplies that went into that job." 

(Finding of fact, No. 4.) 

Appellant also points to lien waivers which the contractor 

Jamison required Clawson to sign at the time that Jamison paid 

Clawson: 

"29 December, 1977, for labor and material on the Montana 

Automobile Association contract in the amount of 

$4,631.55." (Exhibit A) 

Appellant contends that the existence of the lien waivers brings 

this case within the rule of Carroll v. Beck (6th Cir. 1945), 151 

F.2d 964. In that case the rule was set out that a debtor may 
control the application of funds if the debtor owes more than one 

matured debt to the creditor. But this power is limited. If the 

creditor knows the source of the debtor's funds and knows of a 

duty of the debtor to discharge a particular debt, then the creditor must so apply the funds. Carroll, 151 F.2d at 966. 

Many courts dispute this holding, finding no such duty in 

the creditor. See Annot., 166 A.L.R. 641, 642. Montana has not ruled 

directly on this question, a1 though Montana appears to support 

the view of no duty at least in suretyship cases. See National 

Bank v. Bingham (1931), 91 Mont. 62, 72, 5 P.2d 554, 556-557; 

Annot ., 57 ALR2d 855, 859-860. However, it is not necessary for 

this Court to address that issue here. There is nothing in the 

record to indicate that GE had any knowledge whatsoever of the 

lien waivers, nor was there any determination that the lien 

waivers evidenced a contractual duty of Clawson's to apply the 

payment to the MAA job. For these reasons, we reject appel lant's 

argument based on Carroll, supra, and related cases. 

This Court is not unmindful of the harsh results in this 

case. MAA paid its contractor for the work done on its building, 

and now MAA is in a position of having to pay again. GE was able 

to use MAA's money to pay old and perhaps uncollectible debts, 

and will now get additional money from MAA to pay the Clawson/MAA 

debt. However, based on the judge's factual findings, which we 

find to be supported by substantial evidence, we determine that 

section 28-1-1106, MCA, requires this result. This Court is faced 

with a case in which the legislature has set forth a clear 

mandate, which the Court is obliged to follow. That such an inequitable result occurred here suggests that the legislature 

should review this statute which has been in the codes virtually 

unchanged since 1895, despite drastic changes in the conduct of 

business. 
The judgment of the District Court is affirmed. 

Chief Justice 

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Justices