#### Jones and another, Adm’rs, vs. Williams.

*Appropriation of payments; when doctrine inapplicable.*

1. In the case of a creditor having several demands against the debtor, it is only where the latter makes a payment with opportunity to exercise his right to appropriate the same, and neglects to do so, that the creditor acquires the right of appropriation.

2. Plaintiffs’ decedent held a note of defendant, and also had charge of his mill, as an employee, and from time to time drew out money and charged it to himself in the day book kept at the mill. *Held,*that the amounts so taken and charged constituted cross demands or setoffs in defendant’s favor, on an accounting between the parties, and were not *payments*of winch defendant could make an appropriation, or to which the principles of the application of payments apply.

3. In an action for the value of such decedent’s services in' the mill, therefore, it was error to instruct the jury that the moneys so taken might be applied as payments to the note, if the jury should find that defendant had not elected to apply them in payment of the services.

APPEAL from tbe Circuit Court for *Cohmnbia*County.

This action was brought to recover tbe amount of a note for $1,560 at one year from date, witb interest at ten per cent., executed February 1,1867, by tbe defendant to Owen Griffiths, tbe plaintiffs’ intestate; and also to recover for labor and services alleged to have been performed by said Griffiths as a miller, for 'the defendant, at bis request, at bis grist and flouring mills in Danville, Dodge county, and Cambria, Columbia county, from February 1, 1867, to June 25, 1872, of tbe value *301of $3,078, with interest. Tbe defendant answered tbe statute' of limitations as to tbe note, and also denied all tbe facts alleged as tbe second canse of action, and averred in substance, that Griffiths was employed between February 1 and October 1, 1867, in tbe mill at Danville, owned by tbe defendant and another person, and bad been paid in full for tbe services then rendered; and that from October 1, 1867, until tbe death of said Griffiths in July, 1872, be was partner with plaintiff in tbe Cambria mill, owning a one-third interest; that tbe purchase price of tbe mill was $10,500; that as Grif-fiths bad not sufficient means to pay for bis one-third of it, defendant, by their mutual agreement, took tbe deed of tbe mill in bis own name, and held the title as security for tbe money advanced by him in tbe purchase thereof; that Grif-fiths agreed to allow “ a claim of about $1,600 which be then held against defendant, to be used in tbe purchase of said mill; ” that defendant and Griffiths afterwards expended, in improving tbe mill, about $18,000, a considerable portion of which was paid out of tbe earnings of said mill, and tbe remainder was advanced by tbe defendant; that while defendant and Griffiths were thus carrying .on tbe business, tbe latter was in charge of tbe machinery and tbe running of tbe mill, while Griffiths had charge of the books and business of the firm; that the latter drew out from the business and charged to himself, upon the books of the firm, a large sum of money, which, with the money paid out for his funeral expenses, amounted to $1,464.40, as appears -from said books; and that since Griffiths’ death the defendant had paid to his widow for her support out of the earnings of said mill, $439.34. The answer further alleges that Griffiths, at the time of bis death, was largely indebted to defendant for money advanced for the purchase and improvement of said mill property; and the defendant is, and at all times since-the death of Griffiths has been, ready to settle with his representatives the business of said partnership.'

*302At the trial, plaintiff’s evidence tended to show that Griffiths worked for the defendant at the Cambria mill from the fall of 1867 until a short time before his death in 1872; that he attended to the grinding, etc., and his services were worth from $45 to $50 per month. The defendant’s evidence tended to support the averments of his answer as to a joint purchase of the mill and a partnership in the business. It appears that the note in suit was found among Griffiths’ papers after his death. It was admitted that the legal title to the Cambria mill continued to be in the defendant during the whole pei’iod in question.

The court submitted to the jury the question of fact as to whether Griffiths was a partner in the mill business or a hired servant. It refused an instruction asked by the defendant, to the effect that, if Griffiths was in the defendant’s employ, and during that time had drawn from defendant .a large sum in goods and money, this was a valid offset to his claim for services, and could not be defeated by any claim of plaintiffs against the defendant which was barred by the statute of limitations. At plaintiffs’ request the court gave instructions, which are sufficiently recited in the opinion, to the effect that the amounts received by Griffiths might be applied by the jury to the payment of the note, if they found that there was no partnership.

Yerdict for the plaintiff for $3,461.54; a new trial was denied; and defendant appealed from a judgment on the verdict.

*8. TJ. Pwvney,*for the appellant,

as to the general rule governing the application of payments, cited 2 Parsons on Con., 629; Willard’s Eq., 92-103; *Greiner v. Higgmson,*1 Mason, 338. As to the *time*when the debtor or the creditor must exercise his right of appropriation, he cited *Allen v. Culver,*3 Denio, 284; *Philgpott v.*Jones, 2 Ad. & EL, 41; *Wright v.*Icowig, 3 Barn. & Cress., 165; *Arnold v. The*Mayor, 4 Man. & G., 860; and contended that at whatever time this right is *303to be exercised, it is not conclusively done by entries in tbe books of either party, until those entries are communicated to the other party. ' *Simson v. Ingham,*2 Barn. & Cress., 65. He further argued that according to the theory of the plaintiffs, Griffiths’ services should have been credited to him on the mill books in which the payments were entered, so that this dealing would constitute a running account between Griffiths and defendant; and that in that case the money so drawn and charged to Griffiths should, as a matter of law, be applied to the extinguishment of ■ the other side of the account, in the order of time in which the several items stood in the account, no special appropriation of payments having been made by either party *(Clayton's*Case, 1 Merivale, 572,"604, 608; *U. 8. v. Kirkpatrick,*9 "Wheat.,' 720, 737-8; *IT. 8. v. Wa/rdwell,*5 Mason, 82); that a note is in no sense a part of an account, though, if the debt evidenced by it had been carried into an account, as in some of the cases, it would be considered as a part of it for the purposes of this rule *(Simson v.*Ingham, *supra; Truseott v. King,*2 Seld., 165); that the acts of Griffiths in keeping the accounts as he did, show that he intended the money to apply elsewhere than on the note, on which no indorsements were made; that his election of such application may be manifested by circumstances, of which the *jw'y*are to judge *(Taylor v. Sandiford,*7 Wheat., 13); but that if there was no application by either party, the court should have directed the payments to be applied to the claim .for wages. He further contended that the rule requiring an appropriation by the creditor to be made either when the money comes to' his hands' *(Smith v. Wigly,*3 Moore *'&*Scott, 175; *Logan v. Mason,*6 Watts & Serg., 14), or at a reasonable time before controversy has arisen, or- at farthest at the time the action is brought *(Allen v. (Silver, supra-,*Daotels, J., in *Jones v. U. 8.,*17 How., 688-92), is the more just and reasonable one, and sustained by the weight of authority *(U. S’, v. Kirkpatrick, supra; Bolmson v. Doolittle,**30412 Yt., 246; *Oallahcm v. Boa&nan,*21 Ala., 246; *Gass v. Stinson,*3 Sum., 98; *Franklin Bank v. Pratt,*31 Me., 501; *Fawchild v. Holly,*10 Conn., 184; *Moss v. Adams,*4 Ired. Eq., 42); that tbe question was set at rest iu tbis state by *Stone v. Talbot,*4 Wis., 442; that tbis case does not fall within tbe principle of tbe application of payments to distinct debts, because only *the balance*of an account is considered a debt, but falls under tbe rules on wbicb merchants’ accounts are cast and settled by tbe law (1 Am. Lead. Cas., 291, and cases cited in note 5; *Sanford v. Ola/t'k,*29 Conn., 457); and that tbe amount of moneys charged to Griffiths is simply a cross demand, and not a payment. He further contended that, tbe statute of limitations being insisted on, plaintiff’s claim on the note is as effectually *exti/ngwished*as though it bad been paid or released *{Brown v.*Pmker,28 Wis., 21; *Howell v. Howell,*15 id., 60, 61; *Sprecher v. Wakely,*11 id., 432, 440); that tbe statute is designed as a security against tbe loss of evidence *{Pritchard v. Howell,*1 Wis., 131), and tbe legal presumption is that defendant has a valid defense against tbe note; and that, therefore, if tbe sums charged to Griffiths are to be treated as payments at all, no appropriation of them having been made before tbis action was brought, tbe *court*could not now properly apply such payments on tbe note.

*A. Scott Sloan,*for respondents:

Tbe rule seems to be settled, that where there has been no actual application of tbe payment by tbe debtor, and none implied from tbe circumstances, bis right to control tbe application is lost, and tbe right after that belongs exclusively to the creditor, who may apply it on wbicb debt be pleases. *Brady v. Hill,*1 Mo., 225; *Smith v. Applegate,*1 Daly, 91; *Allen v. Gul/oer,*3 Denio, 285; *Clark v. Bwrdett,*2 Hall, 197; *Hutch-i/nson v. Bell,*1 Taunt., 558; *Mills v. Fowkes,*5 Bing. N. C., 455; *Wiltianns v. Griffith,*5 Mees. & Weis., 300; *Heil-bron v. Bissell,*1 Bailey’s Eq., 430; *Mapor v. Patten,*4 Crancb, *305317; *Stone v. Talbot,*4 Wis., 442. And this applicationhy the creditor may be made at any time, even at the trial *(Boson-quet v.*-Wray; 6 Taunt., 597; *Philpott v. Jones,*2 Ad. & El., 41; 4 0ranch, 317; 3 Denio, 285; 5 Bing. N. 0., 450 ; 4 Wis., 4^2), and may he made to any debt not illegal, even though barred by the statute of limitations. *OmdckshanJcs v. Pose,*■ 1 Moody & Rob., 100; 5 Bing. N. O., 5 Mees. & Weis., and 2 Ad. & El., as cited *supra.*And see 1 Am. Lead. Cas., 291 et seq. The true principle is, that *The ownership of the money determi/nes the right of application.*While it belongs to the debtor, he may apply it to. which debt he pleases. The moment it is paid, without any direction, it becomes the property of the creditor, and he may do with it as he will. Co. Litt., 145 a; *ITeyward’s Qase,*2 Rep., 36 a; 1 Am. Lead. Cas., 308. Even if the court should take the view that neither party could make the application, but that it is to be done by the court according to equity, there is no case justifying an application other than the one adopted in this case. The note was the oldest debt, evidenced by writing, already due and drawing interest at seven per cent.; and the payments should be applied to it under any rule.

Cole, J.

The doctrine in regard to the appropriation of payments, as generally statéd in the books, is this: Where the debtor makes any payment to the creditor holding different demands against him, he has the right to apply it to what debt he pleases. If the debtor makes no specific appropriation, the creditor may apply the money as he pleases. And wdien neither party appropriates the payment, the law will apply it according to its own notion of the intrinsic equity and justice of the case. These rules obviously presuppose a payment made by the debtor to the creditor where the former has the power of exercising an election as to its appropriation. If the debtor neglects to exercise an option either at the time *306of payment or before tbe creditor exercises bis right, then tbe act of appropriation devolves upon tbe latter.

In tbe case at bar, tbe circuit court assumed that 'payments were made which came within tbe application of these rules of law. Tbe jury were instructed, that if they found tbe fact to be that tbe deceased was at work as a servant of tbe defendant and entitled to wages, and that at tbe time be commenced laboring, and during tbe time be was at work, be held a promissory note against tbe defendant, then any payments made while be held tbe note and performed tbe labor might and should be applied on tbe note, unless they found that tbe defendant elected, as payments were made, to apply them in payment of services, or that the deceased then, or in bis lifetime, made an election to apply tbe payments upon bis claim for services, if be bad such a claim. It appeared from tbe evidence that tbe deceased bad charge of tbe mill, and that from, time to time be drew out money and cbai'ged it to himself in tbe day book which was kept at tbe mill. These several sums of money thus drawn out by tbe deceased and charged to himself, were treated by tbe court as payments made by the defendant where tbe latter could exercise tbe right of appropriation. It seems to us that this is a mistaken view of these transactions. These were not payments in tbe proper sense of tbe word; and it is obvious from tbe nature of tbe case that tbe defendant bad not tbe power to control the application of tbe moneys, as be would have where payments are made. Doubtless tbe defendant knew of tbe existence of this running account, and that tbe deceased, Griffiths, was drawing out money which be charged to himself in tbe account. But there was no direction on bis part that these sums should be treated as payments, nor is there any evidence that Griffiths so regarded them. Under these circumstances, tbe counsel for tbe defendant insists, and with great reason, that tbe most that can be said in respect to the moneys thus taken and charged in tbe account is, that they *307were in tbe nature of cross demands or setoffs, and did not amount to payments where the defendant could make an appropriation, or where the principles of the application of payments apply. Prof. Parsons lays down the rule on this subject as follows: “In general,” he says, “the creditor’s right of appropriation, springing from the neglect or refusal of the debtor to make such appropriation, exists only where the debtor has in fact an opportunity of making it, and not ■where the payment was made on his account by another, or in any way which prevents or impedes his exercise of the right of election.” 2 Parsons on Con., 631. And *Waller v. Lacy,*1 Man. & G., 54, is referred to in support of the doctrine of the text. That was the case of an attorney having several demands against his clients, some of which were barred by. the statute of limitations, and some not, and who had received from a third person a sum of money on behalf of his client, which he claimed the right to apply to the payment of the earliest items in his account against his client. Put says TiNdaí, C. J., inasmuch as the client “ never liad the power of exercising any election as to the application of this sum, the right of the plaintiff to appropriate it never arose.” BosaN-quet, J., observes: “ The doctrine of appropriation cannot apply to the present case, where money has come to the plaintiff’s hands, not by the act of the defendant, but by the act of a third party.” The other two judges are equally clear and emphatic in laying down the doctrine that the right to appropriate only applies where payments have been made by debtors to creditors, and where the former have an opportunity of directing the application. The creditor’s right of appropria-' tion springs from the failure or neglect of the debtor to exercise his right to make the application when he has the power to make it. This is obviously the reason and philosophy of the rules in regard to the application of payments.

The undisputed facts of this case take it out of the application of these rules. The moneys drawn out by the deceased, *308and charged to himself on the account book at the mill, were not payments made by the defendant. There is no evidence whatever that either party so regarded them. They were strictly cross demands or matters of setoff, which would be applied on settlement of the accounts between the parties, but do not fall within the rules of the application of payments. Nor do we think the facts bring the case within the rule in regard to an open current account which is applied in the cases cited in the note to Mayor, *etc., v. Patten*and *Field v. Holland,*1 Am. Lead. Cas., p. 306. For, not only is it inaccurate to treat the sums drawn out by Griffiths as payments made by the defendant, but there does not appear ever to have been any settlement of these accounts or balance struck by the parties. So that, in whatever view the case is considered, it seems to us the circuit court was wrong in holding that the law in regal’d to the appropriation of payments applied to and governed the case.

*By the Oowrt.*— The judgment of the circuit court is reversed, and a new trial ordered.