Opinion ID: 1058540
Heading Depth: 1
Heading Rank: 6

Heading: UOSA's Allocation of the May 8, 2006 Payment

Text: The Joint Venture contends that the circuit court erred in its determination that UOSA's letter of May 10, 2006 reflecting its calculation of the payment made on May 8, 2006 was a timely directive as to the allocation of that payment. The Joint Venture contends that because UOSA wired the payment to the Joint Venture's counsel without any instructions on how the payment was to be applied, the subsequent letter and its attached calculations were insufficient to act as a directive of allocation because they were untimely. UOSA responds that a debtor has the right to specify how a payment is to be applied to the debt. By promptly responding to the Joint Venture's request to explain the manner in which UOSA had calculated the amount of the debt, UOSA contends it made a contemporaneous directive to allocate the payment in accord with the amounts it asserted were due on the various elements of the two judgments and the interest thereon. Because the Joint Venture did not initially dispute the amount due or indicate that it would use its own calculation to determine the allocation of the payment before UOSA indicated its basis for calculating the different elements of the judgments, and by consequence allocate the payment in those amounts, UOSA contends that the circuit court correctly ruled that the May 10, 2006 letter constituted a timely directive to allocate the payment in accord with UOSA's calculations. The principles of law that govern the right to direct the application of a payment by a debtor to a debt or debts owed to a creditor are as ancient and venerable as the principle that natural justice requires the debtor to pay interest to the creditor until the debt is paid. The first of these principles is that where there is but a single debt between debtor and creditor, no directive to allocate is necessary by the debtor, as [t]he very idea of election supposes something to elect between. Donally v. Wilson, 32 Va. (5 Leigh) 329, 331 (1834). But if the debt owed has different elements of principal and interest, [t]he debtor . . . has a right to say whether [the payment] shall be applied to the principal or to the interest of the debt due, Howard v. McCall, 62 Va. (21 Gratt.) 205, 209 (1871), or if more than one debt is owed between the parties, the debtor may direct the application of [the payment], because it is his: if he gives no direction, the creditor may apply it to which of the two debts he chooses. Donally, 32 Va. (5 Leigh) at 331. Inherent in these decisions is the concept that a debtor has, at least initially, the right to have a partial payment applied to his debts in the manner most advantageous to him if he timely elects to do so, absent any applicable statutory or contractual provision to the contrary. Similarly, the creditor has the right to allocate the payment to his advantage if the debtor fails to exercise this election, but that right is not absolute. As this Court observed in one of its first cases, if the debtor neglect[s] to make the application at the time of payment, the election is then cast upon the creditor, yet it is incumbent upon the latter, in such a case, to make a recent application, by entries in his books or papers, and not to keep parties and securities in suspense, changing their situation, from time to time, as his interest, governed by events, might dictate. Hill v. Southerland, 1 Va. (1 Wash.) 128, 133 (1792). In Chapman v. Commonwealth, 66 Va. (25 Gratt.) 721 (1875), we summarized the law with regard to allocation of a partial payment among several debts: A payment by a debtor who owes several debts to a creditor, is to be applied to one or the other of the debts; first, as the debtor may direct at or before the time of making such payment; and such direction may be given expressly or by implication. Secondly, if the debtor give no such direction then the creditor may make the application, according to his pleasure; and he may make it, either at the time of such payment, or afterwards, before the commencement of any controversy on the subject. Id. at 750 (emphasis added). [11] It is not contested that the attachment to UOSA's letter of May 10, 2006 was an implicit attempt to allocate the May 8, 2006 payment according to UOSA's calculation of the judgment debt. Moreover, in the May 16, 2006 letter from its counsel, the Joint Venture made an express attempt to allocate the May 8, 2006 payment to its advantage. Thus, the crux of the issue is whether the circuit court erred in ruling that the May 10, 2006 letter was essentially contemporaneous with the May 8, 2006 payment such that it was a directive of the debtor made at or before the time of making such payment, and, if not, whether the Joint Venture's attempt to allocate the payment to its advantage occurred before the commencement of any controversy on the subject. The circumstances surrounding UOSA's tendering of payment on its judgment debt to the Joint Venture are not in dispute. The funds were wired to the account of the Joint Venture's counsel on May 8, 2006. At 3:46 P.M. on that day, counsel for UOSA sent an email to counsel for the Joint Venture asking for him to [p]lease verify that you have received the funds. Counsel for the Joint Venture responded to this email at 5:10 P.M. requesting UOSA's counsel to please provide the calculation of the amount paid, including the interest calculations, so that we can understand how the amount was determined.  (Emphasis added.) This email is a de facto acknowledgement that the payment had been received, but also evidenced that the judgment creditor did not yet accept that the debt was fully satisfied. UOSA's counsel responded by mailing the May 10, 2006 letter and its attached exhibit and sending copies of these to counsel for the Joint Venture by telefacsimilie. That letter expressly stated the position of UOSA that the judgment debt was fully satisfied and, by implication, that it would contest any claim by the Joint Venture that additional moneys were due. The Joint Venture responded to this communication in the May 16, 2006 letter from its counsel with its own calculation of the judgment debt, asserting that the May 8, 2006 payment was not sufficient to cover that debt, and purporting to allocate the partial payment in a manner advantageous to the Joint Venture. In light of the sequence of events between May 8 and May 16, 2006, we find that the record is abundantly clear that UOSA did not attempt to make an allocation of its payment, either expressly or by implication, at or before the time of making such payment. Thus, any action taken by UOSA thereafter to justify its calculation of that payment in response to the query from the Joint Venture cannot be treated as a timely allocation because the payment had already been tendered and accepted. Accordingly, we hold that the circuit court erred in finding that the May 10, 2006 letter was an essentially contemporaneous directive to allocate the May 8, 2006 payment according to the calculations in the attachment to the letter. On brief, the Joint Venture contends that its calculation of the judgment debt, as expressed in the exhibit attached to its May 16, 2006 letter to counsel for UOSA, was a timely allocation of the May 8, 2006 payment to the debt. However, because the circuit court ruled that UOSA's May 10, 2006 calculation constituted a timely allocation by the debtor, the court never reached the question whether the Joint Venture's calculation would have constituted a timely allocation by the creditor in the absence of an allocation by the debtor. Thus, the court was not called upon to decide whether the Joint Venture made its allocation before the commencement of any controversy on the subject. Moreover, in light of our holding that certain of the awards made by the circuit court were in error, neither of the calculations advanced by the parties regarding their alleged allocations will be germane to the judgment debt once it has been recalculated in accord with the views expressed herein. Accordingly, we will remand the case to the circuit court with direction that it first recalculate the amount of the judgment debt as of May 8, 2006. The court will then determine whether the Joint Venture's May 16, 2006 letter constitutes a timely allocation of the May 8, 2006 payment, and, if so, whether and how that allocation may be applied to the recalculated debt. If the court determines that there was no timely allocation by the Joint Venture, or that the calculations of the May 16, 2006 letter, though a timely allocation, cannot practicably be applied to the recalculated debt, then the court shall apply the May 8, 2006 payment to the recalculated debt in accord with the principle of law that, in the absence of an effective allocation by either debtor or creditor, the courts will apply the payment to the debts in order of age, starting with the oldest. Northern Virginia Savings & Loan Ass'n. v. J.B. Kendall Co., 205 Va. 136, 145, 135 S.E.2d 178, 185 (1964); Pope v. Transparent Ice Co., 91 Va. 79, 85, 20 S.E. 940, 942 (1895).