Court Opinion

ID: 9548726
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:07:58.921426+00
Date Added: 2024-06-11T15:19:21.976589
License: Public Domain

RABINO WITZ, Justice
(dissenting).
On June 27, 1962, William Campbell, acting in behalf of Evergreen, Inc., paid to appellee Ketchikan Spruce Mills, Inc. the sum of $11,244.44 and at the time of making this payment, Campbell designated that $3,-239.71 of that sum be applied to the State Manor account. The then total existing indebtedness of Evergreen to appellee Ketchikan Spruce Mills, in regard to the State Manor account, was $3,239.71. In light of these circumstances, and what I conceive to be the applicable law, I am of the opinion that Evergreen’s debt to appel-lee Ketchikan Spruce Mills was discharged by the June 27, 1962, payment and application to the State Manor account. I am of the further opinion that the June 27, 1962, payment and application effected a discharge of the materialmen’s lien which ap-pellee Ketchikan Spruce Mills had filed to secure payment of this indebtedness owed by Evergreen to it on the State Manor account. The subsequent redesignation on July 6, 1962, by Evergreen did not have the effect of reviving Ketchikan Spruce Mills’ materialmen’s lien which had been filed against appellant State Manor’s lot 4 of the State Manor Subdivision.
It is established that a debtor who owes money on several accounts to a creditor has the right to designate to which account any given payment is to be applied. See *501Restatement, Contracts § 387 (1932), where it is stated in part:
Where more than one matured contractual duty is owed to the same person and these duties are for performances of identical character, such as the payment of money, a payment or other performance capable of discharging in whole or in part either one or another of these duties, is applied, subject to the rules stated in §§ 388-393.
(a) as the debtor, at or before the time of payment or performance, manifests to the creditor an intention to have it applied; * * *.
The Restatement’s comment to subsection (a) of § 387 reads in part:
A direction by the debtor to the creditor as to the debt to which a payment is to be applied is immediately operative on the creditor’s acceptance of the payment. Unless the payment is made from funds impressed from a trust for the payment of a particular debt the creditor has no privilege to disobey the direction.
Here the record discloses that the debtor Evergreen, on June 27, 1962, directed that $3,239.71 of the $11,244.44 payment it was then making to Ketchikan Spruce Mills (Evergreen’s creditor) be applied to the State Manor account (an indebtedness in the amount of $3,239.71 which Evergreen owed to Ketchikan on the State Manor account). The record further establishes that Ketchikan Spruce Mills acceded to Evergreen’s direction and accepted the $3,-239.71 payment. Thus, under the circumstances as disclosed by the record, Evergreen’s direction to apply $3,239.71 of the $11,244.44 payment to the State Manor account was “immediately operative.”
The fill extent of the contractual duty owed by Evergreen to Ketchikan Spruce Mills on the State Manor account was to pay the sum of $3,239.71. This obligation of Evergreen’s was discharged by virtue of the June 27, 1962, payment and application to the State Manor account. See Restatement, Contracts § 386 (1932), where it is stated that: “A contractual duty is discharged by the exact performance thereof.” To the same effect is Professor Corbin’s statement in 5A Corbin, Contracts § 1230 (1964), where in discussing discharge of a liquidated money debt, he states:
The performance required is the payment of the money and this can be rendered by the debtor after the due date as well as at the exact time. Payment of the amount of the debt operates as a discharge thereof, whenever it is made; * * *
It is also established that a debtor (in Evergreen’s position) may direct the application of the payment to a secured debt (the State Manor account) leaving unsecured debts or accounts remaining unpaid. To the extent a payment is so applied, the secured obligation is discharged. See Restatement, Contracts § 387, comment a, illustration 1, at page 732, which reads:
A owes B two debts of $1000 each, one secured, the other unsecured, and sends B $1000 in a letter stating the payment is to discharge the secured debt. B receives and keeps the money, but replies immediately, T shall apply the payment to the unsecured debt.’ The secured debt is discharged.
When an indebtedness which is secured by a materialmen’s lien is paid, the material-men’s lien is thereby discharged. Johnston v. Groom, 99 Cal.App. 462, 278 P. 935, 936 (1929); Monarch Lumber Co. v. Wallace, 132 Mont. 163, 314 P.2d 884, 890 (1957); Caley v. Kohlstad, 130 Mont. 7, 292 P.2d 995, 996 (1956); 57 C.J.S. Mechanic’s Liens § 247 (1948). In light of the above authorities, I conclude that the June 27, 1962, payment by Evergreen and application of this payment to the State Manor account discharged the materialmen’s lien which ap-pellee Ketchikan Spruce Mills had filed to secure payment of this indebtedness owed to it by Evergreen on the State Manor account.
*502In this appeal, the majority states that:
Evergreen had the right, with the manifested assent of appellee, to change application of the $3,239.71 payment from the State Manor account to Evergreen’s open book accounts with appellee, provided the rights of the third parties would not be jeopardized or injuriously affected. No such third party rights are involved here.1
I agree with the general proposition that a creditor and debtor may by mutual assent change a prior application of payment. But the authorities hold that in the instance of a secured indebtedness the original application of payment to the secured debt cannot be changed without the consent of all interested parties. In Johnston v. Groom, the court held that the original application discharges the landowner’s liability for a materialmen’s lien to the extent of the payment notwithstanding a subsequent reallocation by the materialman and the contractor. The court further stated that
the owners are third parties whose rights would be injuriously affected by a subsequent appropriation of the payment to another obligation.2
See also: United States to Use of Jackson Ornamental Iron & Bronze Works v. Brent, 236 F. 771, 774-775 (W.D.S.C.1916); Armour & Co. of Delaware v. McPhee & McGinnity Co., 87 Colo. 97, 285 P. 942 (1930); Romero & Sons Lumber Co. v. Babineaux, 151 So.2d 714 (La.App.1963).
Here the record shows that State Manor was the owner of lot 4 of the State Manor Subdivision against which Ketchikan Spruce Mills had filed the subject materialmen’s lien to secure payment of the indebtedness owed to it by Evergreen. The record further reflects that State Manor did not consent to the reapplication of the payment Evergreen made to Ketchikan Spruce Mills on June 27, 1962. Under the authorities referred to above, Evergreen and Ketchikan could not change the June 27, 1962, payment and application to the State Manor account without the consent of appellant State Man- or. Therefore, while Evergreen and Ketch-ikan were free to enter into any subsequent arrangement they desired to, they could not resubject State Manor’s real property to the subject materialmen’s lien without State Manor’s consent as the underlying debt had been discharged by the June 27, 1962, payment and application.
One other aspect of the majority’s opinion warrants comment. I am of the view that if, upon remand, the superior court should conclude that under the “Waiver of Notice of Non-Lien Liability”, the individual appellants Stephenson, Foster and Diggins were sureties in regard to Evergreen’s debt on the State Manor account, the June 27, 1962, payment and application operated to discharge them. Contrary to the ■ majority’s view, the general rule is that no detrimental reliance on the part of a surety is necessary to effectuate his discharge once payment is made of the debt upon which he is surety.
In Olson Constr. Co. v. United States, 332 F.2d 981, 984 (10th Cir. 1964), the court held that a surety is discharged by the initial allocation of payment notwithstanding a subsequent reapplication. See also Meeker v. Halsey, 87 F.2d 299 (2d Cir. 1937); Gill v. Waterhouse, 245 F. 75 (9th Cir.1917); United States to Use of Jackson Ornamen*503tal Iron & Bronze Works v. Brent, supra;3 Columbia Digger Co. v. Rector, 215 F. 618, 628-630 (W.D.Wash.1914); City of Marshfield ex rel. McGeorge Gravel Co. v. United States Fid. & Guar. Co., 128 Or. 547, 274 P. 503 (1929); 4 Williston, Contracts § 1232 (Rev.ed.1936).
In regard to this question, Williston states:
Whatever may be the form of a surety-ship contract, the creditor is entitled to but a single full payment of his claim and if he receives that * * * the surety is discharged. Even though the debt was paid by a third person, the result is the same.4
The same conclusion is reached in Simpson, Suretyship, at 313 (1950); 72 C.J.S., Principal and Surety § 144c.5
As indicated by the above authorities, the source of payment has no relevancy in relation to the issue of whether or not a surety is discharged.6 Here the debtor, Evergreen, paid the indebtedness with its own funds. If any of the appellants were, in fact, sureties on Evergreen’s State Manor debt to Ketchikan Spruce Mills, they were discharged by the June 27, 1962, payment and application to that account regardless of the source of Evergreen’s funds and without regard to any detrimental reliance on the part of the sureties.

. The majority cites Restatement, Contracts § 392 in support of the text’s discussion of the parties’ right to change an application of payment. Section 392 of Restatement states in part that:
An application of a payment once rightfully made by one party, cannot tkereafter be changed without the manifested assent of the other. Such assent may validate such a change and may also validate an original application otherwise not permissible.

. Johnston v. Groom, supra, 278 P. at 936.

. In United States to Use of Jackson Ornamental Iron & Bronze Works v. Brent, supra, 236 F. at 774, the court stated:
If payment is applied to a secured debt, the debt is extinguished pro tanto and to the extent of such payment the surety is discharged. Payment, once made and applied, cannot be recalled and otherwise applied without the consent of the surety.

. 4 Williston, Contracts § 1219, at 3508 (Rev.ed. 1936).

. See also Annot., 57 A.L.R.2d 855, 865 (1958), whore it is stated that:
Once a debtor or creditor applies a payment to an obligation for which a surety or guarantor is bound, the latter is discharged to the extent of the payment and neither the creditor nor the debtor can subsequently change the application.

.The source of the payment has relevancy only in the situation where the surety seeks to have the payment applied to the assured account. There is a split in the authorities over whether a surety who is the source of payment can direct the application of the same. 6 Williston, Contracts § 1806 (Kov.cd. 1936).