When a payment is made by a debtor to a creditor holding several demands against him, the debtor shall have the right to direct the claim to which it shall be appropriated. If the debtor fails to do so, the creditor shall have the right to appropriate the payment at his election. If neither party exercises the privilege, the law shall direct the application in such manner as shall be reasonable and equitable, both as to the parties and third persons, provided that, as a general rule, the oldest lien and the oldest item in an account shall be paid first, the presumption of law being that such is the intention of the parties.
(Orig. Code 1863, § 2810; Code 1868, § 2818; Code 1873, § 2869; Code 1882, § 2869; Civil Code 1895, § 3722; Civil Code 1910, § 4316; Code 1933, § 20-1006; Ga. L. 1982, p. 3, § 13.)
Law reviews.- For article, "Caveat Venditor: The Material Supplier's Dilemma on a Construction Project," see 28 Ga. St. B.J. 154 (1992).
JUDICIAL DECISIONSANALYSIS
Section applicable to part payments. Giles v. Vandiver, 91 Ga. 192, 17 S.E. 115 (1893).
O.C.G.A. § 13-4-42 is applicable to partial payments as well as payments in full. Sweetapple Plastics, Inc. v. Philip Shuman & Sons, 77 Bankr. 304 (Bankr. M.D. Ga. 1987).
Disposition of payment not merely a duty imposed by contract itself.
- If the debtor directs payments pursuant to O.C.G.A. § 13-4-42, the creditor is obligated to apply the payments in accordance with this direction and has no authority to appropriate them in a different manner. This duty of the creditor is a duty imposed by law and not merely a duty imposed by the contract itself. Breach of that duty gives rise to a cause of action in tort. Waldrip v. Voyles, 201 Ga. App. 592, 411 S.E.2d 765 (1991).
Section concerns voluntary payments, and is not changed because sale was not judicial sale under power. Atkins v. Citizens & S. Nat'l Bank, 127 Ga. App. 348, 193 S.E.2d 187 (1972).
Section inapplicable to distribution of proceeds in judicial proceedings. Citizens & S. Bank v. Armstrong, 22 Ga. App. 138, 95 S.E. 729 (1918).
Section inapplicable to distribution of proceeds from judicial sales. Kyle v. Chattahoochee Nat'l Bank, 96 Ga. 693, 24 S.E. 149 (1895).
Section inapplicable to order of payment of claims of estate. Yancey v. Citizens Bank & Trust Co., 14 Ga. App. 310, 80 S.E. 700 (1914).
Section inapplicable where portion of cash received was settlement of very claim sued upon. LeCraw v. Atlanta Arts Alliance, Inc., 126 Ga. App. 656, 191 S.E.2d 572 (1972).
O.C.G.A.
§ 13-4-42 inapplicable where loan agreement governed disposition. - Since a provision in the loan agreement governed the disposition of funds applied to the loans, O.C.G.A. § 13-4-42 was inapplicable. Citizens Bank v. Bowen, 169 Ga. App. 896, 315 S.E.2d 437 (1984).
After suit has been filed, creditor may not then make application. Thompson v. Bank of Buckhead, 47 Ga. App. 767, 171 S.E. 465 (1933).
O.C.G.A.
§ 13-4-42 inapplicable if debtor's request for particular appropriation comes after default and demand for payment. - If debtor's request for direction of payments came after notes were in default and demand made for their payment in full, appropriation of payment provisions were not applicable. Atkins v. Citizens & S. Nat'l Bank, 127 Ga. App. 348, 193 S.E.2d 187 (1972).
Crime victim was not a creditor.
- Contrary to a law firm's assertions, there was no legal authority for considering the firm, which had been a victim of an employee's theft of funds in a check-kiting scheme, as a "creditor" for purposes of applying three checks the employee deposited back into the firm's account to the employee's oldest "debts" pursuant to the debt payment rule established by O.C.G.A. § 13-4-42. Lee, Black, Hart & Rouse, P. C. v. Travelers Indem. Co., 291 Ga. App. 838, 662 S.E.2d 889 (2008), cert. denied, 2008 Ga. LEXIS 782 (Ga. 2008).
Creditor not bound by directions of debtor's nonagent wife.
- Directions as to application of payments by wife of the debtor, she not being agent of the debtor, do not bind creditor. Neal v. Harber, 35 Ga. App. 628, 134 S.E. 347 (1926).
Creditor's failure to follow debtor's direction as to application discharges debt.
- It is duty of creditor to follow direction of payment by debtor, and failure to do so will discharge debt. Hatcher & Baldwin v. Comer & Co., 73 Ga. 418 (1884).
Presumption as to payment priority.
- Because the debtor was not restricted by the terms of the note in electing which account should be credited with payments first, and because of the presumption as to payment priority found in O.C.G.A. § 13-4-42, the creditor's objection was overruled and the debtor's modified Chapter 13 plan was confirmed. In re Deloach, Bankr. (Bankr. S.D. Ga. Aug. 18, 2000).
Cited in Bell v. Boyd & Brumley, 53 Ga. 643 (1875); Whitaker v. Groover, Stubbs & Co., 54 Ga. 174 (1875); Killorin v. Bacon, 57 Ga. 497 (1876); Pritchard v. Comer & Co., 71 Ga. 18 (1883); Coleman v. Slade & Etheridge, 75 Ga. 61 (1885); Hatcher & Baldwin v. Comer & Co., 75 Ga. 728 (1885); Holley v. Hardeman & Gibson, 76 Ga. 328 (1886); Green v. Ford, 79 Ga. 130, 3 S.E. 624 (1887); Andrews v. Exchange Bank, 108 Ga. 802, 34 S.E. 183 (1899); Lowenstein v. Meyer, 114 Ga. 709, 40 S.E. 726 (1902); Bank of Wrightsville v. Merchants & Farmers Bank, 119 Ga. 288, 46 S.E. 94 (1903); Dye v. Peacock, 5 Ga. App. 417, 63 S.E. 520 (1909); Clarke Bros. v. McNatt, 132 Ga. 610, 64 S.E. 795, 26 L.R.A. (n.s.) 585 (1909); Baumgartner v. McKinnon, 10 Ga. App. 219, 73 S.E. 519 (1912); Scarsbrook v. Cohen, 25 Ga. App. 702, 104 S.E. 512 (1920); Van Valkenburg v. Wood, 41 Ga. App. 564, 153 S.E. 924 (1930); McDaniel v. Wynn, 41 Ga. App. 788, 154 S.E. 720 (1930); Rich v. Belcher, 43 Ga. App. 377, 158 S.E. 643 (1931); Smith v. Dalton Ice Co., 45 Ga. App. 447, 165 S.E. 144 (1932); New York Life Ins. Co. v. Sumner, 45 Ga. App. 792, 165 S.E. 920 (1932); Massell Realty Co. v. Chamberlain, 47 Ga. App. 718, 171 S.E. 311 (1933); First Nat'l Bank v. Simmons, 48 Ga. App. 728, 173 S.E. 241 (1934); Mayor of Millen v. Clark, 193 Ga. 132, 17 S.E.2d 742 (1941); Bell v. Scarbrough, 68 Ga. App. 63, 22 S.E.2d 113 (1942); Colonial Oil Co. v. United States Guarantee Co., 56 F. Supp. 545 (S.D. Ga. 1944); Roanoke City Mills, Inc. v. Whelchel, 208 F.2d 66 (5th Cir. 1953); Piedmont Eng'r & Constr. Corp. v. Hanna Paint Co., 95 Ga. App. 605, 98 S.E.2d 137 (1957); Franklin Acceptance, Inc. v. Salter, 102 Ga. App. 742, 118 S.E.2d 118 (1960); Turner v. Kay Jewelry Co., 103 Ga. App. 176, 118 S.E.2d 726 (1961); Downey v. Spainhour Oil & Equip. Co., 104 Ga. App. 325, 121 S.E.2d 794 (1961); Goss v. Davenport, 105 Ga. App. 386, 124 S.E.2d 485 (1962); Lewis v. Sherwin-Williams Co., 141 Ga. App. 53, 232 S.E.2d 392 (1977); Wood v. Wood, 239 Ga. 120, 236 S.E.2d 68 (1977); Ford Motor Credit Co. v. Spicer, 144 Ga. App. 383, 241 S.E.2d 273 (1977); J.J. Fowler, Inc. v. Fulton Nat'l Bank, 145 Ga. App. 220, 243 S.E.2d 642 (1978); Ford Motor Credit Co. v. Spicer, 156 Ga. App. 541, 275 S.E.2d 116 (1980); Walter E. Heller & Co. v. Aetna Bus. Credit, Inc., 158 Ga. App. 249, 280 S.E.2d 144 (1981); Turner v. Wood, 162 Ga. App. 674, 292 S.E.2d 558 (1982); Tidwell v. Atlanta Gas Light Co. (In re Ga. Steel, Inc.), 38 Bankr. 829 (Bankr. M.D. Ga. 1984); Haughton v. Namano, Inc., 222 Ga. App. 644, 476 S.E.2d 31 (1996).
Application by Parties
Application of part payment where no direction.
- Partial payment must be applied solely against the oldest outstanding invoice at the time of the transfer when there is no direction as to how the payment is to be applied. Sweetapple Plastics, Inc. v. Philip Shuman & Sons, 77 Bankr. 304 (Bankr. M.D. Ga. 1987).
If parties have applied payments by joint consent this statute does not apply. Mercer v. Tift, 79 Ga. 174, 4 S.E. 114 (1887) (see O.C.G.A. § 13-4-42).
Contract fixing mode of application may be varied by parties, neither being entitled to reapplication. Riverside Milling & Power Co. v. Bank of Cartersville, 141 Ga. 578, 81 S.E. 892 (1914).
Creditor cannot apply payment to claim based on contract prohibited and penalized by law. Gower v. Ozmer, 55 Ga. App. 81, 189 S.E. 540 (1936).
It is improper to apply payment to discharge obligation incurred subsequent to time of payment. Thompson v. Bank of Buckhead, 47 Ga. App. 767, 171 S.E. 465 (1933).
Section applicable to payment to landlord by tenant owing rent and unsecured indebtedness. Payne v. Seagars, 13 Ga. App. 101, 78 S.E. 829 (1913).
In such case, landlord must follow tenant's direction as to application. Milford v. Shackleford, 17 Ga. App. 436, 87 S.E. 603 (1916).
In doing so, equities of subtenant must not be prejudiced. Leonard v. Fields, 143 Ga. 479, 85 S.E. 315 (1915).
Creditor, with notice of landlord's claim cannot interfere with creditor's right of appropriation. Soluble Pac. Guano Co. v. Harris, 78 Ga. 20 (1886).
Absent contrary direction, creditor may apply payments to debts otherwise barred by statute of limitations.
- In absence of direction by debtor as to application of payments, creditor may apply payments, made upon running account covering transactions of several years, to oldest items, so as to avoid bar of statute of limitations. Hobbs v. Crawford & Maxwell, 4 Ga. App. 585, 62 S.E. 157 (1908).
When payments were made by debtor but no direction was given by debtor as to their application, creditor had right to apply payments to oldest items of indebtedness in running account, including those barred by statute of limitations. Farmers' Hdwe. & Furn. Co. v. Amos, 48 Ga. App. 818, 173 S.E. 872 (1934).
In absence of direction by debtor, creditor may apply payment as creditor pleases; creditor may even apply payments made on running account covering several years to items which otherwise would be barred by statute of limitations. Gower v. Ozmer, 55 Ga. App. 81, 189 S.E. 540 (1936).
Effect on application of suretyship or guarantee as to one debt.
- This rule as to application of payments to several demands is not affected by fact that there is a surety or guarantor liable on one of the debts, and application of payments to other notes is not, within contemplation of law, an act which injures surety or guarantor or increases surety's risk or exposes the surety to a greater liability so as to discharge the surety. Redfearn v. Citizens & S. Nat'l Bank, 122 Ga. App. 282, 176 S.E.2d 627 (1970).
Creditor may apply payment derived from property upon which creditor holds lien to unsecured indebtedness.
- In absence of direction by debtor, creditor may apply payment to any of several demands even though payment be derived from proceeds of property upon which creditor has a special lien, and is applied to unsecured indebtedness. Bufford v. Wilkinson, Bolton & Co., 7 Ga. App. 443, 67 S.E. 114 (1910).
Law allows creditor, in absence of direction by debtor, to apply payment made by latter to any of several demands which former may hold against the debtor are applicable (where no rights of third parties will be affected), even though payment be derived from proceeds of property upon which creditor has special lien, and is applied to unsecured indebtedness. Bank of Ga. v. Card, 84 Ga. App. 142, 65 S.E.2d 841 (1951).
Effect of third party's lien on creditor's application of payment derived from encumbered property.
- If one claim held by creditor is secured and another unsecured, one cannot appropriate payment first to one's unsecured claim, over objection of another creditor holding lien upon property or fund from which payment is made. Cofer v. Benson, 92 Ga. 793, 19 S.E. 56 (1894).
Creditor receiving payment from property on which another creditor holds a lien cannot apply payment to creditor's own unsecured or less secured claim against objection of other lien creditor. Federal Land Bank v. Bank of Lenox, 192 Ga. 543, 16 S.E.2d 9 (1941).
O.C.G.A.
§ 13-4-42 inapplicable to third person holding superior lien, priority, or claim to proceeds of payment. - Law does not apply if, by legal priority, rights of third person are involved which are superior to those of creditor. Baumgartner v. McKinnon, 10 Ga. App. 219, 73 S.E. 519 (1912).
Law has no application as against a third person holding a prior lien, priority, or claim against proceeds of payment, superior to rights of creditor and debtor, in which event, in controversy between such third person and creditor wherein prior rights of third person are shown, it is immaterial at whose direction payment was applied. Loflin v. Howard, 48 Ga. App. 373, 172 S.E. 831 (1934).
Application by Court
When neither debtor nor creditor directs application of payments, it is duty of court to do so. Thompson v. Bank of Buckhead, 47 Ga. App. 767, 171 S.E. 465 (1933).
If intent of parties is clear, law will direct application accordingly.
- It is not necessary that debtor give express directions but, if facts and circumstances indicate intention of parties at time payment is presented, law will direct credit of payment according to such intention. Roswell Bank v. Bearse, 118 Ga. App. 610, 164 S.E.2d 886 (1968).
Amount of check may infer that it is in payment of particular demand. Roswell Bank v. Bearse, 118 Ga. App. 610, 164 S.E.2d 886 (1968).
Although post-payment circumstances may be considered, court's application must relate to time of payment.
- Circumstances which are to guide court may have arisen since payment was made, but application when made relates to time of payment. Thompson v. Bank of Buckhead, 47 Ga. App. 767, 171 S.E. 465 (1933).
Third party's inchoate lien does not change rule but must be consideration in court's application.
- Fact that there is third party with inchoate lien involved will not change rule but will only enter into question of allocating payments when this is done by court in process of litigation. Daniel v. Dixie Plumbing Supply Co., 112 Ga. App. 427, 145 S.E.2d 796 (1965).
Court may apply payments either to unsecured claim or to precarious claim. Thompson v. Bank of Buckhead, 47 Ga. App. 767, 171 S.E. 465 (1933).
It is equitable to direct application to unsecured debts before secured debts.
- When some items of account are secured and other items are unsecured, it is equitable for law to direct payments to be applied first to extinguishment of unsecured debts. J.M. High Co. v. Arrington, 45 Ga. App. 392, 165 S.E. 151 (1932).
Rule of payment of oldest liens first not to be applied to defeat other lienors.
- General rule that oldest lien and oldest item in account will be first paid, while usually appropriate in settlement between creditor and debtor, should not be given such application as will defeat lien of third person. Federal Land Bank v. Bank of Lenox, 192 Ga. 543, 16 S.E.2d 9 (1941).
OPINIONS OF THE ATTORNEY GENERALTax collector may accept present taxes when tendered although there are back taxes due by taxpayer so tendering. 1957 Op. Att'y Gen. p. 279.
RESEARCH REFERENCES
C.J.S.
- 70 C.J.S., Payment, § 59 et seq.
ALR.
- Application of payments made without specific appropriation, as between secured and unsecured items, 97 A.L.R. 345.
Application of payments as between debts for which a surety or guarantor is bound and those for which he is not, 57 A.L.R.2d 855.