Jordan v. Bank of Morrilton

Hart, J., (after stating the facts). As will be seen from our statement of facts, the cashier of the Bank of Morrilton testified that it was expressly understood between Turner and the bank that $2,735.29 of the money borrowed from the bank should be applied towards the payment of a prior mortgage given by Turner to Jordan on the same land. When Turner received the money from the hank, he left on deposit there the sum of $2,735.29 to be applied towards the payment of the Jordan mortgage'. The check given by Turner to Jordan for this sum contains the notation “in.full,” and was drawn on the Bank of Morrilton. It is true that Turner testified that he told the cashier of the bank that this sum of money was to he applied towards the payment of an open account which he owed to Jordan, and which was not secured by a mortgage on the land in question. The chancellor, however, found this issue in favor of the bank on the testimony of its cashier, and it cannot be said that his finding is against the preponderance of the evidence. Therefore, under our settled rules of practice it may be treated as settled that the bank lent the money to Turner with the express understanding that the sum of $2,735.29 was to be applied towards the payment of the mortgage indebtedness of Turner to Jordan. Counsel for Jordan seek to reverse the decree under the general rule that, at the time of making a payment, a debtor has the primary right to direct the application of payment, and may apply it to the payment of his unsecured debt. Snow v. Wood, 163 Ark. 280. Counsel for appellant claim that the exercise of the right of appropriation of payments belongs exclusively to the debtor and the creditor, and that no third person can control or be heard for the purpose of compelling a different appropriation from that agreed upon by them. Hence they contend that it does not make any difference what the cashier of the bank understood would be done with the money, as the right of the creditor and the debtor to make the application is absolute, and a third person cannot control this right. There is a well-recognized exception to this rule, and that is, if the creditor had notice that money had been -furnished his debtor upon an understanding that it was to. be applied towards the paymént of a particular debt, it could- not be appropriated to the payment of •an®ther- debt. Here, according to the finding of the chancellor, the bank lent the money to Turner with the express understanding that a • specified part ■ of it should be applied towards the payment of a debt of Turner to J or-dan secured 'by a mortgage upon the same land which he had mortgaged to the bank. If Jordan had notice of these facts, he would not be permitted, even with the consent of Turner, to misapply it. Harding v. Tifft, 75 N. Y. 461. In short, if Jordan had notice that the bank had lent the money upon the understanding that a part of it should be applied towards the payment of his mortgage debt, he could not apply it to the payment of his unsecured debt as against the bank, even with the consent of Turner. In this connection it may be stated that notice of facts and circumstances which would put a man of ordinary intelligence on inquiry is equivalent tó knowledge of all the facts that a reasonable diligent inquiry would disclose. In other words, where a person has sufficient information to put him on inquiry, he shall be deemed to know what the inquiry would disclose. Bland v. Fleeman, 58 Ark. 84; Waller v. Dansby, 145 Ark. 306; and Krow & Neumann v. Barnard, 152 Ark. 99. The check given by Turner to Jordan contained the notation, “in full,” which was dated1 March 25, 1920. According to the testimony of Jordan himself, this did not pay the whole of the indebtedness of Turner to him. If he had made any inquiry whatever at the bank, he would have found out that the money had been lent to Turner with the understanding that the amount of the cheek should be “in full” of the mortgage indebtedness of Turner to Jordan. Therefore in law Jordan will be deemed to have notice that Turner had agreed to apply the amount of the check towards the payment of his mortgage indebtedness to Jordan, and Jordan had no right to divert the fund to the payment of his unsecured indebtedness. The result of our views is that the decree will be affirmed.