This was an action instituted under the Miller Act, 40 U.S.C.A. § 270b, by the United States for the use and benefit of Vic Campbell, herein referred to as Campbell, against Wm. F. Kelly Company, Tnc., and the Standard Surety and Casualty Company of New York, a corporation, herein referred to wherever necessary as Kelly and Standard. The action was brought to
Kelly was a general contractor who held a number of government contracts for the construction of various war projeсts throughout the southern and southeastern part of the United States. Kelly had contracts for constructions at DeRidder, Camp Polk, New Orleans Airport, Bainbridge, Georgia, and Gulfport, Mississippi.
Campbell was engaged in the electrical business. Kelly subcontracted to him all the electrical requirements for all of the projects in both Groups One and Two. Both the mаin contracts and the subcontracts in Group One antedated in point of time similar contracts in Group Two. The subcontracts at least in Group Two were oral contracts. , Both Kelly and Campbell resided in New Orleans and throughout a long period of time had had intimate and friendly business relations with each other. Kelly as principal and Standard as surety executed a bond to Campbell under the applicable provisions of the Miller Act.
About May 21, 1943, Campbell requested a payment on account. At a meeting between the parties on that date at New Orleans, Campbell’s oral contracts in Group Two were discussed, and it was agreed that they should be, and they were, reduced to writing. Thereupon Kelly gave Campbell a check for $6,000. Kelly entered the check on its books as ¡a charge to Campbell, “Miscellaneous.” Campbell entered the check on his books as a general credit, but did not at that time allocate it as a payment to any particular project.
On October 3, 1944, Campbell instituted this action against Kelly as principal and Standard as surety, in the United States District Court for the Western District of Oklahoma, to recover for labor and materials furnished on the Frederick and Altus projects. While the parties were in sharp disagreement as to the amount due Campbell on these two projects, the trial court made findings of fact and entered judgment thereon, and no appeal has been taken therefrom. While five assignments of error are urged for reversal, they all present the same question, namely: how much of a balance of $3,324.51 of the $6,-000 payment of May 21, 1943, should be allocated to the satisfaction of the amount found to be due by the trial court on the two proj eсts in this suit ?
The method in which both the debt- or and the creditor entered the check on their resрective books has been set out above. At the trial, Kelly, however, contended that oral directions were given by it at the time of the payment that $1,500 of the amount should be credited to the Frederick project, and $750 to the Altus project. Thе trial court, however, found against Kelly on this issue. The court’s finding is supported by substantial evidence and is therefore binding on this court. The court’s finding as to whether Campbell made a specific allocation of these funds on May 21, 1943, is not clear. We cоnclude, however, that the court failed to find that Campbell made a specific allocation of this sum when he received it. Such a finding would have no support in the record. Campbell testified positively on cross examination that when he rеceived the $6,000 he made no specific allocation to any account. We think his testimony is also clear that the first specific allocation he made was about October, 1943, when he consulted his attorney who advised him that the law would аllocate this fund to the oldest accounts, and he thereupon and about that time, for the first time, made a specific allocation of parts of these funds as follows:
To the Camp Polk job..........$ 150.00
To the New Orleans base project 470.00
To the Gulfport project........ 716.65
To the Camp Bainbridge, Miss., project ..................... 1,516.96
Total .....................$2,853.61
Some question is raised as to whether the Louisiana law or the federal law controls the allocation of the fund in question. In our opinion it is not necessary to resolve this question, because in the main both laws require the same application of the payment. If there is any difference in the two laws, the federal rule is more favorable to Campbell than is the Louisiana rule, and the decision in this case will be based upon the federal rule.
Under the federal rule the debtоr is entitled to direct to which one of several debts the payment is to be applied. If he fails to make such a designation, then the creditor may apply it as he wishes. If both fail to make an allocation, then the law will make the allocation. After a controversy has arisen between the parties, neither may make a designation of payment. As pointed out, neither the debtor nor the creditor made a specific designation at the time of the payment. By October, 1943, when Campbell attempted to apply the payment to specific accounts, a controversy had arisen between the parties as to the Gulfport and Bainbridge projects, and he therefore could not at that time apply any рart of the fund to the payment of these two accounts.
No designation of payment having been made by either the debtor or the creditor, it was the duty of the court to designate the accounts to which these payments should be applied. The rule is sometimes loosely stated to be that the law will apply the payment to the oldest matured debt or to the oldest items of a running account. This is not a correct statement of the rule. The correct rule is stated in United States v. Kirkpatrick,
The reason why neither of the parties is permitted to apply the payment to one of several accounts which is in dispute is that it would be inequitable by such conduct to permit one of the parties to gain an undue advantage in their controversy. By the same reasoning, it would be inequitable for a court, whеn it is called upon to make an application to one of several accounts, to apply it to an account which is in dispute between the parties. That would be aiding one of the parlies to the detriment of the other.
In detеrmining whether the court correctly applied the payments to the Gulf-port and Camp Bainbridge projects, it is necessary to determine whether the court should consider the equities of the case as they existed at the time the payments wеre made or whether it should also consider any change in the status of the parties and of the accounts which had arisen since the payment was made in reaching its conclusion as to what was fair, just and equitable between the parties.
Nеither of the parties to this appeal has cited any authorities on this question or has discussed it in their brief before this court. In Whetmore v. Murdock, Fed.Cas. No. 17,510, the court said that, where no application has been made, “the court * * * may at the triаl apply it in such way as seems most equitable and proper.” In Murdock v. Clarke,
We accordingly conclude that the trial court erred in applying $716.65 to thе Gulfport project, and $1,516.96 to the Camp Bainbridge project. These sums likewise should have been applied to the amount found due by the court in the Frederick and Altus projects.
The judgment of the trial court is accordingly reversed, and the causе is remanded with directions to proceed in conformity with the views expressed herein.
BRATTON, Circuit Judge, is of the opinion that the judgment should be affirmed.
Notes
These contracts will be referred to as Group One.
These contracts will be referred to as Group Two.
$2,675.49 of the $6,006 had been allocated by the trial judge to the satisfaction of a judgment in a suit between these parties in the U. S. District Court for the Northern District of Mississippi. This allocation is not in issue here.