Thanks for visiting! Welcome to a new way to research case law. You are viewing a free summary from Descrybe.ai. For citation checking, legal issue analysis, and other advanced tools, explore our Legal Research Toolkit — not free, but close.
Choctaw, Inc. v. Great American Insurance
Citations: 235 Ark. 978; 363 S.W.2d 410; 1963 Ark. LEXIS 742Docket: 5-2853
Court: Supreme Court of Arkansas; January 7, 1963; Arkansas; State Supreme Court
Benton Plumbing Company (Benton) contracted with the City of Sparkman for a water and sewer system project, with Great American Insurance Company providing a performance and payment bond. Benton purchased materials from Choctaw, Inc. for this project, but payments made by Sparkman to Benton were not entirely allocated to the debt for those materials. After Benton encountered financial difficulties, Great American completed the project and Choctaw sued Great American for $3,963.77, claiming it was owed for materials supplied for the Sparkman job. Great American defended that only $546.86 remained unpaid. The case hinged on how Choctaw applied Benton's payments, which were made without specific instructions on their allocation. Choctaw applied these payments to the oldest debts on Benton's account, as instructed by Benton. The primary legal question was whether Choctaw was obligated to credit these payments specifically to the Sparkman job, given they knew or should have known the payments were derived from funds received from Sparkman. Great American cited prior cases involving liens where improper application of payments occurred, but those cases were not directly applicable since the property owners were parties to the litigation and opposed the payment application. In contrast, Sparkman was not involved in this case and raised no objections. Generally, debtors can direct payment applications, but an exception exists if the creditor is aware the payment comes with an understanding to apply it to a specific debt. Sparkman did not make payments to Benton with any expectation that the funds would be used for materials related to the Sparkman job, nor was there any agreement, either expressed or implied, to that effect. Sparkman appeared indifferent to how Benton utilized the money since it was secured by a bond from the insurance company. Even if Sparkman could have raised concerns regarding the payment application, the bonding company lacks standing to do so. Citing the White River Production Credit Ass’n case, the court emphasized that the right to designate payment application exists solely between the original parties involved in the transaction. Third parties, including guarantors and sureties, cannot dictate how payments are allocated unless agreed upon by the debtor and creditor. This principle extends to corporations providing surety bonds. The payments were allocated as directed by Benton, with no objection from Sparkman. Consequently, Great American cannot demand a change in the payment application. The decision was reversed.