                             No. 80-55
               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                 1980


GENERAL ELECTRIC SUPPLY COMPANY,
Division of General Electric Co.,
A Corporation,
                            Plaintiff and Respondent,


MONTANA AUTOMOBILE ASSOCIATION, a
corporation; BRUCE D. JAMISON, d/b/a
JAMISON CONSTRUCTION, et al.,
                            Defendants and Appellants.


Appeal from:   District Court of the Thirteenth Judicial District,
               In and for the County of Yellowstone.
               Honorable Charles Luedke, Judge presiding.
Counsel of Record:
     For Appellants:
          Joseph P. Hennessey argued and Larry Grubbs, argued,
           Billings, Montana
          Harrison, Loendorf & Poston, Helena, Montana
     For Respondent:
          Fred Dugan argued, Billings, Montana


                               Submitted:   September 15, 1980


Filed:   -
         SRF 3 fl f$@
                                 Decided:   SEP 9 0 19w




                                    Clerk
M r . C h i e f J u s t i c e F r a n k I. H a s w e l l d e l i v e r e d t h e O p i n i o n o f t h e
Court.

            T h e d e f e n d a n t M o n t a n a A u t o m o b i l e A s s o c i a t i o n (MAA)      appeal s

f r o m a judgment entered i n D i s t r i c t Court f o l l o w i n g a n o n j u r y

trial.       T h e d i s t r i c t j u d g e f o u n d t h a t t h e p l a i n t i f f was e n t i t l e d

t o r e c o v e r $2,956.80,          p l u s c o s t s and a t t o r n e y f e e s i n a l i e n

foreclosure.

            D e f e n d a n t MAA c o n t r a c t e d w i t h J a m i s o n C o n s t r u c t i o n

( c o n t r a c t o r ) t o e r e c t a b u i l d i n g on MAA's r e a l p r o p e r t y i n

Billings,        Montana.         D u r i n g t h e f a l l o f 1977,         t h e now b a n k r u p t

s u b c o n t r a c t o r Clawson p u r c h a s e d e l e c t r i c a l m a t e r i a l s on open

a c c o u n t f r o m t h e p l a i n t i f f G e n e r a l E l e c t r i c S u p p l y Company ( G E )

f o r t h e MAA j o b .        C l a w s o n a l r e a d y owed G E a l a r g e sum o f money

f o r m a t e r i a l s p u r c h a s e d d u r i n g t h e summer o f 1 9 7 7 f o r o t h e r j o b s ,

b u t t h e a m o u n t was n o t y e t s u c h as t o a l a r m GE.                 B u t by December

1 9 7 7 , G E b e c a m e c o n c e r n e d a b o u t C l a w s o n ' s now o v e r d u e a c c o u n t s .

G E c o n t a c t e d C l a w s o n b y p h o n e t o make a r r a n g e m e n t s w i t h h i m t o

p a y a t l e a s t $37,749.69             on h i s a c c o u n t o f o v e r $100,000,               o r GE

threatened t o stop extending credit.                             On D e c e m b e r 2 9 ,    1977,      at

t h e t i m e t h a t C l a w s o n was p a i d f o r t h e MAA j o b b y t h e c o n t r a c t o r ,

C l a w s o n made t h e p a y m e n t o f $ 3 7 , 7 4 9 . 6 9     o n h i s GE a c c o u n t .         GE

a p p l i e d t h i s c h e c k t o t h e p a s t due a c c o u n t s o f $ 3 7 , 7 4 9 . 6 9 ,         and

d i d not apply i t t o t h e accounts r e f l e c t i n g m a t e r i a l s purchased

f o r t h e MAA j o b - - n o n e     o f w h i c h w e r e p a s t due a t t h a t t i m e .

A p p e l l a n t c o n t e n d s t h a t t h i s a p p l i c a t i o n o f f u n d s was c o n t r a r y t o

Clawson's instructions.

            I n F e b r u a r y 1 9 7 8 , GE f i l e d a m a t e r i a l m a n ' s l i e n a g a i n s t

MAA f o r f a i l u r e t o p a y f o r t h e e l e c t r i c a l        supplies.           S u i t was

l a t e r brought t o enforce the l i e n ,                 and j u d g m e n t was e n t e r e d i n

f a v o r o f GE.       We a f f i r m .

           The i s s u e s p r e s e n t e d t o t h i s C o u r t f o r p u r p o s e s o f appeal

a l l r e l a t e t o one c e n t r a l q u e s t i o n :        Did the D i s t r i c t Court e r r

i n f i n d i n g t h a t a v a l i d l i e n e x i s t e d a g a i n s t MAA?

           Both p a r t i e s t o t h i s a c t i o n agree t h a t i f the m a t e r i a l s
u s e d i n t h e c o n s t r u c t i o n o f t h e MAA b u i l d i n g w e r e s u p p l i e d b y GE

b u t were n o t p a i d f o r t h a t GE has a v a l i d b a s i s f o r a l i e n .                    But,

a p p e l l a n t s c o n t e n d t h a t G E was n o t i f i e d t h a t C l a w s o n ' s p a y m e n t t o

G E was t o be a p p l i e d t o t h e M A A a c c o u n t ;          t h e r e f o r e t h e MAA d e b t

s h o u l d be c o n s i d e r e d as h a v i n g b e e n p a i d .       6 0 Am J u r 2 d P a y m e n t

$5   81,   82;    M o n i d a h T r u s t v.   Hruze ( 1 9 2 2 ) , 62 Mont. 444,                449,

2 0 5 P.   232, 233-234.

           A c r e d i t o r i s bound by t h e i n s t r u c t i o n s g i v e n t o h i m by

t h e d e b t o r as t o t h e a p p l i c a t i o n o f a p a y m e n t .        Section

28-1-1106,        MCA,     sets out the c r e d i t o r ' s duties:

           " A p p l i c a t i o n o f p e r f o r m a n c e when t h e r e a r e
           several obl i g z i o n s .             Whenever a d e b t o r u n d e r
           s e v e r a l o b l i q a t i o n s t o a n o t h e r d o e s an a c t b v
           way o f p e r f o r m a n c e , i n w h o l e o r i n p a r t , w h i c h
           i s e q u a l l y a p p l i c a b l e t o t w o o r more o f such
           o b l i g a t i o n s , s u c h p e r f o r m a n c e m u s t be a p p l i e d a s
           follows:

            "(1) I f , a t t h e t i m e o f performance, t h e i n t e n -
           t i o n o r d e s i r e o f t h e d e b t o r t h a t such p e r f o r -
           m a n c e s h o u l d be a p p l i e d t o t h e e x t i n c t i o n o f a n y
           p a r t i c u l a r obligation i s manifested t o the
           c r e d i t o r , i t m u s t be so a p p l i e d .

           "(2)      I f no s u c h i n t e n t i o n o r d e s i r e i s t h e n
           manifested, the c r e d i t o r , w i t h i n a reasonable
           t i m e a f t e r s u c h p e r f o r m a n c e , may a p p l y i t t o w a r d
           t h e e x t i n c t i o n o f any o b l i g a t i o n p e r f o r m a n c e o f
           w h i c h was d u e t o h i m f r o m t h e d e b t o r a t t h e t i m e
           o f such p e r f o r m a n c e      . . ."
           I n o r d e r t o f i n d t h a t t h e c r e d i t o r (GE) e r r e d i n a p p l y i n g

C l a w s o n ' s p a y m e n t t o t h e p a s t due a c c o u n t s ,    then,     i t was n e c e s s a r y

f o r t h e D i s t r i c t C o u r t t o f i n d t h a t Clawson " m a n i f e s t e d "        his

"intention or            d e s i r e " t o GE t h a t t h e $37,749.69             p a y m e n t be

a p p l i e d t o t h e MAA      account.         C l a w s o n c o n t e n d s t h a t GE knew o r

s h o u l d h a v e k n o w n how t h e c h e c k was t o be a p p l i e d .

           B a s e d on t h e e v i d e n c e p r e s e n t e d a t t r i a l ,    the d i s t r i c t

j u d g e f o u n d t h a t m a t e r i a l s v a l u e d a t $2,956.80        were supplied t o

MAA,    a n d t h a t t h e n o t i c e t o t h e c r e d i t o r as t o p a y m e n t was n o t

s u f f i c i e n t t o deem t h e MAA a c c o u n t p a i d .         T h e s e f i n d i n g s m u s t be

p r e s u m e d t o be c o r r e c t and w i l l      n o t be s e t a s i d e u n l e s s c l e a r l y

erroneous.          Rule 52(a),         M.R.Civ.P.          A review of the evidence
s h o w s some c o n f l i c t ,   b u t t h i s Court w i l l not

            " ' s u b s t i t u t e i t s weighing o f the evidence f o r
            t h a t o f the t r i a l court.              When t h e r e i s a
            c o n f l i c t i n t h e evidence, the f i n d i n g s o f the
            t r i a l c o u r t a r e p r e s u m e d t o be c o r r e c t i f s u p -
            p o r t e d b y s u b s t a n t i a l e v i d e n c e . "'  K o s m e r l v.
            Barbour ( 1 9 7 9 ) ~              Mont.            , 5 8 9 P.2d 1 0 1 7 , 1 0 1 9 , 3 6
            S t . R e p . 2 1 0 , .31
                                    2

            T h e e v i d e n c e a t t r i a l o n t h e q u e s t i o n o f n o t i c e came p r i -

m a r i l y f r o m GE's p r i n c i p a l w i t n e s s M r .    Resch,      and f r o m M r .

Clawson.         R e s c h , a c r e d i t and c o l l e c t i o n s p e c i a l i s t f o r G E i n

S a l t Lake City t e s t i f i e d t h a t GE r o u t i n e l y f o l l o w s i n s t r u c t i o n s

f r o m a d e b t o r as t o t h e a p p l i c a t i o n o f f u n d s .        I f no s p e c i a l

i n s t r u c t i o n s a r e g i v e n b y t h e d e b t o r , GE n o r m a l l y d e l e t e s t h e

o l d e s t account items f i r s t .            He t e s t i f i e d t o s u c h a p r o c e d u r e i n

t h i s case.       I n December 1977,             Resch c o n t a c t e d Clawson by phone

a b o u t h i s p a s t due a c c o u n t - - n o n e   o f w h i c h was MAA r e l a t e d .          At

t h a t time,     $37,749.69         was 9 0 - 1 2 0 d a y s i n a r r e a r s on an a c c o u n t

t o t a l o f o v e r $100,000.           R e s c h ' s t e s t i m o n y was t h a t C l a w s o n g a v e

h i m no i n s t r u c t i o n s on t h e p h o n e as t o a p p l i c a t i o n o f h i s n e x t

payment, n o r d i d Resch e v e r r e c e i v e any i n s t r u c t i o n s f r o m t h e GE

employees i n B i l l ings.             Clawson t e s t i f i e d o t h e r w i s e :

           "Q.      And do y o u r e c a l l t h e d i s c u s s i o n s y o u h a d
           w i t h M r . Resch c o n c e r n i n g y o u r a c c o u n t d u r i n g
           t h a t g e n e r a l a r e a o f December 2 9 t h o f ' 7 7 o r
           s h o r t l y - - A.         I s p o k e t o h i m o n t h e p h o n e , and
           h e s a i d t h a t we h a d t o h a v e t h i s a m o u n t o f money
           in.      O t h e r w i s e , t h e y were g o i n g t o c l o s e t h e
           account.           So I t o l d h i m t h a t when I g e t t h e
           check from Jamison C o n s t r u c t i o n [ t h e c o n t r a c t o r
           o n t h e MAA j o b ] a n d H a n s o n K e l l y C o n s t r u c t i o n , I
           w i l l bring it in.

           "Q.       So y o u d e f i n i t e l y r e m e m b e r s a y i n g t h a t y o u
           w e r e g o i n g t o g e t y o u r money f r o m t h o s e t w o
           s o u r c e s ? A.    They were t h e o n l y t w o I had l e f t
           --    Yes, I d o - - t h e o n l y t w o t h a t I h a d money
           coming from."

           C l a w s o n t e s t i f i e d f u r t h e r t o h a v i n g d i s c u s s e d t h i s same

m a t t e r w i t h an e m p l o y e e i n t h e B i l l i n g s GE o f f i c e p r i o r t o m a k i n g

t h e payment,       and t h a t a t t h e t i m e o f m a k i n g p a y m e n t ,       he t o l d t h e

employee:         " T h e y p a i d me.      Now h e r e ' s y o u r s . "     Clawson's

u n d e r s t a n d i n g was t h a t t h e p a y m e n t s w o u l d go t o p a y o f f t h e MAA

j o b and t h e H a n s o n K e l l y j o b .
           The r e c o r d does n o t c o n t a i n any t e s t i m o n y f r o m t h e

employee i n B i l l i n g s ,       and i n f a c t ,     i t i s n o t c l e a r as t o

w h e t h e r t h e c h e c k was h a n d - d e l i v e r e d t o G E b y C l a w s o n o r i f i t

was m a i l e d t o GE i n S a l t L a k e C i t y .          Nonetheless,          t h e check used

t o p a y t h e $37,749.69           c o n t a i n e d no n o t a t i o n as t o how i t was t o

b e a p p l i e d o r as t o t h e s o u r c e o f t h e f u n d s .         Clawson d i d n o t

endorse t h e check from t h e c o n t r a c t o r (Jamison) d i r e c t l y over t o

GE,    b u t r a t h e r d e p o s i t e d J a m i s o n ' s c h e c k and w r o t e a s e p a r a t e

c h e c k t o GE.      Additionally,           even i f GE had been t o l d t h a t t h e

f u n d s i n q u e s t i o n came f r o m J a m i s o n C o n s t r u c t i o n , t h e r e c o r d d o e s

n o t show t h a t G E n e c e s s a r i l y knew o f t h e c o n n e c t i o n b e t w e e n

Jamison,       C l a w s o n a n d t h e MAA j o b .      The GE i n v o i c e s p e r t a i n i n g t o

t h e MAA j o b w e r e d e s i g n a t e d "AAA" b u t no m e n t i o n o f J a m i s o n

C o n s t r u c t i o n was on t h e i n v o i c e s .    Based on t h i s t e s t i m o n y ,      the

D i s t r i c t C o u r t Judge found:

            " T h e r e i s some u n c e r t a i n t y as t o w h e t h e r t h e
           c h e c k was d e l i v e r e d l o c a l l y o r w h e t h e r i t was
           m a i l e d t o S a l t L a k e C i t y , b u t , i n any e v e n t , i t
           was d e l i v e r e d t o p l a i n t i f f w i t h o u t a n y t h i n g
           b e i n g e x p r e s s l y s a i d a t t h a t tme as t o what p o r -
           t i o n o f t h e a c c o u n t i t was t o a p p l y u p o n .           In
           r e t r o s p e c t , C l a w s o n , o f AAA E l e c t r i c , t e s t i f i e d
           t h a t he assumed i t w o u l d go t o p a y o f f t h e j o b s
           f r o m w h i c h t h e p a y m e n t t o h i m h a d come u n d e r h i s
           comment a t t h e t i m e o f d e l i v e r y , ' I g o t m i n e ,
           now h e r e i s y o u r s . '         However, t h e d i s c u s s i o n i n
           w h i c h t h e $ 3 7 , 7 4 9 . 6 9 p a y m e n t became f i x e d r e 1 a t e d
           t o t h e S e p t e m b e r and O c t o b e r b a l a n c e s , n o n e o f
           w h i c h i n v o l v e d t h e Montana A u t o m o b i l e
           A s s o c i a t i o n job.        So, a p p l i c a t i o n o f t h e p a y m e n t
           t o t h e S e p t e m b e r and O c t o b e r b a l a n c e s d i d n o t
           o p e r a t e t o e x t i n g u i s h l i a b i l i t y f o r t h e purcha-
           ses o f s u p p l i e s t h a t went i n t o t h a t job."
            ( F i n d i n g o f f a c t , No. 4 . )

           A p p e l l a n t a l s o p o i n t s t o l i e n waivers which t h e c o n t r a c t o r

Jamison r e q u i r e d Clawson t o s i g n a t t h e t i m e t h a t Jamison p a i d

Clawson:

           " 2 9 D e c e m b e r , 1 9 7 7 , f o r l a b o r and m a t e r i a l o n t h e M o n t a n a
           A u t o m o b i l e A s s o c i a t i o n c o n t r a c t i n t h e amount o f
           $4,631.55."             ( E x h i b i t A)

A p p e l l a n t contends t h a t t h e e x i s t e n c e o f t h e l i e n waivers b r i n g s

t h i s c a s e w i t h i n t h e r u l e o f C a r r o l l v.     Beck ( 6 t h C i r .     1945),       151

F.2d    964.      I n t h a t c a s e t h e r u l e was s e t o u t t h a t a d e b t o r may
c o n t r o l t h e a p p l i c a t i o n o f f u n d s i f t h e d e b t o r owes m o r e t h a n o n e

matured debt t o the creditor.                        But t h i s power i s l i m i t e d .            If the

c r e d i t o r k n o w s t h e s o u r c e o f t h e d e b t o r ' s f u n d s and knows o f a

duty o f the debtor t o discharge a p a r t i c u l a r debt,                            then the cre-

d i t o r m u s t so a p p l y t h e f u n d s .        C a r r o l l , 1 5 1 F.2d     a t 966.

             Many c o u r t s d i s p u t e t h i s h o l d i n g ,     f i n d i n g no s u c h d u t y i n

the creditor.             See A n n o t . ,     1 6 6 A.L.R.      641, 642.          Montana has n o t r u l e d

d i r e c t l y on t h i s q u e s t i o n ,    a1 t h o u g h M o n t a n a a p p e a r s t o s u p p o r t

t h e v i e w o f no d u t y a t l e a s t i n s u r e t y s h i p c a s e s .           See N a t i o n a l

B a n k v.    Bingham (1931),            9 1 Mont. 62,           72,    5 P.2d      554,    556-557;

Annot    ., 57     ALR2d 8 5 5 , 8 5 9 - 8 6 0 .        However,        i t i s not necessary f o r

t h i s Court t o address t h a t issue here.                          There i s nothing i n t h e

r e c o r d t o i n d i c a t e t h a t GE h a d a n y k n o w l e d g e w h a t s o e v e r o f t h e

l i e n waivers,        n o r was t h e r e a n y d e t e r m i n a t i o n t h a t t h e l i e n

waivers evidenced a contractual                         duty o f Clawson's t o apply t h e

p a y m e n t t o t h e MAA j o b .           For these reasons,             we r e j e c t a p p e l l a n t ' s

a r g u m e n t b a s e d on C a r r o l l ,    supra,      and r e l a t e d c a s e s .

             T h i s Court i s not unmindful o f the harsh r e s u l t s i n t h i s

case.        MAA p a i d i t s c o n t r a c t o r f o r t h e w o r k d o n e on i t s b u i l d i n g ,

a n d now MAA i s i n a p o s i t i o n o f h a v i n g t o p a y a g a i n .                 GE was a b l e

t o u s e M A A ' s money t o p a y o l d and p e r h a p s u n c o l l e c t i b l e d e b t s ,

a n d w i l l now g e t a d d i t i o n a l money f r o m MAA t o p a y t h e C l a w s o n / M A A

debt.        However,       b a s e d on t h e j u d g e ' s     factual findings,              w h i c h we

f i n d t o be s u p p o r t e d b y s u b s t a n t i a l e v i d e n c e ,    we d e t e r m i n e t h a t

s e c t i o n 28-1-1106,         MCA,    requires t h i s result.                 This Court i s faced

w i t h a case i n w h i c h t h e l e g i s l a t u r e has s e t f o r t h a c l e a r

mandate, which t h e Court i s o b l i g e d t o f o l l o w .                      T h a t s u c h an i n e -

q u i t a b l e r e s u l t occurred here suggests t h a t t h e l e g i s l a t u r e

s h o u l d r e v i e w t h i s s t a t u t e w h i c h has been i n t h e codes v i r t u a l l y

unchanged s i n c e 1895, d e s p i t e d r a s t i c changes i n t h e c o n d u c t o f

business.
           The j u d g m e n t o f t h e D i s t r i c t C o u r t i s a f f i r m e d .




                                                                 Chief Justice




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