Discharge by paying creditor's debt (pp. 20-1)
As a general rule, a debtor can discharge a debt only by payment to the creditor personally, However, if the creditor asks the debtor to pay a third party and the debtor pays the third party qua agent, such payment will be effective to discharge the debt.
Discharge by agent of debtor or other 3rd party (p. 21)
...The converse situation of an agent or third person paying the debtor's obligation to his or her creditor presents difficult and controversial legal problems. It is of course clear that a debtor can pay a debt through an agent instead of personally. But what happens if a third person without authority pays the creditor? Most debtors (and creditors) would probably welcome such meddling with cries of joy, but there are situations in which the debtor or the creditor may want the debt to continue rather than come to an end.
Appropriation of payment by debtor or creditor (pp. 23-4)
One of the most frequently litigated problems in debtor-creditor law arises when a debtor owing two or more debts to the same creditor makes a payment to that creditor. To which of the debts should the payment be appropriated? The classic statement of the law is to be found in Lord Macnaghten's speech in Cory Bros. & Co. v. "The Mecca", a rule which has been often applied in Canadian cases:
When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor. In 1816, when Clayton's Case was decided, there seems to have been authority, for saying that the creditor was bound to make his election at once according to the rule of the civil law, or at any rate, within a reasonable time, whatever that expression in such a connection may be taken to mean. But it has long been held and it is now quite settled that the creditor has the right of election 'up to the very last moment,' and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. Where the election is with the creditor, it is always his intention expressed or implied or presumed, and not any rigid rule of law that governs the application of the money.
Lord Macnaghten makes it clear that the appropriation by either the debtor or the creditor need not be declared in express terms but may be implied from the appropriator's actions. What is required is that the appropriation, whether expressed in words or implied from conduct, should be communicated to the other party. Thus it has been held that an uncommunicated entry in the creditor's private books is not an appropriation which will preclude that creditor from subsequently making a different application of the payment. On the other hand, once the party does make a communicated appropriation, that party cannot subsequently change the appropriation. The rules in the Cory Bros. case will of course not apply where the parties have previously agreed as to the appropriation of payments.
Appropriation as between interest and principal (p. 26)
Assuming that there is no evidence of the parties' intention, the law will attribute a payment first to interest and then to principal.
Usual meaning of "debt" (pp. 12-13)
In most situations in which lawyers use the word "debt", however, their intention is to describe something more limited than obligations or demands. Osborn's Concise Law Dictionary defines "debt" as "a sum of money due from one person to another". The Oxford Companion to Law takes a similar approach:
Debt. That which is owed by one person to another, and particularly money payable arising from and by reason of a prior promise or contract, but also from and by reason of any other ground of obligation, e.g., statute or order of court. The moral and legal obligation is on the debtor to pay his creditor, but in many cases the existence or extent of the obligation to pay must be determined judicially.
Sum certain or ascertainable by simple calculation from known facts (p. 13)
[I]n Passaic Nat. Bank & Trust Co. v. Eelman [(1936), 183 A. 677 at 678-9)] the New Jersey court identifies as the essence of a debt the fact that a sum is owed [fn. 8 The New Jersey court apparently means "owed" in the sense that the sum can be successfully sued for. In support, see Ex parte Jones (1879), 12 Ch. D. 484 (C.A.)] which is either certain or ascertainable by a simple mathematical calculation from known facts. Such a definition would exclude any unliquidated claim arising out of contract or tort "which would only become a debt in the strict sense when the amount is fixed by the judgment of a court". However, it might well include claims sounding in restitution or equity and actions under statutes for benefits and penalties. [fn. 12 See also D.P.P. v. Turner, [1973] 3 All E.R. 124 (H.L.); Diewold v. Diewold, [1941] S.C.R. 35….]
Narrower view restricting to contract (pp. 13-14)
A narrower view of debt is to restrict it to money obligations arising out of express or implied contract, including quantum meruit. One form of this definition is found in the following passage from Burrows' Words and Phrases Judicially Defined….Some Canadian cases have seen this definition as meaning that a debt ...mus be based on a contract... .
…There are serious difficulties in accepting such a narrow view of debt. The Burrows definition would exclude a claim for a statutory penalty or for an equitable debt such as a claim against a trustee for a specific sum of money. It would also exclude those restitutionary causes of action which were not pleaded by use of the common counts. There is no obvious reason in principle or policy why such claims, if quantified, should not be regarded as debts where the context permits such an interpretation. For example, whether a claim for a sum of money is based on contract, restitution or an equitable cause of action should not affect the question whether garnishment before judgment is available. In all cases, the amount sued for is liquidated, and this is surely all that the formula "debt or liquidated demand" is seeking to require.
Conclusion (p. 16)
[O]ne can say that the most common use of the word "debt" is to describe an obligation to pay a sum certain or a sum readily reducible to a certainty. The obligation may or may not depend on an express or implied contract, depending on the context in which the word is used, but to this writer the essence of the term is that, if there is an obligation to pay a certain or ascertainable sum, the courts should tend not to concern themselves with the precise nature of the cause of action. Claims for unliquidated damages will generally not be describable as debts unless the context suggests or a statute provides otherwise.
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