Payment allocation on an account / 9352 Cranesbill Tr. v. Wells Fargo Bank, N.A.

A question often arises as to whether a debtor or a creditor get to decide how to apply a payment on an account. In 9352 Cranesbill Tr. v. Wells Fargo Bank, N.A., No. 76017, 2020 Nev. LEXIS 9 (Mar. 5, 2020), the Nevada Supreme Court clarified who decides how payments are to be applied.

In general, when a debtor makes a partial payment, that debtor has the right to make an appropriation of such payment to the particular obligations so long as the debtor directs the application at the time that the payment is made. If the debtor does not make a timely instruction, then the creditor may determine how to allocate the payment; however the creditor cannot thereafter change the application to another debt.

If neither the debtor nor the creditor makes a specific application of the payment, then the court decides how to apply the payment based upon the basic principles of justice and equity so that a fair result can be achieved between the parties in view of all of the circumstances, as is most in accord with justice and equity and will best protect and maintain the rights of both the debtor and creditor. These questions can be fact intensive based upon the intent of the parties and most equitable allocation.