235 Effect of Performance as Discharge and of Non-Performance As Breach see also Remedies
1. Full performance of a duty under a contract discharges the duty.
2. When performance of a duty under a contract is due any non-performance is a breach.
Topic 4 - Application of Performances
258 Obligor's Direction of Application
1. Except as stated in Subsection (2), as between two or more contractual duties owed by an obligor to the same obligee, a performance is applied according to a direction made by the obligor to the obligee at or before the time of performance.
2. If the obligor is under a duty to a third person to devote a performance to the discharge of a particular duty that the obligor owes to the obligee and the obligee knows or has reason to know this, the obligor's performance is applied to that duty.
259 Creditor's Application
1. Except as stated in Subsections (2) and (3), if the debtor has not directed application of a payment as between two or more matured debts, the payment is applied according to a manifestation of intention made within a reasonable time by the creditor to the debtor.
2. A creditor cannot apply such a payment to a debt if
- the debtor could not have directed its application to that debt, or
- a forfeiture would result from a failure to apply it to another debt and the creditor knows or has reason to know this, or
- the debt is disputed or is unenforceable on grounds of public policy.
3. If a creditor is owed one such debt in his own right and another in a fiduciary capacity, he cannot, unless empowered to do so by the beneficiary, effectively apply to the debt in his own right a greater proportion of a payment than that borne by the unsecured portion of that debt to the unsecured portions of both claims.
260 Application of Payments Where Neither Party Exercises His Power
1. If neither the debtor nor the creditor has exercised his power with respect to the application of a payment as between two or more matured debts, the payment is applied to debts to which the creditor could have applied it with just regard to the interests of third persons, the debtor and the creditor.
2. In applying payments under the rule stated in Subsection (1), a payment is applied to the earliest matured debt and ratably among debts of the same maturity, except that preference is given
- to a debt that the debtor is under a duty to a third person to pay immediately, and
- if he is not under such a duty,
- to overdue interest rather than principal, and
- to an unsecured or precarious debt rather than one that is secured or certain of payment.