Appropriation of Payments

Application of payment where debt to be discharged is indicated

n   The law on the subject is contained in Section 59.

n   “Where a debtor owing several distinct debts to one person, makes a payment to him either with express intimation or under circumstances implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.”

n   The Latin maxim is quicquid soivitur, sovitur secundum modum solventis.

n   The meaning of the maxim is that whatever is paid, is paid according to the intention or manner of the party paying.

n   According to this maxim, where a debtor owes several distinct debts to a creditor and makes payment, it has been held in Clayton’s case that the former enjoys the right of appropriation, and he may, at his pleasure, appropriate it to any debt; the creditor will be bound by such appropriation.

n   This is true insofar as express intimation by the debtor is concerned.

n   But even if the debtor does not expressly intimate the appropriation, the circumstances may indicate such an appropriation, and the creditor must abide by it accordingly. (Section 59)

n   If the debtor has not intimated at the time of payment, the creditor is entitled to appropriate it to the debt first in time.

n   Where X owes Y, among other debts Rs. 2,000 upon a promissory note which fell due on the 20th March, on which date the former pays the latter Rs. 2,000. The amount must be applied towards the discharge of the promissory note.


 

Application of payment where debt to be discharged is not indicated

n   The law on this subject is contained in Section 60.

n   “Where the debtor has omitted to intimate and there is no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.”

n   Lord Macnaughten has observed: “If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor.”

n   Creditor may make use of this right to the very last moment. (Cory Bros. & Co. vs. Owner of the Mecca)

n   In the case of an omission on the part of the debtor to intimate, expressly or impliedly, the creditor may at his discretion, appropriate the payment to any lawful debt actually due and payable irrespective of whether the debt is time barred or not.

n   Should there be any debt carrying interest, money paid or received, without any definite instruction as to its appropriation, is to be applied in payment of interest and then on capital, if there be balance. (Vinkatadri Appa Rao vs. Parthasarthi Appa Rao)


 

Application of payment where neither party appropriates

n   The law on the subject is contained in Section 61.

n   “Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionately.”

n   The aforesaid rule is to be applied when there is nothing to show the intention of the parties.

n   If the debts are of the same date, the payment shall be applied in discharge of each proportionately.

n   There are two debts, one of Rs. 500 and the other of Rs. 700 that were incurred on the same date. The debtor pays Rs. 600. Out of this sum, a sum of Rs. 250 should be applied in discharge of the first debt and the balance of Rs. 350 in discharge of the second debt.