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Appropriation of Payments in Contracts
Appropriation of Payments in Contracts
Rules:
Where payment of debt to be discharged is indicated: (Sec.59)
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.
Illustrations:
(a) A owes B, among other debts, Rs.1,000 upon a promissory note which
falls due on 1st June. He owes B no other debt of that amount. On the 1st of
June A pays to B Rs.1,000. The payment is to be applied to the discharge of
the promissory note.
(b) A owes B, among other debts a sum of Rs.567. B writes to A and demands
payment of this sum. A sends B Rs.567. This payment is to be applied to the
discharge of the debt which B had demanded.
Where the debtor has omitted to intimate and there are 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 by 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.
If a debtor does not exercise his right, the creditor has the right to
appropriate the payment to any lawful debt though barred by the law of
limitation. In case where there is a running account, the payment can be
appropriated to any debt. It is a settled law that a creditor is entitled to adjust
the debts from any security in the creditor’s custody. The time barred debt
remains a debt even if the remedy to recover it is barred.
Where the debtor does not intimate and the creditor fails to appropriate:
(Sec.61)
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.