APPROPRIATION OF PAYMENT

AND ASSIGNMENT OF
CONTRACT

ROHITH B R
4TH SEM BBA.LLB
 INTRODUCTION
APPROPRIATION BY DEBTOR
APPROPRIATION BY CREDITOR
LAWFUL DEBTS
ASSIGNMENT OF RIGHTS
CONTENTS EFFECTS ON FORMALITIES OF ASSIGNMENT
DISCHARGE BY AGREEMENT
CASES
CONCLUSION
REFERENCES
INTRODUCTION
• Sections 59 to 61, of the Contract Act, embody the general rules as to
appropriation of payments in cases where debtor owes several
distinct debts to one person and voluntarily makes payments to him.
It was observed that “When money is paid, it is applied according to
the express will of the payer and not the receiver.
• A discharge of a contract by agreement, on the other hand, is when
the contract is ended because the conditions are not fulfilled.
However, the involved parties can also terminate a contract when the
primary terms and conditions of the said contract have not been
fulfilled. Essentially, the difference between a discharge of a contract
and terminating contract is the reasons why the contract is coming to
an end.
 1. When a creditor has two debts due to him
from the same debtor on distinct
accounts, the general law as to the
appropriation of payments made by the
APPROPRIATION debtor is that the debtor is entitled to
BY DEBTOR apply the payments to such account as he
thinks fit; Solvitur in Sodum Solventis.
2. Solvitur in modum solventis is Money
paid is to be applied according to the
wish of the person paying it.
RULES OF APPROPRIATION OF DEBT
• The payment shall be applied in discharge of debts in order of time.
• If the debts are of equal standing the payment s
• The Rules relating to the appropriation of payments made by a
debtor, who owes a number of distinct debts to his creditor are
contained in Sections 59 to 61 of the Indian Contract Act, 1872hall be
applied in discharge of each proportionately
APPROPRIATION BY CREDITOR

Under Section 60, the creditor is also competent for

appropriation. If the debtor makes any payment without
any appropriation then the creditor can use his discretion
to wipe out any debt which is due.
The creditor, in this case, has a lot of scope for exercising
his right, he can put himself in the most advantageous
position. Moreover, he need not express himself in
express terms while doing so.
LAWFUL DEBTS
A sum of money that is owed or due to be paid because of an express
agreement; a specified sum of money that one person is obligated to
pay and that another has the legal right to collect or receive.

The creditor must establish the existence of a lawful debt actually due.
Under this section, the appropriation cannot be made against any
unlawful debt. In several cases, it was held by the court that a creditor
can even appropriate towards an unenforceable debt due to some
defect.
ASSIGNMENT OF RIGHTS
An assignment of rights agreement refers to a situation in which one party,
known as the assignor, shifts contract rights to another party. The party
taking on the rights is known as the assignee.

For an assignment to be effective, it must contain the fundamental aspects of

a contract, such as: A contract assignment occurs when a party assigns their
contractual rights to a third party.

One of the leading authorities is the decision of the Supreme Court in the case
of Khardah vs Raymon
EFFECTS ON FORMALITIES OF ASSIGNMENT

Formalities, as a requirement, applies to those circumstances when an agreement is

required to be concluded in a specific manner or in a specific form

The basic elements required for the agreement to be a legally enforceable contract
are: mutual assent, expressed by a valid offer and acceptance; adequate consideration;
capacity; and legality. In some states, element of consideration can be satisfied by a valid
substitute.
DISCHARGE BY AGREEMENT
• Discharge of a contract means to end a contract. Discharge of the
contract can take place through:
1. By Performance;
2. By agreement or by consent;
3. By promise failing to offer facilities for performance;
4. By breach of contract;
• By refusing tender of performance;
• By unauthorized material alteration of the contract;
• Discharge by lapse of time;
• By operation of law.
CASES
Khardah vs Raymon

Vishram Arjun vs Irakulla

Shankaraiha

Koyal vs Thakur Das

Naskar

Lata Construction vs
Rameshchandra Ramniklal

SAIL vs State of MP
CONCLUSION
• Under the appropriation of a contract, the debtor has the first right to
intimate appropriation of a debt at the time of payment if he fails to
exercise his right, this right then goes on the creditor and if the
creditor also fails to exercise his right the appropriation will be done
in order of time by the law itself. In case of debts of equal standing,
each will be appropriated proportionately.
• The discharge of the contract involves the novation of the contract. In
novation, the whole contract is substituted by a new contract. This
substitution takes place mutually by both parties. The parties could
communicate their opinions expressly or it could be implied due to
the circumstances.
 • Avtar Singh, the law of contract
• Pollock and Mulla, The Indian Contract
Act,1872
REFERENCES • https://lawpath.com.au/blog/what-is-
novation
• https://blog.ipleaders.in/contract-discharge/