Introduction
Appropriation of payments is the payment of a debt either in the sequence in which it is received or in any other recognized way. Sometimes, a debtor has to pay several debts to the same creditor and makes payment. Here, the question arises as to which of these, payment is to be applied. Sections 59 to 61 deal with these matters.
Relevant Provisions
Sections 59, 60, and 61 of the Contract Act 1872
General Rules for the Appropriation of Payment
The general rules as to the appropriation of payment are the following.
1. The debtor has expressed his intention
Whenever the debtor has stated that the payment made by him should be appropriated to a particular debt, the creditor must do so.
2. The debtor has not expressed his intention
Where the debtor does not express his intention, the law gathers his intention from the circumstances attending the payment.
3. The debtor pays an exact amount of one of the debts
If the amount paid by the debtor is the exact amount of one of the debts, it must be used to discharge that one.
4. The creditor asks for one specific debt
If the creditor asks for the payment of a specific debt, the payment made in response to his demand must be applied to that debt.
5. The creditor asks for several debts
Where the creditor demands the discharge of several debts and the debtor sends a lump sum, the same will have to be applied proportionately to the several debts.
Laws Regarding Appropriation of Payments
The laws specifically related to the appropriation of Payments are discussed below.
1. Debtor intimates appropriation U/s 59
Section 59 says that when a debtor expressly intimates at the time of actual payment, that the payment should be applied towards the discharge of a particular debt, the creditor must be so. If there is no express intimation by the debtor, the law will look to the circumstances attending to the payment for appropriation.
Example: (a) A owes B, among other debts, Rs.8,000 upon a promissory note which falls due on 15th June. He owes B no other debt of that amount On 15th June. A pays B Rs.8000. The payment is to be applied to the discharge of the promissory note.
(b) A owes B, among other debts, a sum of Rs.950. B writes to A and demands payment of this sum. A sends to B Rs 950. This payment is to be applied to the discharge of the debts for which B had demanded payment.
2. Debtor does not intimate U/s 60
Where a debtor does not expressly intimates his intention by the debtor regarding appropriation, the creditor may apply it at his desecration to any lawful debt actually due and payable to him from the debtor, irrespective of the law of limitation. But the creditor cannot apply it to a disputed debt.
3. Appropriation of earlier debts, first U/s 61
Where the debtor expressly, neither intimate nor the creditor has made any appropriation, the payment is applied in discharge of earlier debt in order of time.
Appropriation when Principal Interest due
Where the borrower makes a payment against the loan without stating whether it is towards principal or interest, the lender may apply for the payment first towards interest & then the balance to defray the principal sum.
Final Note
It is concluded that the payments must be appropriated according to the sequence in which they are received. However, if the debtor makes some specific payment, it will be applied to that particular debt.
FREQUENTLY ASKED QUESTIONS
What are the rules relating to the appropriation of payments provided in the Contract Act?
(2019-A, 2016-S, 2015-A, 2014-A)
Discuss the rules relating to the appropriation of payments made by the debtor to his creditor.
REFERENCES
- The Contract Act, 1872
- N-Series by M.A. Chaudhary
- Law of Contract by Avtar Singh
