APPROPRIATION OF PAYMENT
APPROPRIATION OF PAYMENT
When the debtor owes several distinct
debts to a creditor, and he makes some payment which is not enough to cover the
payment of all the debts, the question which, in such a case, arises is as to
which particular debt the payment is to be appropriated. The payment is to be
appropriated according to the following rules, contained in Sections 59 to 61.
(1) Appropriation
as desired by the debtor
Section 59: Where a debtor, owing
several distinct debts to one person, makes a payment to him, 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.
The application of payment of debt is
left entirely to the discretion of the debtor. If, however, the debtor fails to
give instructions, the creditor can apply the amount to any of the debts including
a time barred debt. When the debtor indicates that particular payment is to be
applied for the discharge of a particular debt, the creditor has to apply the
same accordingly. If the creditor does not want to do that he must not accept the
payment.
Illustrations
(a) A owes B among other debts, 1,000 rupees
upon a promissory note, which falls due on the first June. He owes B no other
debt of that amount. On the first June, A pays to B 1,000 rupees. The payment
is to be applied to the discharge of the promissory note.
(b) A owes to B, among other debts,
the sum of 567 rupees. B writes to A and demands payment of this sum. A sends
to B 567 rupees. This payment is to be applied to the discharge of the debt of
which B had demanded payment.
The rules mentioned in Sections 59 to
61, although are meant for applied to several distinct debts, the same
principles are applicable when there is a single debt and also interest
thereon. Thus, if the decretal dues include both the principal and interest,
the deposit of amount as that of the principal amount would point to the
payment of the principal amount and not the interest. When a debtor has to make
payment under multiple heads, he has an option under Section 59, to indicate
the head to which the amount paid should be appropriated.
(2) Appropriation
by the creditor
In the first instance, it is the right
of the debtor to decide as to which payment is to be applied to which
particular debt. If he fails to make any indication of his intention, the
creditor has a right to apply the amount to any lawful debt actually due. The
rule in this regard is contained in Section 60, which reads as under:
"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 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."
The creditor's right is to appropriate
the amount to any debt provided it is lawfully due, even though it may be time
barred. He cannot make the appropriation to an illegal or void debt.
When the debt is due with interest and
the debtor makes the payment of a certain sum of money, the normal rule in such
a case is that the amount so received by the creditor is to be applied in the
first instance to the satisfaction of interest thereafter to the principal.
This rule is subject to an agreement between the parties to the contrary.
(3) Appropriation
towards debts in order of time
Where neither the debtor nor the
creditor makes appropriation, then the rule mentioned in Section 61 determines
to which amount is to be applied for discharging which particular debt. In such
a case, the payment shall be applied in discharge of the debts in order of
time. The oldest one is to be discharged first of all, even though it may be a
time barred debt. If the debts are of equal standing, the payment shall be
applied in discharge of each such debt proportionately. Section 61 reads as
follows:
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