Principle of appropriation - Indian Laws - General

Principle of appropriation The general rule of appropriation is set out in Halsbury s Laws of England, Fourth Edition, thus, Where several distinct debts are owing by a debtor to his creditor, the debtor has the right when he makes a payment to appropriate the money to any of the debts that he pleases, and the creditor is bound if he takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor. An appropriation by the debtor need not be made in express terms, but must be communicated to the creditor or be capable of being inferred; it may be inferred where the nature of the transaction or the circumstances of the case are such as to show that there was an intention to appropriate. The principle of appropriation is set out in Chitty on Contracts, 29th Edition, Volume I in paragraph 21-059, Where several separate debts are due from the debtor to the creditor, the debtor may, when making a payment, appropriate the money paid to a particular debt or debts, and if the creditor accepts the payment so appropriated, he must apply it in the manner directed by the debtor; if, however, the debtor makes no appropriation when making the payment, the creditor may do so. Paragraph 21-061 deals with the creditor s right to appropriate. It is stated, where the debtor has not exercised his option, and the right to appropriate thereof devolved upon the creditor, he may exercise it at any time up to the very last moment or until something happens which makes it inequitable for him to exercise it. The question of appropriation as between principal and interest is set out in paragraph 21-067 in the following words: Where there is no appropriation by either debtor or creditor in the case of a debt bearing interest, the law will (unless a contrary intention appears) apply the payment to discharge any interest due before applying it to the earliest items of principal. The Rule of Appropriation as applied in India was summed up by Mr. Justice T.L. Venkatarama Aiyar (as he then was) in the Full Bench decision of the Madras High Court in Marimella Suryanarayana v. Venkataraman Rao AIR1953Mad458 . His Lordship stated: The principles governing appropriation of payments made by a debtor are under the general law well settled. When a debtor makes a payment, he has a right to have it appropriated in such manner as he decides and if the creditor accepts the payment, he is bound to make the appropriation in accordance with the directions of the debtor. This is what is known in England as the rule in Clayton s case (1861) 1 Mar.572: 35E.R. 781 and it is embodied in Section 59, Contract Act. But when the debtor has not himself made any appropriation, the right devolves on the creditor who can exercise it at any time, vide Cory Bros. Co. v. Owners of the Turkish Steamship Mecca (1897) A.C. 286 ; and even at the time of the trial : Vide - Symore v. Picket (1905) 1 K.B. 715. That is Section 60, Contract Act. It is only when there is no appropriation either by the debtor or the creditor that the Court appropriates the payments as provided in Section 61, Contract Act. GURPREET SINGH - 2006 (10) TMI 493 - SUPREME COURT