Appropriation of

Payment

Appropriation of Payment
Appropriation of payment means an adjustment and application of the money to a given transaction.
When there are several debts outstanding from one person to another and certain payment is made by the

debtor, and such payment is insufficient to satisfy the whole debt.

The order in which the debts are satisfied is known as appropriation of payment.

Methods of appropriation

Debtors express instruction to be followed(Sec. 59).

Each debtor, who owes several debts to the creditor, has a right to instruct
his creditor to which particular debt, the payment is to be appropriated or
adjusted. Therefore, when the debtor expressly states that the payment is
to be applied to the discharge of a particular debt, the payment must be
applied accordingly. The creditor has to follow the debtors express
instruction in this respect (Sec. 59).

Debtors implied intention to be followed

Sometimes, the debtor makes a payment to his creditor without any expressed instructions as to

which particular debt the payment is to be appropriated.

In such a case, the creditor must appropriate the payment towards the debt to which, under the
implying circumstances, the debtor intended to do. (Sec. 59).

Appropriation by the creditor(Sec. 60).

If the debtor does not give any direct or indirect indication about appropriation, the creditor

gets a chance to apply the payment at his discretion.

He may appropriate the received amount towards any of the lawful debts including a time
barred debt.
But, he cannot Appropriation of Payment apply the payment to unlawful or disputed claims
(Sec. 60).

Appropriation by law
When the debtor does not signifies either expressly or impliedly nor the creditor appropriates

payment according to his discretion then Sec 61 would apply.

Sec 61 lays down the method of appropriation of payment as per law. Sometimes neither the
debtor nor the creditor makes any appropriation of the payment.
In such a case, the payment by the debtor should be appropriated towards the debts in order of
time, i.e. in the order in which they were created, including a time barred debt. This principle
always applies in the context of a running loan account with a bank or any other creditor.
When there is more than one debt pertaining to a certain date then the payment shall be applied
in discharge of each proportionately.

Appropriation between principal and interest.

If a debt includes the principal amount and also the interest due on it and the amount is

insufficient to cover the interest as well as the principal then the ordinary rule would be that the
money paid should be appropriated first towards the interest and then the residue if any towards
the principal amount.