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Appropriations of Payments–Under Contract Act

There are some situations where a certain amount is paid by the debtor to his creditor with or without intimating its intended application, these situations are frequently asked in the form of case studies in various examinations including CPT, IPCC etc. ; these situations may be elaborated in following sub-situations and can be dealt as understated :
(i) Application of Payment where debt to be discharged is indicated [Intimation by Debtor] :
The Creditor has no option but to apply such payment for the discharge of such particular debt (Intimation for application of amount against a particular debt is either expressed or implied)
(ii) Application of Payment where debt to discharged is not indicated [At the option of Creditor] :
The Creditor has the discretion to apply such payment for any lawful debt which which is due to him from the debtor, even if such debt is barred by any limitation(i.e. Time)
(iii) Application of Payment where none of the parties make the appropriation :
The payment shall be applied in discharge of the debts in order of time, even if any of the debts is barred by limitation
If in case (iii); there are more than one debts on the oldest date; then all those debts will be partly or proportionately discharged; i.e; in ratio of the amount of debt or principal.
In case, interest on any debt is also due, amount received from debtor shall be first used for discharging principal amount of the debt.
In all three cases above; the condition is -
(a) Debtor owes several distinct debts to the Creditor
(b) The Debtor makes a payment to the Creditor


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