Tuesday, October 09, 2007

Contract Act_Practical Problems_20

A owes B two debts of Rs. 2,000 and Rs. 550. B telephones to A saying that he is in urgent need of Rs. 550 and that A should at least pay Rs. 550. A merely sends a cheque for Rs. 550. B then finds that the other debt of Rs. 2,000 is about to get time-barred. So he applies the cheque in part payment of that debt. Discuss.

Section 59 of the Indian Contract Act, 1872 gives us the rule regarding appropriation of payments. It says, where a debtor, owing several distinct debts to oneperson, makes a payment to him, either 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.

In the given question, it seems that the payment has been directed to pay off the outstanding debt of Rs. 550 and must, therefore, have been applied towards the same.

Its application to the other debt of Rs. 2,000 is not valid.

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