Page 70 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes however, no express intimation is given but the payment is made under circumstances implying
that it should be appropriated to a particular debt, the payment, if accepted, must be applied to
that debt.

Example:
(i) A owes B, among other debts, ` 1,000 upon a promissory note which falls due on 1st June.
He owes B no other debt of that amount. On the 1st June A pays B ` 1,000. The payment is
to be applied to the discharge of the promissory note.
(ii) A owes B among other debts, the sum of ` 974. B writes to A and demand payment of his
sum. A sends to B ` 974. This payment is to be applied to the discharge of the debt of which
B had demanded payment.
Rule 2 – Appropriation by creditor (s.60). Where the debtor has omitted to intimate and there are
no other circumstances indicating to which debt payment is to be applied, the creditor may apply
it at his discretion to any lawful debt actually due and payable to him by the debtor. The amount,
in such a case, can be applied even to a debt which has become ‘time-barred’. However, it cannot
be applied to a disputed debt.

Example: A obtains two loans of ` 20,000 and ` 10,000, respectively. Loan of ` 20,000 is
guaranteed by B. A sends the bank ` 5,000 but does not intimate as to how it is to be appropriated
towards the loans. The bank appropriates the whole of ` 5,000 to the loan of ` 10,000 (the loan not
guaranteed). The appropriation is valid and cannot be questioned either by A or B.
Rule 3 – Where neither party appropriates (s.61). Where neither party makes any appropriation,
the payment is to be applied in discharge of the debts in order of time, including time-barred
debts. If the debts are of equal standing the payment is to be applied proportionately. This rule
is generally applicable in case of running accounts between two parties, money being paid and
withdrawn from time to time from the account, without any specific indication as to appropriation

of the payment made. In such a case debits and credits in the accounts will be set up against one
another in order of their dates, leaving only final balance to be recovered from the debtor by the

creditor.
Rule in Hallett’s Estate Case. The rule in Hallett’s Estate Case is an exception to the above Rule 3.
The rule applies where a trustee had mixed up trust funds with his own funds. In such a case, if
the trustee misappropriates any money belonging to the trust, the first amount so withdrawn by

him would be first debited to his own money and then to the trust funds. Similarly, any deposits

made by him would first be credited to trust fund and then to his own fund, whatever be the
order of withdrawal and deposit.
Example: A trustee deposits ` 10,000 being trust money with a bank and subsequently
deposits ` 50,000 of his own in the same account. Thereafter, he withdraws ` 10,000 from the bank
and misappropriates it. The said withdrawal will not be appropriated against the trust amount of
` 10,000 but only against his own deposit though this was made later than the first deposit thus

leaving the trust fund intact.
Assignment of Contracts

Assignment means transfer. When a party to a contract transfers his right, title and interest in the
contract to another person or persons, he is said to assign the contract. Assignment of a contract
can take place by (i) operation of law or (ii) an act of parties. The example of assignment by
operation of law is by insolvency or death of the party to the contract. In the case of insolvency
the Official Receiver (or Official Assignee) acquires the interest in the contract. In the case of

death, the legal representative of the deceased, who was a party to the contract, gets the interest

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