Contract Act, Section 60

Contract Act, Section 60: Application of Payment Where the Debt to Be Discharged Is Not Indicated

Section 60 of the Indian Contract Act, 1872 governs the appropriation of payments where a debtor owes several debts but fails to indicate the debt against which the payment should be adjusted, granting the creditor the right to decide.

The section allows the creditor to apply the payment at discretion towards any lawful debt due and payable, including a time-barred debt, thereby ensuring certainty in the settlement of multiple liabilities.

1. Purpose of Section 60

The primary objective of Section 60 is to determine the appropriation of payments where the debtor fails to specify the particular debt intended to be discharged.

The provision prevents uncertainty and disputes by allowing the creditor to apply the payment towards any lawful debt when the debtor does not exercise the right under Section 59.

2. Applicability of Section 60

Section 60 applies where one debtor owes several distinct debts to the same creditor and makes a payment without indicating the debt against which it should be adjusted.

The provision becomes relevant when the debtor’s intention regarding appropriation is neither expressly communicated nor reasonably inferred from the circumstances.

3. Absence of Intimation by the Debtor

A fundamental condition for the application of Section 60 is that the debtor has omitted to intimate the intended appropriation of the payment.

Unlike Section 59, where the debtor communicates the desired adjustment, Section 60 applies only where no such direction accompanies the payment.

4. No Circumstances Indicating the Intended Debt

The section requires that there must be no surrounding circumstances from which the debtor’s intention regarding the appropriation of payment can reasonably be inferred.

If the facts indicate the debt intended to be discharged, Section 59 applies, while Section 60 operates only when no express or implied intention is available.

5. Creditor's Right of Appropriation

Once the conditions of Section 60 are satisfied, the creditor acquires the legal right to appropriate the payment.

The law recognizes that in the absence of any direction from the debtor, the creditor may decide which outstanding debt should be reduced or discharged by the payment received.

6. Discretion of the Creditor

Section 60 expressly grants the creditor the discretion to appropriate a payment towards any lawful debt that is actually due and payable.

Where the debtor has not indicated the intended debt for payment, the debtor cannot later object to the creditor’s appropriation.

7. Meaning of Lawful Debt

The creditor's discretion under Section 60 extends only to lawful debts, as payments can be appropriated only towards valid legal obligations owed by the debtor and not towards unlawful or non-existent liabilities.

8. Debt Must Be Actually Due and Payable

Section 60 requires that the debt selected by the creditor must be due and payable, as the provision applies only to existing obligations that have matured and become payable by the debtor.

9. Debt Barred by Limitation

One of the distinctive features of Section 60 is that a creditor may appropriate payment towards a time-barred debt, as such debt continues to exist as a valid obligation despite being unenforceable through legal proceedings.