Question

    Under the Contract Act if a debtor makes a payment to a

    creditor while indicating, either explicitly or implicitly, that the payment is intended to discharge a particular debt among several owed, what is the creditor’s obligation regarding the application of that payment?
    A The creditor may apply the payment to any of the debts at their discretion, regardless of the debtor’s intention Correct Answer Incorrect Answer
    B The creditor is obliged to apply the payment to the specific debt indicated by the debtor, if the payment is accepted Correct Answer Incorrect Answer
    C The creditor can only apply the payment to the debt with the earliest due date, even if the debtor specifies otherwise Correct Answer Incorrect Answer
    D The creditor must apply the payment to the debt with the highest interest rate, unless otherwise instructed by the debtor Correct Answer Incorrect Answer
    E The creditor has no obligation to apply the payment to any specific debt and may use it as they see fit. Correct Answer Incorrect Answer

    Solution

    Contract Act Section 59.   Application of payment where debt to be discharged is indicated:  Where a debtor, owing several distinct debts to one person, 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.

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