Reciprocal Promises

Reciprocal Promises (Section 2 (f))

Promises which form consideration or part of consideration for each other are called ‘reciprocal promise’.

For example X promises to sell his house to Y for Rs.5,00,000. The promises are reciprocal. X is the promisor to give the house and a promise to receive Rs.5,00,000. Y is the promise to receive the house and a promisor to pay Rs. 5,00,000

Kinds of Reciprocal Promises

1. Mutual and Independent

Where each party must perform his promise independently  without  the  performance of the other, the promise are mutual and independent, For example Ramu agrees to pay Somu the amount for the rice supplied on 10th June. Somu promises to deliver rice on 18th June.

2. Mutual and Dependent

Where the performance of the promise by one party depends upon prior performance of promise by the other party, the promises are conditional and dependent. For example A agrees to construct a building for B. B agrees to supply cement for the construction. Hence A’s promise to perform depends on B’s promise.

3. Mutual and Concurrent

Where the two promises are said to be performed simultaneously, they are said to be mutual and concurrent.

Appropriation of Payments [Section 59 – 61]

Appropriation means application of payments – The question of appropriation of payments arises when a debtor owes several debts to the same creditor and makes a payment that is not sufficient to discharge the whole indebtedness.

1. Appropriation of Payments

Sometimes, a debtor owes several distinct debts to the same creditor and he makes a payment which is insufficient to satisfy all the debts. In such a case, a question arises as to which particular debt the payment is to be appropriated. Section 59 to 61 of the Act lay down following rules as to appropriation of payments which provide an answer to this question.

Appropriation as Per express Instructions

Every debtor who owes several debts to a creditor has a right to instruct his creditor to which particular debt, the payment is to be appropriated or adjusted. Therefore, where the debtor expressly states that the payment is to be applied to the discharge of a particular debt, the payment must be applied accordingly.

For Example X owes Y three distinct debts of Rs.20,000, Rs.30,000 and Rs.50,000 X sends Rs.50,000 and instructs Y that the payment should be appropriated against the third debt. He is bound to appropriate the payment against the third debt only.

2. Application of payment where debt to be discharge is not indicated [60]

If section 60 is attracted, the creditor shall have the discretion to apply such payment for any lawful debt which is due to him from the person making the payment.

For Example P owes to Q, among other debts, the sum of Rs.10,000. Q writes to P and demands payment of this sum. P sends to Q Rs.10,000. This payment is to be applied to the discharge of the debt of which Q had demanded payment.

3. Application of payment where neither party appropriates [61]

The payment shall be applied in discharge of the debts in order of time whether they are or are not based by the limitation Act 1963, if the debt are of equal standing (i.e. payable on the same date) the payment shall be applied in discharge of each of these debt proportionately.