When a debtor owes several debts to a bank and makes a payment, who has the first right of appropriation of that payment?

Introduction / Context:
In banking and contract law, the concept of appropriation of payments arises when a debtor owes several distinct debts to the same creditor, such as a bank. When the debtor makes a payment that is insufficient to clear all debts, there must be a rule to decide to which account or liability the payment will be applied. This question tests your understanding of the legal order of rights in such a situation.

Given Data / Assumptions:

• The debtor has more than one debt outstanding with the same banker.
• The debtor pays an amount that is not enough to settle all the debts.
• The question is about who has the first right to decide which particular debt gets reduced or cleared.
• General principles of contract law on appropriation of payments apply.

Concept / Approach:
Under general contract principles, the debtor who makes the payment has the primary right to direct how it should be appropriated among multiple debts. If the debtor does not specify, then the creditor, here the bank, can choose which debt to adjust. Only when neither party specifies does the law or the court apply default rules, such as appropriating against time barred or earliest debts. Hence, the first right of appropriation lies with the debtor, provided the debtor clearly indicates the intended account at the time of payment.

Step-by-Step Solution:
Step 1: Identify the parties. The debtor is the customer who owes money under several accounts, and the banker is the creditor. Step 2: Recall the rule that the person who pays can instruct the creditor about how to apply the payment to specific debts. Step 3: Recognise that the banker may appropriate the payment only when the debtor has not given any clear instructions. Step 4: Understand that the court usually comes into the picture only if there is a dispute or if statutory rules must be applied, not as the first deciding authority. Step 5: Conclude that the initial right of appropriation lies with the debtor, and therefore select the option that states this clearly.

Verification / Alternative Check:
If we imagine a practical scenario where a customer has both a term loan and an overdraft, and the customer deposits a cheque while clearly instructing the bank to adjust it against the term loan instalment, the bank is expected to follow that instruction. If the customer simply deposits without instructions, then the bank may appropriate the funds according to its own policy or legal guidance. This example confirms that the debtor has the first right.

Why Other Options Are Wrong:
The court does not decide appropriation in the normal course of routine banking payments; it only becomes relevant if a dispute escalates. The banker does have a secondary right when the debtor is silent, but not the first right. The option suggesting that all of the above share equal rights is legally inaccurate because the hierarchy is clearly defined with the debtor having priority.

Common Pitfalls:
Candidates often think that the bank, being the stronger party, automatically has the first right to decide how payments are used. Others assume that courts are involved in every legal rule, which is not true for daily transactions. Remember the order: debtor first, then creditor if the debtor is silent, and only then legal default rules when neither specifies.

Final Answer:
When a debtor owes several debts to a bank and makes a payment, the first right of appropriation lies with the debtor initially, who can specify which debt is to be paid.