Banking · Right of Appropriation
A customer deposits 10,00,000 into his Savings Account with express written instructions to use the amount to prepay his Home Loan. The bank instead applies the funds to clear an overdue Credit Card bill (50,000) and Current Account overdraft (2,00,000), applying only the remaining 7,50,000 to the Home Loan, citing general terms and conditions. Based on the legal principles of the banker-customer relationship, who has the stronger legal position?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The customer, but only for the 50,000 used for the Credit Card debt.
- 2The Bank, because the Credit Card debt was overdue and became a prior charge.
- 3The customer, because the Right of Appropriation belongs to the debtor first when a payment is made with specific instructions.✓
- 4The Bank, because the Right of Set-Off overrides customer instructions.
Correct answer
The customer, because the Right of Appropriation belongs to the debtor first when a payment is made with specific instructions.
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