Albert obtained 2 loans of ` 3,00,000 and ` 4,00,000 respectively from a reputed Bank. Out of these 2 loans, loan of ` 3,00,000 was guaranteed by Robert. Albert sent ` 2,00,000 to bank but did not intimate as to how it is to be appropriated towards the loans. The Bank appropriated the whole of ` 2,00,000 to the loan of ` 4,00,000 (the loan not guaranteed). Robert objected on the decision of the Bank. He argued with bank that repayment amount should be first adjusted to the guaranteed loan. State with reasons, whether the Bank was correct in its decision under the Indian Contract Act, 1872?

Section 60 of the Indian Contract Act, 1872 provides, where the debtor does not intimate and there are no circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor. However, it cannot be applied to a disputed debt. In the instant case, Albert obtained 2 loans of ` 3,00,000 and ` 4,00,000 respectively from a reputed Bank of which loan of ` 3,00,000 was guaranteed by Robert. Albert sent ` 2,00,000 to bank without intimating as to how it is to be appropriated towards the loans. The Bank appropriated the whole of ` 2,00,000 to the loan of ` 4,00,000 (the loan not guaranteed). Robert objected that repayment amount should be first adjusted to the guaranteed loan. On the basis of provisions and facts of the case, it can be said that in the absence of clear intimation about the appropriation of payment, it is the sole discretion of the Bank to which loan it can appropriate the amount. Hence, the Bank was correct in its decision under the Indian Contract Act, 1872.