Mortgage payment appropriation follows the deed first to interest, then principal; contrary allocation was rejected.

Open payments are ordinarily appropriated first to outstanding interest unless the parties agree otherwise. Here, the mortgage deed expressly required instalments to be credited first towards interest and only the balance towards principal, so the mortgagee was bound by that contractual allocation. The mortgagee could not lawfully appropriate the receipts towards principal before taking possession contrary to the deed, and the tax authorities were entitled to proceed on that basis. The issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether, under a mortgage deed stipulating that instalments received were to be applied first towards interest and only the balance towards principal, the mortgagee could appropriate the payments towards principal before taking possession.

Analysis: Where a debtor makes an open payment and neither party appropriates it, the ordinary presumption is that it is first applied towards outstanding interest. In the present case, that general principle was reinforced by the express covenant in the mortgage deed requiring the payments to be credited first towards interest and the balance towards principal. The mortgagee was therefore bound to apply the receipts in accordance with the deed, and the tax authorities were entitled to proceed on that basis.

Conclusion: The question was answered in the negative. The mortgagee could not appropriate the payments towards principal contrary to the contractual stipulation, and the answer was against the assessee and in favour of the Revenue.

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