In case of running accounts like current account or cash credit accounts, normally there is no specific appropriation of funds to exact debit. In such cases it is the first item on the debit side that is discharged or reduced by the first item on the credit side. This principle was originally formulated in Devaynes v. Noble known as Clayton’s Case. The same clause is incorporated in Section 61 of the Indian Contract Act, 1872.
The rule of Clayton’s case applies to overdrawn current account when the liability of any party is determined. However, the rule of Clayton’s case does not apply when a trustee mixes trust money with his own money in his banking account.
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