Legal Definitions - electio est creditoris

electio est creditoris

This Latin legal principle, primarily found in Scots law, translates to "the choice is the creditor's." It signifies that when a debtor makes a payment or performs an action without specifying which particular debt or obligation it is intended to satisfy, the creditor has the right to decide how that payment or performance should be applied.

This principle is particularly relevant in situations involving multiple outstanding debts or obligations owed by the same debtor to the same creditor. If the debtor fails to make an explicit allocation, the law grants the creditor the discretion to choose which debt to reduce or satisfy.

• Example 1: Multiple Loans from a Single Bank

  Imagine a small business that has two distinct loans from the same financial institution: one for purchasing new equipment and another for covering operational working capital. The business makes a payment to the bank that doesn't cover the full amount of both loans and doesn't specify which loan the payment should be applied to.

  In this scenario, the bank (the creditor) can choose which of the two loans to apply the payment towards. For instance, the bank might decide to apply the payment to the loan that has a higher interest rate, is less secured, or is closer to default, exercising its right of election because the business (the debtor) did not specify its intention.

• Example 2: Overdue Utility Services

  Consider a homeowner who has two separate overdue bills with the same utility provider: one for electricity and another for natural gas. The homeowner sends a single payment to the utility company that is enough to cover only one of the outstanding bills, but they do not include any instructions indicating whether the payment is for the electricity or the gas service.

  Under the principle of electio est creditoris, the utility company (the creditor) has the discretion to apply that payment to either the electricity bill or the natural gas bill. This allows the company to manage its accounts by, for example, applying the payment to the older debt or the service that might be subject to disconnection sooner.