Topics - Breach of Contract Clayton’s Rule of Appropriation Right to Information

1. Name – Chandresh Madhyan Subject – Business Laws
Breach of Contract
Breach of contract occurs where a party to the contract fails to perform,
precisely and exactly, its obligations under the contract. Then this
amounts to breach of contract on the part of promisor (parties involved).
This can take various forms for example – Failure to supply goods or
perform a service as agreed.
It also includes conditions where the performance is not up to mark
and is not excused by tender, mutual consent or operation of law.
Effects of Breach of Contract
A breach of contract, no matter what form it may take, it always entitles
the innocent party to maintain an action for damages, but the rule
established by a long line of authorities is that the right of a party to treat a
contract as discharged.
Breach of Contract can be either of below types –
1. Anticipatory Breach of Contract – The anticipatory breach of contract
occurs when a party repudiates contract before the date & time
fixed for performance has arrived or when the party by its own act
disables itself from performing the contract.
Example – X has contract with Y for delivery of goods on 1st
, April, 2015.
On 25th
March, 2015, X informs Y that he will not be able to supply the
goods as per contract. In such case, Y is entitled to sue X for breach of
promise.
The consequence of Anticipatory breach is the promisee may either –
a. Rescind the contract and treat the contract as an end and sue for
damages
b. May elect not to rescind but to treat the contract operative and
wait for the performance and then hold the default party for the
consequences of non-performance.
In this case, contract is discharged only when the aggrieved party
accepts the repudiation of the contract.
2. Actual Breach of Contract – The actual breach of contract occurs when
either party fail to perform as promised or making it impossible for
other party to perform. The failure to perform means that one party

2. must not have performed fraction of the contract by stated
deadline.
It can occur at the time when performance is due or during
performance of contract. It also includes condition where one of the
parties refuses to perform his obligation.
Example – X has contracted with firm Y to supply chairs to them at a
certain price and defined quantity. But at the time of delivery X accepts
only partial number of chairs and returns other chairs. Firm Y can
sue X for breach of contract.
The consequence of actual breach of contract depends on whether
promisor offers to perform his promise or whether promisee can
refuse such acceptance and hold the promisor liable for the
breach. The important factor is whether time was considered as part of
contract.
3. Partial Breach of Contract – This situation takes place when a non-
material part of the contract gets breached. In this case, if contract
has several divisible parts each of these can be treated as separate
contract. Affected party can sue for damages even though breach is not
complete.
Example – An external auditor is supposed to audit the firm end of
every quarter for year 2014 but it did not audit the firm for last
quarter of 2014.
Remedies for Breach of Contract
A breach of contract, no matter what form it may take, always entitles the
innocent party to maintain an action for damages.
When a party breaches a contract, the other party is no longer obliged to
keep its end of the bargain. Damages are the basic remedy available for
a breach of contract. It is a common law remedy that can be claimed as
of right by the innocent party.
The idea behind providing damages is to put the injured party into the
same financial position he would have been in had the contract been
properly fulfilled. Also, these damages are awarded in view to punish
breaching party for breach of contract.
The various options available to the injured party are –
1. The injured party may urge the breaching party to reconsider the
breach decision.

3. 2. If it is contract with merchant, the injured party may get help from
consumers association
3. The injured party may bring the breaching party to an agency for
alternative dispute resolution
4. Injured party may sue for damages
5. Injured party may sue for other remedies
The remedies are explained in detail –
1. Getting the Breaching party to reconsider – The easiest and
cheapest way is to work with breaching party to reconsider their
decision. There is possibility that contract was breached because of
misunderstood communication between the two parties or the
breaching party needs more time.
This would help them avoid taking the matter to court which will
be another hassle for both parties. Even the lawyers suggest
working with other breaching party to perform.
For such cases, it is very much necessary for injured party to
keep all the records of communication with breaching party.
2. Contact Consumer Forum – In cases of dispute with merchant,
injured party should contact the manufacturer of the product and
update them about the dispute with merchant.
If this option doesn’t work, the injured party should contact the
consumer forum (association) in city/state. It can also approach
District Consumer Forum in district or MRTP commission in New Delhi.
3. Legal Remedy - The remedies for breach of contract are available
under the Indian Contract Act, 1872 and Specific Relief Act, 1963.
Remedies under Relief Act are –
a. Decree of Specific performance – It means the actual carrying
out of the contract as agreed. The Court may grant for specific
performance where it is just and equitable to do. It is granted for
lack of standard for ascertaining the damages, where
compensation is not adequate relief or substantial work done
by the plaintiff.
b. An injunction – It is an order of the Court restraining a person
from doing a particular act and where the defendant is doing

4. something which he is promised not to do then the injured
party will get a right to file a suit for injunction.
c. Suit on Quantum merit – The injured party can file a suit upon
quantum merit (what one has earned) and may claim payment in
proportion to work done or goods supplied.
Remedies under Indian Contract Act are –
a. Rescission of the contract – When contract is breached by one
party, the injured party may treat the contract as revoked or
cancelled. In such case, injured party is freed from all obligations
under contract. The injured party can move to court for resolution.
b. Suit (Payment) for the Damages – This is a monetary sum
fixed by the court to compensate the injured party. In order
to recover substantial damages the innocent party must show
that he has suffered actual loss. If there is no actual loss he will
only be entitled to nominal damages in recognition of the fact that
he has a valid cause of action.
Compensation under section 73 contains three important rules –
a. Compensation damages shall be awarded only for the losses
that directly or naturally occur from breach of contract
b. Compensation for indirect losses shall be paid as special
damages if the breaching party had knowledge of such
losses would follow from such breach of act
c. The injured party is required to take reasonable steps to keep
their losses to minimum and cannot claim loss not due to
breach.
Section 74 states that if a contract itself has provision for
damages on breach of contract, i.e. of a certain amount or
calculable at a certain rate will be payable, the courts will normally
accept this relevant amount as a measure of damages.
4. Other Remedies for Damage – These include directives from court.
Specific performance – This is an order of the court requiring
performance of a positive contractual obligation

5. Clayton’s Rule of Appropriation
When a debtor owes several debts for which payments need to be made to
Creditor, the question arises as to which of the debts, payments
should be appropriated. To resolve this, Clayton’s rule of Appropriation is
used.
The Rule in Clayton’s case states “whatever paid is paid or is to be
applied is according to the mode laid down by the payer”. Thus,
according to this rule, when a debtor makes a payment, he may
appropriate it to any debt he pleases, and the creditors must apply it
accordingly.
The Rules relating to the appropriation of payments made by a debtor are
contained in Sections 59 to 61 of the Indian Contract Act, 1872.
In the given example, Rs. 50,000 can be appropriated in different ways
based on scenarios explained below.
1. Where the debtor intimates (Sec. 59):
a. Appropriation of payment is a right primarily of the debtor. If the
debtor expressly intimates at the time of actual payment that
the payment must be applied towards the discharge of a
particular debt, the creditor must do so.
b. If there is no intimation by the debtor, the Law will look to the
circumstances present for the payment for appropriation. There
is an established maxim that when money is paid, it is to be applied
according to the express will of the payer, not to the receiver.
c. In this case, Debtor A can intimate the creditor B to appropriate
payment against any of the debts. Debtor A can ask Creditor to
appropriate Rs. 50,000 against November and December loan. Or it
can ask to appropriate against any combinations of loans.
2. When the debtor does not intimate and the circumstances are not
indicative (Sec. 60):
a. When the debtor does not expressly intimate or where the
circumstances attending on the payment do not indicate any intention,
the creditor may apply his own discretion to any lawful debt
actually due and payable to him from the debtor.

6. b. The creditor can also alter the appropriation until he has declared
appropriation to the debtor. However, creditor cannot apply the
payment to a disputed and unlawful debt which a barred by the
law of limitation.
c. In this case, Creditor B can appropriate Rs. 50,000 to any of the
debts he wishes to apply which is as per law.
3. When the debtor does not intimate and creditor fails to
appropriate (Sec. 61):
a. Where the debtor does not expressly intimate and where the creditor
fails to make any appropriation, the payment shall be applied in
discharge of the debt in chronological order, i.e. in order of
time.
b. If the debts are of equal standing, the payment shall be applied in
discharge of each proportionately.
c. In this case, appropriation of Rs. 50,000 will happen towards
November loan (20,000) in full and the rest 30,000 towards
December loan (40,000).
4. Part-payment is applied for the interest first and for the principal
afterwards:
a. Part-payment, the general principle, subject to any contract to the
contrary, is that the payment should first be applied to the interest
and after the interest is fully paid off, to the principal.
b. In this case, appropriation of Rs. 50,000 will first happen towards
interest accrued so far and the rest to the principal (debt) in
order of date.
5. Appropriation in order of receipts and payments:
a. The Rule is applicable where the parties have a current account.
In such case appropriation impliedly takes place in the order in
which receipts and payments take place and are carried into the
account.
Thus, as per the Rule, unless there is contrary intention, the items on
the credit of an account must be appropriated against the items
on the debit in order of date.
b. The above appropriation method is not applicable to this scenario
as there is no current account stated.

7. Right to Information
Right to Information Act of 2005 is the act of timely response to citizen
requests for government information. It is issued by Ministry of Law and
Justice.
This act sets the practical regime of right of information for citizens to
secure access to information under the control of public authorities.
It is in order to promote transparency and accountability in the
working of every public authority, the constitution of Central Information
Commission and State Information Commissions and for matters connected
therewith or incidental thereto.
The right to information is not absolute. Not all information that the
Government generates will or should be given out to the public. There
are some pieces of information, which are so sensitive that if they were
released to the public, they might actually cause serious harm to more
important interests. Example – Information on number of troops deployed
on India-Pakistan border.
Unfortunately, although exemption provisions can serve a useful function,
experience has shown that they are often abused by officials who are
determined to keep their actions hidden from the public.
The Salient features of Right to Information (RTI) Act are listed below –
1. It states a citizen right to seek information from a public
Authority which is held by the Authority or is under its control.
The act gives rights to information only to citizens of India and it does
not make provision for giving information to Corporations,
Associations, Companies etc which are legal entities. This Act covers
whole of India but except Jammu & Kashmir.
2. As stated above, not all the information from Public Authority is not
absolute. Section 8 & 9 state the categories exempted from
disclosure. Example - Trade Secrets and Commercial Confidentiality
or Personal Privacy.
3. The information would also cease to be exempted if 20 years
have lapsed after occurrence of the incident to which the
information relates.

8. 4. RTI application for seeking the information should be made to an
officer of the Public Authority who is State Public Information
Officer. It is this officer who is responsible for dealing the requests for
information and assist persons seeking information. Example – If a
person’s passport issuance is stuck in process, he/she can get
information on why and where it is stuck.
5. This act makes an obligation for every Public Authority to make Suo-
motu (on its own motion) disclosure with respect to the
particulars of its Organization, duties, functions etc. as provided
in Section 4 of the Act.
6. The application should be made to the State Public Information
Officer in writing in English or Hindi or in the official language
of the area in which application is made. With the application, fee
is paid, a Demand Draft or Indian postal Order of Rs. 10 payable to the
Accounts Officer of public authority. If the application is Below
Poverty Line (BPL), he is not required to pay any fee although he
is supposed to submit proof for his BPL category.
7. The application can be on plain paper with Name and complete
Postal Address of the applicant as there is no prescribed
format. Also, it is not necessary to put in the reasons for seeking the
information. Application can also be applied online on government
website www.rtionline.gov.in by paying the fee.
8. The information sought through application is to be responded as
follows –
a. 30 days from the date of application
b. 48 hours for information concerning the life or liberty of a
person
c. 5 days shall be added to above response, incase the
application for information is given to Assistant Public
information officer (APIO).
d. Further 5 days, for the transfer of application to other
public authority under section 6(3) of the act.
e. Failure to provide information within the above timelines is
deemed refusal.
9. If the application is not supplied with information within time
limits or not satisfied with the information provided, he/she

9. may appeal to the first Appellate Authority who is an officer
senior in rank to Public Information officer. There are not further
charges for making an appeal.
10.There is an independent non judicial machinery State Information
Commission to decide 2nd
stage appeals. It is two tier appellate
forum:
a. Appeal to departmental officer senior to PIO
b. To the Commission
11. Further, if the Appellant Authority fails to pass an order on the
appeal within the prescribed period and the appellant is not satisfied
with the order of the First Appeal Authority, he can prefer a Second
Appeal with the State Information Commission within 90 days
of the date by which the decision should have been made by the First
Appellant Authority.
12. There is also provision of Compliant if the Public Information
officer fails to satisfy or it is case of refusal access to any
information requested under the Act. The compliant can be made
to the State Information Commission.
13. The commission decides the appeal and conveys its decision to
the Appellant/Compliant and First Appellant Authority.
Below are the fine examples where Right To Information (RTI)
helped bring more transparency.
1. Indian Institute of Management Admission Criteria
A visually impaired IIM aspirant was denied seat in IIM Bangalore
despite her impressive score in IIM Common Admission Test. She
wanted to know the reason why she was rejected and whether it has
something to do with her disability. She filed an RTI application to
Institute to disclose their selection criteria.
Although she failed to gain admission but her RTI application made
institute disclose their selection criteria and make it public. It emerged
that the entrance exam, the Common Admission Test, actually
mattered little compared to Class 10 and 12 results.
This information regarding IIM admission process would have
been secret until the aspirant would have filed RTI.
2. Information on Road Connectivity to the Village through RTI

10. A blind man from Rajkot filed an RTI application for poor quality of
the road that connected his village to the national highway to
his Panchayat office. It was not responded and then he sent it to
Taluka Development officer. The response to RTI was “On paper, the
approach road to the village had been made twice in the last 2
years”.
With the proof in his hands, he complained to the concerned
authority and spread his findings through TV channel. Finally,
his wish was granted and a good road was built, making it easier for
the villagers.
3. Adarsh Society Scam identified through RTI
This application filed by RTI activists was instrumental in bringing to
links between politicians and military officials, among others.
The RTI response stated that the 31-storey building had
permission for six floors only. It was meant to house war
widows and veterans.
Instead, the flats went to several politicians, bureaucrats and their
relatives. The scandal led to the resignation of chief minister of
Maharashtra and various other state officials were also brought
under the scanner.
This RTI application clearly shows how building norms were flouted
to help politicians and bureaucrats to gain from building meant
only for war widows and veterans.
Conclusion
The above examples clearly show the importance of RTI in Indian
context. It can clearly help eliminate the ills & corruption in
country.
It helps bring transparency in working of the system and make all
the government departments and their officials bring under the
scanner and make them accountable.
The Right to Information Act (RTI) has been one of the finest acts
introduced in the interest of Citizens.