LAW OF CONTRACT -I
CONT
: OFFER + ACCEPTANCE
CONT : CONSIDERATION
CONT : CAPACITY AND LEGALITY
CONT : FREE CONSENT
CONT : VOIDABLE , VOID
AGREEMENTS
CONT : CONTINGENT CONTRACT
CONT : PERFORMANCE OF CONT.
CONT : DISCHARGE OF CONT.
CONT : BREACH OF CONTRACT
CONT : QUASI CONTRACT &
LAW OF CONTRACT
Contract is creation of rights and
obligations of the parties. E.g. A buys
a car from B for Rs 50,000/ All agreements are not contract but all
contracts are agreements.
Difference between agreement and
contract
Agreement = offer + acceptance
Contract = agreement + enforceability
at law
OFFER
OFFER
OFFER
The following are examples of
invitations to offer:
Auction
Tenders
Display of goods
Advertisements
Catalogues
ACCEPTANCE
An acceptance is a final and unqualified
acceptance of the terms of an offer. To
make a binding contract the acceptance
must exactly match the offer. The offeree
must accept all the terms of the offer.
ACCEPTANCE
Acceptance has to be final, unqualified
and absolute, otherwise it becomes a
1. Counter offers
2. Conditional acceptance
E.g.,
I offer my car for sale to you for Rs.
50,000/You agree to buy the car from me for Rs.
45,000/It is counter offer.
ACCEPTANCE
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COMMUNICATION
CONSIDERATION
Consideration: When, at the desire of
the promisor,
the promisee or any other person has
done, or abstained from doing, or
does or abstains from doing, or
promise to do or to abstain from doing,
something,
such act or abstinence or promise is
called consideration for the promise.
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FREE CONSENT
coercion
Coercion" is the committing, or
threatening to commit, any act forbidden
by the Indian Penal Code (45 of 1860).
Illustration
A, on board an English ship on the
high seas, causes B to enter into an
agreement by an act amounting to
criminal intimidation under the Indian
Penal Code (45 of 1860).
A has employed coercion.
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Undue Influence
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ILLUSTRATIONS
a) A having advanced money to his son, B, during his
minority, upon B's coming of age obtains, by misuse of
parental influence a bond from B for a greater amount
then the sum due in respect of the advance. A employs
undue influence.
(b) A, a man enfeebled by disease of age, is induced
by B's influence over him as his medical attendant, to
agree to pay B an unreasonable sum for his professional
services, B employs undue influence.
(c) A, being in debt to B, the money-lender of his
village, contracts a fresh loan on terms which appear to
be unconscionable, It lies on B to prove that the contract
was not induced by undue influence.
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FRAUD
"Fraud" means and includes any of the following
acts committed by a party to a contract, or with his
connivance, or by his agents , with intent to deceive
another party thereto or his agent, or to induce him
to enter into the contract:
(1) the suggestion as a fact, of that which is not
true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of
performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially
declares to be fraudulent.
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ILLUSTRATIONS
(a) A sells, by auction, to B, a horse which A knows
to be unsound. A says nothing to B about the horse's
unsoundness. This is not fraud in A.
(B) B says to A- "If you do not deny it, I shall
assume that the horse is sound". A says nothing.
Here, A's silence is equivalent to speech.
(C) A and B, being traders, enter upon a contract, A
has private information of a change in prices which
would affect B's willingness to proceed with the
contract. A is not bound to inform B.
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MISREPRESENTATION
"Misrepresentation" means and includes(1) the positive assertion, in a manner not
warranted by the information of the person making
it, of that which is not true, though he believes it to
be true;
(2) any breach of duty which, without an intent to
deceive, gains and advantage to the person
committing it, or any one claiming under him; by
misleading another to his prejudice, or to the
prejudice of any one claiming under him;
(3) causing, however innocently, a party to an
agreement, to make a mistake as to the substance
of the thing which is the subject of the agreement.
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MISTAKE
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ILLUSTRATIONS
(a) A agrees to sell to B a specific cargo of goods
supposed to be on its way from England to
Bombay. It turns out that, before the day of the
bargain in the ship conveying the cargo had been
cast away and the goods lost. Neither party was
aware of these facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns
out that the horse was dead at the time of bargain,
though neither party was aware of the fact. The
agreement is void.
(c) A, being entitled to an estate of the life of B,
agrees to sell it to C, B was dead at the time of the
agreement, but both parties were ignorant of the
fact. The agreement is void.
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MISTAKE
COMMON MISTAKE- A common
mistake is one when both parties
make the same error relating to
fundamental fact.
RES EXTINCTA = non-existence of
subject matter
RES SUA = Subject matter belongs to
one self
Mistake as quality
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MISTAKE
UNILATERAL MISTAKE- the case of
unilateral mistake is where only one
party is mistaken
E.g. mistake as to the terms of the
contract
Mistake as to identity
Contract made inter-absentes
Contract made inter-praesentes (face
to face)
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MISTAKE
MUTUAL MISTAKE A mutual
mistake is one where both parties fail
to understand each other.
No- consensum ad idem = consent is
not same
Non-est factum= it is not my deal
Mistake relating to document
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ILLUSTRATIONS
(a) A agrees to sell his house to B for 10,000
rupees. Here, B's promise to pay the sum of
10,000 rupees is the consideration for A's
promise to sell the house and A's promises to sell
the house is the consideration for B's promise to
pay the 10,000 rupees. These are lawful
considerations.
(b) A promises to pay 10,000 rupees at the end
of six months, if C, who owes that sum to B, fails
to pay it, B promises to grant time to C
accordingly. Here, the promises of each party is
the consideration for the promises of the other
party, and they are lawful considerations.
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CONTINUE
c) A promises, for a certain sum paid to him by
B, to make goods to B the value of his ship of it
is wrecked on a certain voyage. Here, A's
promises is the consideration for B's payment
and B's payment is the consideration for A's
promise, and these are lawful considerations.
(d) A promises to maintain B's child, and B
promises to pay A 1,000 rupees yearly for the
purpose. Here, the promise of each party is the
consideration for the promise of the other party.
They are lawful considerations.
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CONTINUE
e) A, B and C enter into an agreement
for the division among them of gains
acquired or to be acquired, by them by
fraud. The agreement is void, as its
object is unlawful.
(f) A promises to obtain for B an
employment in the public service and B
promises to pay 1,000 rupees to A. The
agreement is void, as the consideration
for it is unlawful.
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CONTINUE
(g) A, being agent for a landed proprietor,
agrees for money, without the knowledge
of his principal, to obtain for B a lease of
land belonging to his principal. The
agreement between A and B is void, as it
implies a fraud by concealment, by A, on
his principal.
(h) A promises B to drop a prosecution
which he has instituted against B for
robbery, and B promises to restore the
value of the things taken. The agreement is
void, as its object is unlawful.
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CONTINUE
A, who is B's mukhtar, promises to
exercise his influence, as such, with B in
favor of C, and C promises to pay 1,000
rupees to A. The agreement is void,
because it is immoral.
(k) A agrees to let her daughter to hire to
B for concubinage. The agreement is void,
because it is immoral, though the letting
may not be punishable under the Indian
Penal Code (45 of 1860).
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VOID AGREEMENTS
VOID AGREEMENTS
7. Agreement by way of wager, void.
8. Agreements contingent on impossible
events, void.
E.g. A agrees to pay B, Rs 1000/-if two straight
lines should enclose a space. The agreement
is void.
9. Agreement to do impossible act, void.
E.g., A and B contract to marry each other.
Before the time fixed for the marriage, A goes
mad. Contract becomes void.
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CONTINGENT CONTRACT
A contingent contract is a contract to
do or not to do something, if some
event, collateral to such contract, does
or does not happen.
Enforcement of contracts contingent
on an event happening.
Enforcement of contracts contingent
on an event not happening.
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CONTINGENT CONTRACT
A "contingent contract" is a contract to
do or not to do something, if some
event, collateral to such contract, does
or does not happen.
Illustration
A contracts to pay to B Rs. 10,000 if
B's house is burnt. This is a contingent
contract.
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CONTINUE
a) A makes a contract with B to buy B's horse if A
survives C. This contract cannot be enforced by the
law unless and until B dies in A's lifetime.
(b) A makes a contract with B to sell a horse to B
at a specified price, if C, to whom the horse has
been offered, refuse to buy him. The contract
cannot be enforced by law unless and until C
refuses to buy the horse.
(c) A contracts to pay B a sum of money when B
marries C. C dies without being married to B. The
contract becomes void.
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CONTINUE
A agrees to pay B a sum of money if a
certain ship does not return. The ship is
sunk. The contract can be enforced
when the ship sinks.
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CONTINUE
S. 34. When event on which contract is
contingent to be deemed impossible, if
it is the future conduct of a living
person
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CONTINUE
S. 36 Agreements contingent on impossible events,
void
Contingent agreements to do or not to do anything, if an
impossible event happens, are void, whether the
impossibility of the event is known or not to the parties to
the agreement at the time when it is made.
Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines
should enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if B will marry A's
daughter C. C was dead at the time of the agreement. The
agreement is void.
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PERFORMANCE OF CONTRACT
The performance of contract
Time and place of performance
The performance of reciprocal
promises
The appropriation of payment
The contracts which need not to be
performed
The modes of discharge of contract
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PERFORMANCE OF CONTRACT
Contracts which must be performed
The parties to a contract must either
perform, or offer to perform, their
respective
promises,
unless
such
performance is dispensed with or excused
under the provisions of this Act, or of any
other law.
Promises bind the representatives of the
promisors in case of death of such
promisors before performance, unless a
contrary intention appears from the
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PERFORMANCE OF
CONTRACT
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PERFORMANCE OF
RECIPROCAL PROMISES
DOCTRINE OF FRUSTRATION
An agreement to do impossible act in
itself is void. A contract to do an act
which, after the contract is made,
becomes impossible, or, by reason of
some event which the promisor could
not prevent, unlawful, becomes void
when the act becomes impossible or
unlawful.
E.g., A agrees with B to discover
treasure by magic. The agreement is
void.
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Continue
X agrees to sell his horse to Y. unknown to
both parties, the horse was dead at the time
making the agreement. This agreement is
void.
A music hall was rented out for a series of
concerts on certain days. The hall caught fire
before the date of first concert. It was held,
the contract become void on ground of
supervening impossibility.
X agreed to sing on a specified day. X fell
seriously ill and could not perform on the day.
The contract was discharged because it
depends upon personal skill.
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continue
X contracts to take in cargo for Y at
foreign
port.
Xs
Government
afterwards declares war against the
country in which the port is situated.
The contract becomes void when the
war is declared.
X agreed to sell his land to Y. after the
formation of the contract, the
government issued a notification and
acquired the land. The contract was
discharged.
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DISCHARGE OF A CONTRACT
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MODES OF DISCHARGE OF
CONTRACTS
A contract may be discharged in various modes
:
Discharge by Performance
Discharged by mutual agreements
Discharged by impossibility of performance
Discharged by lapse of time
Discharged by breach of contract
Discharged by novation
Discharged by operation of law
e.g., merger, bankruptcy, alteration or cancellation
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QUASI CONTRACT
Obligation created by law for reasons of
justice and fairness. The doctrine of quasi
contract is based upon the principle that a
party must pay for a benefit he desired and
received under circumstances that render it
inequitable for him to retain it without making
compensation.
e.g., a car owner brings his car in for brake
repairs. The mechanic fixes the brakes and in
doing so he also fixes a separate part of the
axle that has a direct relationship to the car's
ability to brake correctly. Although the axle
repair was not specifically contracted for, a
quasi contract is implied for which the owner
must pay the mechanic.
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UNJUST ENRICHMENT
Necessities
(a) A supplies B, a lunatic, with
necessaries suitable to his condition in life.
Is A entitled to be reimbursed from Bs
property?
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NOVATION OF CONTRACT
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BREACH OF CONTRACT
A breach occurs where a party
repudiates, or fails to perform his
obligation under a contract. A breach
of contract may take anyone of the
three forms, namely, 1. where a party fails to perform his
obligation upon the date fixed for the
performance of the contract; as buyer
wrongfully refuses to accept goods.
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BREACH OF CONTRACT
2. where a party expressly repudiates
the contract;
3. where a party disables himself from
performing his obligations; as where a
buyer does not secure a licence for
exporting the goods.
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Illustrations
(a) A contracts to sell and deliver 50 maunds of
saltpetre to B, at a certain price to be paid on
delivery. A breaks his promise. B is entitled to
receive from A, by way of compensation, the
sum, if any, by which the contract price falls
short of the price for which B might have
obtained 50 maunds of saltpetre of like quality
at the time when the saltpetre ought to have
been delivered.
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continue
(b) A hires Bs ship to go to Bombay, and there
takes on board, on the first of January, a cargo,
which A is to provide, and to bring it to Calcutta, the
freight to be paid when earned. Bs ship does not go
to Bombay, but A has opportunities of procuring
suitable conveyance for the cargo upon terms as
advantageous as those on which he had chartered
the ship. A avails himself of those opportunities, but
is put to trouble and expense in doing so. A is
entitled to receive compensation from B in respect
of such trouble and expense.
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continue
c) A contracts to buy Bs ship for 60,000
rupees, but breaks his promise. A must pay
to B, by way of compensation, the excess, if
any, of the contract price over the price
which B can obtain for the ship at the time
of the breach of promise.
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continue
d) A contracts to repair Bs house in a
certain manner, and receives payment in
advance. A repairs the house, but not
according to contract. B is entitled to
recover from A the cost of making the
repairs conform to the contract.
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continue
A contracts to let his ship to B for a year,
from the first of January, for a certain price.
Freights rise, and, on the first of January, the
hire obtainable for the ship is higher than the
contract price. A breaks his promise. He must
pay to B, by way of compensation, a sum equal
to the difference between the contract price
and the price for which B could hire a similar
ship for a year on and from the first of January.
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continue
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REMEDIES
Compensation for loss or damage caused
by breach of contract- damages, to prove
that loss caused by breach; quantum
meruit,
Specific performance of contract,
Temporary injunctions
Permanent injunctions,
Rescission of contracts,
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Damages
1. The different types of damages.
2. Measures of damages for breach of
different types of contracts.
3. The difference between liquidated
damages and penalties.
4. Equitable remedies and when they
are granted.
5. The doctrine of election of
remedies.
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LAW OF INDEMINTY
A contract by which one party promises
to save the other from loss caused to
him by the conduct of the promisor
himself, or by the conduct of any other
person, is called a contract of
indemnity.
Illustration:
A contracts to indemnify B against the
consequences of any proceedings which
C may take against B in respect of
certain sum of 200 rupees. Is this a
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continue
Acknowledgement of debt by principal
debtor binds the guarantor in all respects as
if he had given express consent; United
Commercial Bank v. B. M. Mahadev Babu,
AIR 1992 Kant 294.
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LAW OF GUARANTEE
A contract of guarantee is a contract to
perform the promise, or discharge the
liability, of a third person in case of his
default.
The person who gives the guarantee is
called the surety
The person in respect of whose default the
guarantee is given is called the principal
debtor
The person to whom the guarantee is given
is called the creditor.
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continue
Per Lord Abort in Brotherton vs.
barber, The great principle of marine
insurance is that it is a contract of
indemnity. The underwriter does not
stipulate, under any circumstances, to
the purchaser of the subject matter
insured; it is not supposed to be in his
contemplation, he is to indemnify
only.
(1816) 5 m& s 418 page 425
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continue
(b) A sells and delivers goods to B. C
afterwards requests A to forbear to sue B
for the debt for a year, and promises that, if
he does so, C will pay for them in default of
payment by B. A agrees to forbear as
requested. This is a sufficient consideration
for Cs promise.
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continue
(c) A sells and delivers goods to B. C
afterwards, without consideration, agrees
to pay for them in default of B. The
agreement is void.
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continue
134. Discharge of surety by release or
discharge of principal debtor
The surety is discharged by any contract
between the creditor and the principal
debtor, by which the principal debtor is
released, or by any act or omission of the
creditor, the legal consequence of which is
the discharge of the principal debtor.
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Illustrations
(a) A gives a guarantee to C for goods to be
supplied by C to B. C supplies goods to B, and
afterwards B becomes embarrassed and
contracts with his creditors (including C) to
assign to them his property in consideration of
their releasing him from their demands. Here B
is released from his debt by the contract with
C, and A is discharged from his suretyship.
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continue
(b) A contracts with B to grow a crop of
indigo on As land and to deliver it to B at a
fixed rate, and C guarantees As
performance of this contract. B diverts a
stream of water which is necessary for
irrigation of As land, and thereby prevents
him from raising the indigo. C is no longer
liable on his guarantee.
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continue
(c) A contracts with B for a fixed price to
build a house for B within a stipulated time.
B supplying the necessary timber. C
guarantees As performance of the contract.
B omits to supply the timber. C is discharged
from his suretyship.
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BAILMENT
A contract of bailment exists when a person
turns over an article of property for a particular
purpose or merely for safekeeping to another
person who accepts the property with the
understanding that it will be returned or kept until
reclaimed or otherwise disposed of in
accordance with the understanding of the parties.
Parties to a bailment contract are called the
bailor and bailee.
The bailor is the party who surrenders the
property and the bailee is the party who receives
the property.
For a bailment contract to exist the bailee must
be given physical possession and control over
the property.
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WHAT IS LIEN?
WHAT IS LIEN?
In Halsburys Laws of England, it is
stated: "Lien is, in its primary sense, a
right in one man to retain that which is
in his possession belonging to another
until certain demands of the person in
possession are satisfied. In its primary
sense, it is given by law and not by
contract."
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ILLUSTRATION
(a) A delivers a rough diamond to B, a
jeweller, to be cut and polished, which is
accordingly done. B is entitled to retain the
stone till he is paid for the services he has
rendered.
(b) A gives cloth to B, a tailor, to make into a
coat. B promises A to deliver the coat as soon
as it is finished, and to give a three months
credit for the price. B is not entitled to retain
the coat until he is paid.
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Bankers lien
In mercantile system the Bank has a general lien
over all forms of securities or negotiable
instruments deposited by or on behalf of the
customers in the ordinary course of banking
business. The Bank has the liberty to adjust from the
proceeds of the two FDRs towards the dues to the
Bank and if there is any balance left that would
belong to the depositor;
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LAW OF AGENCY
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TYPES OF AGENCY
Express agency-an agency that occurs when a
principal and an agent expressly agree to enter into an
agency agreement with each other.
Implied agency-an agency that occurs when a
principal and an agent do not expressly create an
agency, but it is inferred from the conduct of the parties.
Apparent agency-an agency that arises when a
principal creates the appearance of an agency that in
actuality does not exist; the principal's actions, not the
agent's, create the agency.
Agency by ratification-an agency that occurs when a
person misrepresents him or herself as another's agent
when in fact he or she is not and the purported principal
ratifies the agency.
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Illustration
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Illustrations
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TERMINATION OF AGENCY BY
ACTS OF THE PARTIES
Mutual agreement
Lapse of time
Purpose achieved
TERMINATION OF AGENCY BY
OPERATION OF LAW
BY
Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
Change in circumstances
War between the principal's and
agent's countries
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