TERMINATION BY MUTUAL AGREEMENTS

• By agreement of all of the contracting parties, a contract may be cancelled or its

terms altered or a new agreement substituted for it.
• Whenever any of these things happen, the old contract is terminated

1. NOVATION

• DEFINITION: When a new contract is substituted for an existing contract,

between either the same parties or different parties
• Novation can occur by two ways: (i) change of parties, or (ii) a substitution of a
new contract in place of the old

• EXAMPLE: John is indebted to Jane. Jane is indebted to Claire. By mutual

agreement, Jane’s debt to Claire is cancelled and John’s debt to Jane is cancelled.
Claire accepts John as her new debtor.
• EXAMPLE: John lent $1,000 to Patrick. Afterwards, both parties agreed that
Patrick will repay John $500 and a certain amount of gold within one month. The
former agreement is replaced by the new one. This is novation

2. ACCORD AND SATISFACTION

• A promise to accept less than what is due under a contract is not supported by
any consideration, and therefore, unenforceable.
• However, if a smaller sum of money is paid to the creditor and the creditor
accepts this smaller sum of money as the full payment, then the debt will be
counted as having been paid in full.
• ACCORD: Promise to accept less than what is due under the contract
• SATISFACTION: The person receiving the money has been satisfied of the debt
• EXAMPLE: Rebecca owes $1,000 to Monica. Rebecca pays Monica $200 in full
payment of her debt. Monica accepts payment. Rebecca’s debt is discharged

3. RESCISSION

• Cancelling all or some of the terms of a contract

• Rescission can occur by: (1) mutual consent; and (2) where a party to a contract
failed to perform his obligation, the other party can rescind the contract without
prejudicing his right to seek compensation for the breach.
• EXAMPLE: Patrick promised to deliver oak wood to Jane by 28 February. Before
the performance of the contract, both parties mutually agree that the contract will not
be performed. The parties have mutually rescinded the contract
 4. WAIVER

• The abandonment of a right

• A party to a contract may waive his rights under the contract. Thereupon, the other
party is released from his obligations
• EXAMPLE: In courts in the United States and Canada, the party that loses
litigation pays for court fees. While in court, when the party is apparently
winning makes an agreement with opposing counsel that he/she should drop the
suit — and in return, the winning party will waive his right to collect legal fees.

BREACH OF
CONTRACT

• When a contract is breached (broken) by one party, the other party, or parties, are freed
from the obligation of performing the contract. They can also take the remedial measures
to
which they are entitled
• Breach can arise in two ways: (1) anticipatory breach, and (2) actual breach

1. ANTICIPATORY BREACH

• Anticipatory breach of a contract occurs when a party repudiates his liability under
the contract BEFORE THE TIME OF PERFORMANCE IS DUE
• EXAMPLE: John enters into a contract to supply Jane with 10 tons of coffee beans on
1 June. On 20 May, John informs Jane that he will not be able to supply the goods.
This
is a case of anticipatory breach. That is, John promised to carry out his
obligations under the contract. However, now, he is going to breach that
promise.

CONSEQUENCES OF ANTICIPATORY BREACH:

When anticipatory breach occurs, the aggrieved party can take the following

steps: (i) He can treat the contract as discharged, so that he is no longer bound

by any
obligations under the contract;
(ii) He can immediately avail the legal remedies presented to him for breach of contract
(damages, specific performance, and injunction)

• Anticipatory breach does not itself discharge the contract. It is ONLY discharged
when the aggrieved party chooses to treat it as discharged — when he accepts the
repudiation of the contract.
• If the aggrieved party does not accept the repudiation, the contract
continues to exist and may be performed by the other party
 2. ACTUAL BREACH

• Actual breach of contract occurs when, during the performance of the contract, or at
the time when the performance of the contract is due, one party either fails, or refuses,
to perform his obligations under the contract

REMEDIES OF BREACH OF CONTRACT

• When a breach of contract occurs, the aggrieved party becomes entitled to the
following reliefs:

1. RESCISSION: The aggrieved party is freed from all of his/her obligations

under the contract
2. DAMAGES: The aggrieved party is entitled to receive compensation for any loss,
or damage, caused to him by the breach of contract and can file a suit for getting an
order for damages (money)
3. SPECIFIC PERFORMANCE: In certain special cases, the court can direct a
party to perform the contract according to the agreed terms
4. INJUNCTION: Under certain circumstances the court can issue an order upon a
party whereby he/she is prohibited from doing something

DAMAGES

• When a contract is breached, the injured party can claim damages from the other party.
Damages ordered by courts may be as follows:

1. COMPENSATORY DAMAGES

• This compensates the aggrieved party for the loss the aggrieved party has suffered

2. PUNITIVE DAMAGES

• The court may order damages exceeding the actual loss suffered by way of punishment

RULES REGARDING THE AMOUNT OF DAMAGES

PRINCIPLES

• When a contract has been broken, the party who suffers from the breach is entitled
to receive compensation for any loss or damages from the party who has broken the
contract
• GENERAL RULE: To place the claimant (party affected by breach) in the
same position as if the contract had been performed

1. ACTUAL LOSS

• The aggrieved party is entitled to recovery by way of compensation — only the

 actual loss suffered by him

2. USUAL LOSS

• In calculating actual loss, the court will take into account only such loss as may be
FAIRLY AND REASONABLY considered as arising naturally and in the usual course
of things from the breach

Hadley v Baxendale
• FACTS: A carrier was entrusted with the delivery of a machine part to the
manufacturer. The delivery was delayed. Because of the delay, the manufacturer
claimed compensation from the carrier for (i) wages of workers, (ii) depreciation
charges (incurred when the factory was idle for the delayed delivery), and (iii) for
loss of profits
• HELD: Damages for (i) wages of workers, and (ii) depreciation charges were
allowed as a natural consequences of the breach. The last item (loss of profits) was
disallowed because it was a remote consequences

3. COSTS

• The injured party is entitled to retrieve the costs of getting the order for damages

4. EFFECT OF A PENALTY CLAUSE

• If in a contract, a sum of money is named as the amount to be paid in case of breach, or

if the contract contains any stipulation by way of penalty for failure to perform the
obligations, the court will allow reasonable compensation, not exceeding the sum named
• EXAMPLE: John contracts with Jane to pay Jane $1,000 if John fails to pay Jane $500
on a certain day. John fails to pay $500 on that day. Jane is entitled to recover from John
such compensation, not exceeding $1,000 as the court considers reasonable

5. DIFFICULTY OF ASSESSMENT

• Difficulty of calculating damages is no ground for refusing damages. The court must
make an assessment of loss and pass an order for it.
SPECIFIC PERFORMANCE

• Under certain circumstances, a person aggrieved by breach of contract can file a suit
for specific performance — for an order by the court upon the party guilty of breach
directing him/her to perform what he/she promised to do
• Specific performance is a discretionary remedy, which is allowed ONLY in a
limited number of cases
• As in, if a legal remedy will put the injured party in the position he or she would
have enjoyed had the contract been fully performed, then the court will use that
option instead (instead of specific performance).
• The most common reason courts grant specific performance is that the subject of
the contract is unique, when it's not merely a matter of money, or where the true
amount of damages is unclear.
• Generally, specific performance is directed ONLY in cases where monetary
compensation is not an adequate remedy
• EXAMPLE: Rina offers to buy Beth's house and Beth accepts, but later decides to
keep the property (as in, Beth does not want to sell her house). Real estate is
considered to
be unique. Since there is no other piece of property or house exactly like Beth's, Rina
may be entitled to specific performance on the contract. Beth would be compelled to
go through with the sale.
• Specific performance is also NOT allowed in contracts of a personal nature — a
contract to paint a picture

INJUNCTION

• It is an order of the court

• In cases of breach of contract, the injured party can, under certain circumstances, get a
negative injunction — an order prohibiting a party from doing something
• Injunctions are usually granted to enforce negative stipulations in cases where damages
are not an adequate relief. It is particularly appropriate in cases of anticipatory breach of
contract.
LAW OF AGENCY

• An “agent” is a person employed to do any act for another or not represent another
in dealings with third persons
• The person for whom this agent is hired is called the Principal

ENFORCEMENT AND CONSEQUENCES OF AGENT’S CONTRACTS

• The function of an Agent is to bring about contractual relations between the Principal
and third parties
• Usually, Agents are appointed with specific instruction and authorized to act within
the scope of their instructions
• Acts of the Agent within the scope of the instructions bind the Principal as if he has
done the deal himself
• Quit facit per alium facit per se — “He who does through another does by himself”
• As in, the act of the Agent is the act of the Principal

THE TEST OF AGENCY

• Agency exists whenever a person can bind another by acts done on his behalf. When
this power does not exist, the relationship is not one of Agency
• EXAMPLE: A lawyer would be an Agent for his client (who would be the Principal)

AGENT v INDEPENDENT CONTRACTOR

• A person who undertakes to do something for another is called an Independent Contractor

— if the manner of doing the thing is left to him
• As in, the Independent Contractor has full authority in the manner in which the
task will be completed
• An independent contractor does not represent the other contracting party, nor can he
bind him by contracts entered into with others
• An Agent is one who acts according to the instructions of the Principal and can bind the
Principal by entering into contracts with other persons within the scope of his authority

WHO CAN APPOINT AN AGENT?

• Any person who is of the (1) age of majority, and (2) of sound mind

WHO MAY BE AN AGENT?

• Any person may be an Agent — even a minor

• A minor acting as an Agent can bind the Principal to third parties
JOINT PRINCIPALS

• Several Principals can jointly appoint one Agent

CONSIDERATION IN AGENCY CONTRACTS

• No consideration is necessary to create an Agency

• The acceptance of the office of an Agent is regarded as sufficient consideration for the
appointment
• The Agency contract generally provides for the amount of remuneration payable by the
Principal to the
Agent

METHODS OF CREATING AGENCY

1. EXPRESS AGREEMENT

• Oral or written

2. IMPLIED AGREEMENT

• Agency agreement may be implied under certain circumstances from the (a) conduct
of the parties, or (b) the relationship between them
• EXAMPLES: (i) Agency by Estoppel, and (ii) Agency of Necessity

(i) Estoppel or Holding Out

• When a man has, by his conduct or statements, induced others to believe

that a certain person is his Agent, he is precluded from subsequently denying
it
• EXAMPLE:
• Generally, servants are NOT Agents of the Master
• Jack allows his servant, Jill, to buy goods for him regularly on credit. On one
occasion, the servant (Jill) bought goods on credit that were not ordered by
Jack. Jack would be required to pay the shopkeeper because in this case,
the servant (Jill) is the Agent of Jack — the Master.

• 3 ways for Agency by

Estoppel:

(a) A person can be an Agent even though that person is generally not held
to be one (a Servant is generally not held to be an Agent of the Master, but
is an Agent in the example above)
(b) A person acting as an Agent may be held out as having more authority
than he actually does
(c) A person may be held out as Agent after he has ceased to be so
• Therefore, if a person is no longer acting as one’s Agent, it is the duty of
the Principal to inform everyone the Agent has dealt with that the Agency
has been terminated
 (ii) Necessity

• In certain cases, a person is forced to act on behalf of another person without

any express authority from him. In such cases, an Agency of Necessity is created.

• 3 conditions MUST be satisfied for an Agency of Necessity to be created:

(a) It must be impossible to get the Principal’s instructions;

(b) There must be an actual necessity for acting on the Principal’s behalf; and
(c) The Agent of Necessity must act honestly in the interest of the
parties concerned

Husband and Wife

• A wife is an Agent of Necessity, having power to pledge her husband’s credit

for necessities of life when she is not properly provided for by him or when she
has been deserted by the husband.
• HOWEVER, if the husband gives her an allowance, she has NO AUTHORITY
to pledge his credit and can NEVER be an Agent of Necessity

Gray Ltd v Cathcart (1922)

• FACTS: A wife bought clothes valued at £215 from a shop. She didn’t pay
the shopkeeper and pledged the money to her husband’s credit. The husband
also refused to pay because he was giving her an allowance of £960 per year.
The shopkeeper sued the husband.
• HELD: Because the husband paid the wife £960 per year, the wife is not an
Agent of Necessity and the wife is bound to give the money to the shopkeeper.

• GENERAL RULES
(a) The wife is not the Agent of the husband;
(b) The husband is the not Agent of the wife; and
(c) But, one of them can be an Agent for the other if required.

THE EXTENT OF AN AGENT’S AUTHORITY

• An Agent who has the authority to act as an Agent has every lawful right to act for
that specific purpose, or usually done in the course of business
• EXAMPLE: Sasha, a lawyer, is employed by Selena to recover money from Matt.
Sasha can take any legal measures to try to recover the money for Selena from Matt.

EFFECTS OF NOTICE TO AGENT

• Any notice given to an Agent or information that is obtained by an Agent in the course
of carrying out business will be treated as if the information was notified to the Principal
MISREPRESENTATION AND FRAUD BY AGENTS

• Misrepresentations made, or frauds committed, by Agents, acting in the course of their

business for their Principals, have the same effect on agreements made by such Agents as
if such misrepresentations or frauds had been made or committed by the Principals
• HOWEVER, misrepresentations made or frauds committed by Agents that do not
fall within an Agent’s authority, do not affect their Principals

AGENT’S DUTIES TO PRINCIPALS

1. AN AGENT IS BOUND TO CONDUCT THE BUSINESS OF HIS PRINCIPAL

ACCORDING TO THE DIRECTIONS GIVEN BY THE PRINCIPAL, OR, IN THE ABSENCE
OF ANY SUCH DIRECTIONS, ACCORDING TO THE CUSTOM WHICH PREVAILS IN THE
INDUSTRY

2. AN AGENT IS BOUND TO RENDER PROPER ACCOUNTS TO HIS PRINCIPAL ON DEMAND,

OR PERIODICALLY IF SO PROVIDED IN THE AGREEMENT

3. IT IS THE DUTY OF THE AGENT, IN CASES OF DIFFICULTY, TO USE ALL

REASONABLE DILIGENCE IN COMMUNICATING WITH HIS PRINCIPAL, AND IN SEEKING
TO OBTAIN HIS INSTRUCTIONS

4. IF AN AGENT DEALS ON HIS OWN ACCOUNT IN THE BUSINESS OF THE AGENCY,

WITHOUT FIRST OBTAINING THE CONSENT OF HIS PRINCIPAL AND ACQUAINTING
HIM WITH ALL MATERIAL CIRCUMSTANCES WHICH HAVE COME TO HIS OWN
KNOWLEDGE ON THE SUBJECT, THE PRINCIPAL MAY REPUDIATE THE TRANSACTION,
IF THE CASE SHOWS EITHER THAT (A) ANY MATERIAL FACTS HAVE BEEN
DISHONESTLY CONCEALED FROM HIM BY THE AGENT, OR (B) THAT THE DEALINGS
OF THE AGENT HAVE BEEN DISADVANTAGEOUS TO HIM
• EXAMPLE: Paul directs Jacob (his Agent) to buy real estate. Upon negotiation,
Jacob discovers that the property next to the one Jacob is going to buy (for Paul) is a
central sewage, which brings in a pungent smell into the property Jacob will buy. If
Jacob buys the property without informing Paul of this material fact, then Paul can
repudiate the sale because it would be disadvantageous to him.

5. IF AN AGENT, WITHOUT THE KNOWLEDGE OF HIS PRINCIPAL, DEALS IN THE

BUSINESS OF THE AGENCY ON HIS OWN ACCOUNT, INSTEAD OF ON ACCOUNT OF HIS
PRINCIPAL, THE PRINCIPAL IS ENTITLED TO CLAIM FROM THE AGENT ANY BENEFIT
WHICH MAY HAVE RESULTED TO HIM FROM THE TRANSACTION
• EXAMPLE: John directs Sabrina to buy a certain house for him. Sabrina tells John
that it cannot be bought as the seller has not intention of selling the house. Sabrina
then
buys the house for herself. On discovery, John may compel Sabrina to sell the
house back to John at the price she originally paid for.
PRINCIPAL’S DUTIES TO AGENTS

1. THE PRINCIPAL IS BOUND TO INDEMNIFY THE AGENT AGAINST THE

CONSEQUENCES OF ALL LAWFUL ACTS DONE BY SUCH AGENT IN EXERCISE OF THE
AUTHORITY CONFERRED UPON HIM

2. THE PRINCIPAL MUST MAKE COMPENSATION TO HIS AGENT IN RESPECT OF

INJURY CAUSED TO SUCH AGENT BY THE PRINCIPAL’S NEGLECT OR WANT OF
SKILL

PRINCIPAL’S RIGHTS

1. THE PRINCIPAL IS ENTITLED TO COMPENSATION FOR ANY BREACH OF DUTY BY THE

AGENT

2. THE PRINCIPAL CAN REVOKE THE AGENT’S AUTHORITY

AGENT’S RIGHTS

1. IN THE ABSENCE OF ANY SPECIAL CONTRACT, THE AGENT’S REMUNERATION

DOES NOT BECOME DUE UNTIL HE HAS COMPLETED THE ACT FOR WHICH HE WAS
APPOINTED AS AGENT.

2. IN THE ABSENCE OF ANY CONTRACT TO THE CONTRARY, AN AGENT IS ENTITLED

TO RETAIN GOODS, PAPERS, AND OTHER PROPERTY, WHETHER MOVABLE OR
IMMOVABLE OF THE PRINCIPAL, RECEIVED BY HIM, UNTIL THE AMOUNT DUE TO
HIMSELF FOR COMMISSION, DISBURSEMENTS AND SERVICES IN RESPECT OF THE
SAME HAS BEEN PAID OR ACCOUNTED FOR TO HIM