The Doctrine of Agency by Necessity

Historically, the Common law principles did not require pre-existing contractual relations for the doctrine of agency of necessity to be applicable. However, Indian law mandates for a contractual relation to be present between the principle and agent for the doctrine to be applicable as stated in Section 189 of The Indian Contract Act, 1872. Therefore, if a person acts on behalf of another person, even though in an emergency, without a pre-existing contractual relationship, his or her act will not be covered under the doctrine of agency of necessity as it is in England1, a fact shown by the ruling of the Supreme Court in Serajuddin and Ors. v. The State of Orissa 2 where it ruled that “…there is no principal and agent relationship between the appellant and the Corporation and in the absence of such relationship the agency of necessity does not arise.” But in the case of Great Northern Railway Co. vs. Swaffield3 where, a horse was handed over to a livery stable because its consignee failed to be present at the station at the time of delivery. The claim of the plaintiff over the defendant was successful as there was an extension of the doctrine of necessity from carriers of goods by sea to the carriage of goods by land. The agency of necessity was well established as the plaintiff had no choice but to arrange to look after the animal on his own expenses. The underlying idea behind this is the principle of restitution, which enables the plaintiff to obtain restitution from the defendant even though there was no prior relationship between the parties WHAT IS AGENCY BY NECESSITY? Agency by necessity is a type of legal relationship in which one party can make essential decisions for another party. The courts recognize agency by necessity during an emergency or urgent situation under which the beneficiary is unable to provide explicit authorization. Under such circumstances, those granted agency must act for the sole benefit of the beneficiary. KEY TAKEAWAYS Agency by necessity allows some person or entity to act on behalf of another when the beneficiary is unable to explicitly grant permission to do so4. These situations often arise from urgent or emergency conditions, but where the beneficiary's needs are placed first5. Understanding Agency by Necessity Emergency situations often lead to agency by necessity in the eyes of the court. For example, if an individual is sick and unable to make a critical investment or retirement decision, agency of necessity would allow an attorney, parent or spouse to make decisions on behalf of the incapacitated party. HOW DOES THE AGENCY BY NECESSITY ARISE? Agency by necessity is an agency created by an emergency arising from a situation making it necessary or proper for the agent to act without receiving the sanction or authorization of the principal, in order to prevent harm to the principal. It arises when a duty is imposed on a person to act on behalf of another apart from contract and to prevent irreparable injury. Such an agency relationship is recognized by the courts6. Agency of necessity is said to arise when the law allows one person to act on behalf of another to save some proprietary interest of the latter which is in jeopardy. Whether or not agency of necessity exists in a given situation is a question of law; the application of the doctrine does not depend on the express or implied consent of the parties. In this fundamental respect agency of necessity differs from true agency; on the other hand, the two are analogous in that the effect of both is to give rise to similar rights and duties between principal, agent, and third party. The First Category: The Shipmaster The first type, commonly known as the case of the shipmaster, creates a full agency such that it involves both the internal as well as the external aspects of the agency relationship. Regarding the external aspect of the agency, the master can create a binding contract and confer rights on his principal. It is to be noted that in these types of cases usually the person concerned is already an agent and it might be possible to say that the person had implied authority to act reasonably and appropriately in an emergency situation6. Internally, he becomes entitled to reimbursement of any expenses that he may have incurred in the course of his actions in an emergency. Beldon v. Campbell is a typical example of cases relating to the ship-master. There have been calls from lawmakers from many spheres that the term ‘Agency of Necessity’ should be restricted only to this category and situations such as this where all the strict requirements for the emergency to be present are applicable. It must be noted that ‘Agency of Necessity’ is an off-shoot of the law of salvage which was formulated primarily for ships on the high seas7 Second Category: The Acceptor for the honour The second type can be said to be an extension of the doctrine of the Agency of Necessity and its principle lie in the principles of Restitution. The agent who acts in an emergency, in this category, seeks only compensation or insurance from the principal or defends himself/herself from any action that may have been taken upon the agent by the principal for breach of contract (if there was one) or in tort (usually conversion). There can be no issues regarding third parties in this type and the agents do not affect the relations of their principals with third parties8. WHAT AMOUNT TO THE DOCTRINE OF AGENCY BY NECESSITY? Rules Determining Necessity i. It must be impossible, or impracticable, for the agent to have any sort of communication with the principal. Initially, the common rule that was followed was that it should be impossible as ruled in Prager v. Blatspiel, Stamp & Heacock Ltd. However, this was seen as too harsh and it was gradually diluted, notably by Bankes L.J. who approved of the Doctrine being applicable of it was “practically impossible” ii. iii. to communicate. This idea was furthered by Scrutton L.J. in the same case by saying that “commercial possibility” needs to be looked at. The action that has been undertaken by the agent must be one that was both necessary and for the benefit1 of the principal. The opinion of the agent as to what is necessary is irrelevant. What is relevant is that the situation was such that any reasonably minded person would have thought of the actions done as a necessity. As mentioned earlier, mere inconvenience does not imply that the Doctrine is applicable. The court has to be satisfied regarding the fact that the agent acted in a bona fide manner and in the interests of the principal. This was set out by Lord Diplock again in The Winson. It is necessary that the principal should have been competent at the time when the agent did the act for the principal. These rules were further reinforced by the judgment of the Choko Star which concerned salvage agreements. The five types of agents include: general agent, special agent, subagent, agency coupled with an interest, and servant (or employee). In Prayer Vs Blatspiel, Stamp and Hercock Ltd9. expressly rejected the conservative approach. Agency is not confined to ship master cases and to bills of exchange. The defendants had bought fur skins as agents for a Romanian plaintiff war time. conditions had made delivery of the skins to the plaintiff difficult at first and then impossible. Two years later the defendants sold off the skins and were therefore unable to supply them to the plaintiff when he demanded them after that war ended. While accepting that an agency of necessity, could in principle arise in such circumstance, was held that the plaintiff’s claim for damages for conversion succeeded and that the defence of agency failed. Me Cardie J laid down three essential requirements for an agency of necessity. First the alleged agent cannot communicate with his principal. Secondly there is a commercial necessity for the sale. And thirdly, the alleged agent is acting bonafide in the interest of the principal. On the facts, the defendants, failed on the second and third requirements. In such circumstances the person who, incurred expenditure or provided professional services is entitled to be refunded or compensated by the defendant who was under a duty to arrange the burial. This is illustrated by Jenkins Vs Tucker10 where the deceased had died while her husband was .in Jamaica. The deceased’s father arranged for his daughter’s funeral and was able to recover the expenditure incurred because he had ‘acted in discharge of a duty which the defendant was under a strict legal necessity of himself performing, and which common decency required at his hands. In the same way, if the plaintiff provides medical treatment to the victim of an accident who is in immediate need of such treatment, the plaintiff may obtain restitution from the defendant who was liable to arrange for the services to be provided. The fact that plaintiff had discharged the defendant’s legal liability meant that the defendant had been benefited by the plaintiff’s intervention. The ground of restitution in these cases was clearly founded on necessity. Where the plaintiff discharges the defendant’s debt in circumstances of necessity the plaintiff can obtain restitutions from the defendant with the ground of restitutions being founded on the principle of necessity. This was recognised in Owen Vs Tate11 in which Scarmen LJ suggested that, where there was some necessity for the plaintiff to assume an obligation, such as a guarantee of defendant’s liability, and the plaintiff was required to pay money under the guarantee to discharge the defendant’s liability, then the defendant would be required to make restitution to the plaintiff if it is just and reasonable to do so. The origin of the principle of the Doctrine of Agency of Necessity rests in the idea where an agent exceeds his authority by acting on behalf of the principal in an emergency situation. This occurs when one party, the agent, is faced with an emergency which poses an imminent threat to the interests or the property of another party, the Principal, and there is insufficient time or means for the agent to seek for the Principal’s directions or authority regarding the matter. The doctrine originates from two analytically different types of cases. In some, the actions of the agent may entitle him to go to the extent of affecting the Principal’s legal relations with third parties and in others, merely entitle him to an indemnity or reimbursement against the liabilities or expenses that he/she may have incurred while acting in the Principal’s benefit12.