Sankalp Shanker Srivastava
INTRODUCTION- THE PRINCIPLE
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 benefit1.
Historically, the Doctrine of Agency of Necessity was applicable only to the carriage of goods by sea which involved the captain’s action to save a ship in the course of a voyage, or the cargo it might be carrying in threatening situations. Gradually, similar cases that involved comparable carriage of goods on land and some other forms of agent principal relations came about to be in the ambit of the Doctrine. A leading example of the growth in scope was Great Northern Railway Co. vs. Swaffield2 in which 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 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 parties3.
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, 18724. Therefore, if a person acts on behalf of another person, albeit in an emergency, without a pre-existing contractual relationship, his/her act will not be covered under the doctrine of agency of necessity as it is in England, a fact shown by the ruling of the Supreme Court in Serajuddin and Ors. v. The State of Orissa5 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.”
AGENCY OF NECESSITY- THE TWO CATEGORIES
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. Campbell7 is a typical example on cases relating to the ship-master. There have been calls from law makers from many spheres that the term ‘Agency of Necessity’ should be restricted only to this category8 and situations such as this where all the strict requirements for the emergency to be present are applicable9. 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 seas10.
Second Category: The Acceptor for honor
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 reimbursement or indemnity 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 parties. Therefore, a person is justified if he sells perishable goods which go uncollected and have a chance of deterioration11. The cases of this category may be examples of the first; however, the actual decisions relate to only internal relationships between the principal and agents. The requirements for the Doctrine to be applied are a lot and it might backfire as it did in Sachs v. Miklos12 where a bailee of furniture was held liable for the tort of conversion after he sold the furniture to someone else after being unable to contact the owner. It was held that necessity, as opposed to inconvenience, had not arisen in this case.
The rules or the conditions which have to be fulfilled for the Doctrine of Agency of Necessity to apply are derived and formulated to a large extent from the shipmaster case and it would also be quite obvious after the detailed explanation that they are largely inapplicable to the second category13.
RULES DETERMINING NECESSITY
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.14. 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”15 to communicate. This idea was furthered by Scrutton L.J. in the same case by saying that “commercial possibility”16 needs to be looked at.
The action that has been undertaken by the agent must be one that was both necessary and for the benefit17 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 necessity18. As mentioned earlier, mere inconvenience does not imply that the Doctrine is applicable19.
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 Winson20.
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 Star21 which concerned salvage agreements.
Modern Scenario and Criticism
A society is never static and keeping that in mind, the law is expected to keep in pace with the changing scenarios, or else be set to face an undignified loss of relevance. The doctrine of Agency’s requirement that the agent must be unable to communicate and seek authority from his principal was clearly designed to limit its application to cases where there was genuine necessity and in the process, safeguard the principal. However, the flipside has been that where authority is refused, agency of necessity cannot arise even though it is a genuine case. Evans J. explained22, “… the defendants’ initial response was to say that they would sell the goods for the account of the plaintiffs. In reply, the sellers made it clear that they refused authority. … the Court did not regard the case as one where the buyers could claim to be acting as agents of necessity on behalf of the sellers”. Since the doctrine is intended to be applicable in extreme circumstances only, it’s not surprising that there have been such a huge number of cases in which it has failed to apply. Bowstead has observed that in the modern world there is a rare chance that there would be impossibility of communication23.
Only the first type of cases in the Agency of necessity can be classified in the classic agency reasoning. However, technological advances in communication have rendered emergency actions by ship masters or even others, unnecessary even in the remotest of places24. However, situations still might arise where communication becomes virtually impossible or impracticable25. Modern legal developments do support this idea of authority in specified circumstances as they place an uncalled-for burden on third parties who have to take into account the risk of whether the circumstances creating authority by operation have arisen, whether there is an emergency, whether it is not practicable for the agent to communicate with his principle and whether or not the principle has expressly prohibited the agent to enter into specified transactions26. Also, with increased improvement in financial services of several private and public institutional bodies, combined with the increasingly competitive banking environment, the assertion that goods have to be disposed to raise money as a justification of ‘necessity’ is bound to be put to rest.
It’s always been a subject of debate in courts as regards how to approach this doctrine from a purely legal perspective. Bowen L.J. has explained in Falcke v. Scottish Imperial Insurance27 that the labor done or money spent by one man for the benefit of the property of another person does not create any lien upon the property saved or benefited and should not create any obligation for the repayment of expenditure. He recognized the importance of the fact that the liabilities should not to be forced upon people without their consent as it might be against their will.
Where Indian law stands w.r.t. the Doctrine
The Indian legal system is still governed by the ancient doctrine. The 13th Law Commission of India recently made some efforts in this regard to bring the law regarding the Doctrine in line with modern developments. It recommended adding a new section, section 187A which would provide for acts done by means of an agent28. These recommendations have been made with an intention to bring the Indian law in conformity with English law in this regard even though the changes have not been made yet in Indian contract law. The judiciary continues to follow the old doctrine as demonstrated in Chami Narayanan v. V.R. Krishna Ayer29. This case is a classic example of a case which could’ve been decided in accordance with the principles of actual and apparent authority. However, as of now, the status quo is that the old doctrine is in force and it is upon the legislature to act proactively and bring about the necessary changes to Indian law of agency.
The very notion of agency of necessity is antithetical to modern thinking and forms a major stumbling block for the refinement of the principles which relate to actual and apparent authority, particularly causing a lot of inconvenience to third parties. Also, the International perception as regards the Doctrine is changing. The International Convention on Salvage, 1989, conferred upon the master a lot of powers which included the power to sign a salvage contract for cargo30.
Nevertheless, the doctrine has sought for the accommodation of commercial realism within the constraints of a strict legal doctrine; and has definitely over the years, brought together a number of separate (and disparate) sub-doctrines, of which some (such as the wife’s agency of necessity) have been abolished.31