Business Law: Liability of an Agent and Agency by Necessity

This article discusses the legal relationship between principal and agent in business law. It explains the liability of an agent and the concept of agency by necessity. The article cites relevant cases to support the discussion.

Running Head: BUSINESS LAW
BUSINESS LAW
Name of the student:
Name of the University:
Author Note

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Issue:
The issue that has been identified in this scenario is whether Steve is Liable to pay 3500 dollars
or whether can avoid his liability.
Rule
Agency can be described as the relationship existing between two or more parties which are the
principal and the agent. The main rationale behind creation of Agency is to enter into contracts
with third parties or to represent the principal while entering into contracts with such third
parties. It can be stated that an agent derives the authority represent him or to act on his behalf
while dealing with others. Thus, in light of the aforementioned statement it can be stated that
there are two types of contracts that can be entered upon by agents. They are:
 Contracts formed between agent and the principal which gives the authority to the Agent
to act on behalf of the Principal while dealing with third parties
 Contracts made between Principals and Third parties by the act of agents.
Authority can be conferred to the agent by the Principal expressly or in an implied manner. It
can be mentioned that authority can arise by a consensual agreement. A principal must
indemnify the all the agent’s actions provided that the agent acts within the scope of his authority
which has been derived by him expressly or in an implied manner. However, the principal will
not be liable to indemnify the agent, if such agent has acted in breach of his authority and such
agent will be held to be personally liable to the third party.
The law can also infer an implied authority on an agent when the court assesses that such
authority was reasonably necessary to have been derived by the agent for the performance of the

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duties as imposed upon him by the principal. It can be mentioned that implied authority is not
specifically written down in the contract but assumed to be implied by the nature of the
relationship. The case Burnett v Clark (1771) M 8491, deals with the provisions of implied
authority. While actual authority is derived from the agreement of agency, ostensible or apparent
authority can be imposed by the law on the agent if is assessed by the court that the agent acted
within his authority even if such authority had not been originally conferred upon him by the
principal. The case Watteau v Fenwick [1893] 1 QB 346, is a landmark English case which
concerns itself with ostensible or apparent authority. In this case it was held by Lord Coleridge in
concurrence with the opinion of Wills J that the principal is liable for all the acts of the agent
which are within his authority that is usually confided in the agent of that nature. The decision of
Wills J highlighted the facts that no limitations would restrict the liability of the principal upon
the establishment principal agent relationship. As held by Lord Diplock had held in the notable
case Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
and Another., 1964 that Actual and Apparent or ostensible authority are independent of each
other . Such Actual and Apparent Authority can coincide and coexist. But either of the two
authorities can exist independently. However in such a case and their respective scope will be
different. The doctrine of necessitous intervention by any person who has a legal relation with
the defendant is the main rationale behind the concept of creation of agency by necessity.. When
an agent is faced with the necessity to make a decision and when such agent cannot communicate
the decision to the principal, the courts can treat an agent as though such agent had the authority
to act in a way which can be considered to be reasonable to save the property of the principal. To
establish an agency of necessity the following condition must be fulfilled.
 It was not possible for the agent to obtain the instruction of the principal

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 The action of the agents was needed to prevent damage to principal’s property
 The agent must have acted in good faith.
The Creation of establishment of agency by necessity had been established in the case Great
Northern Railway Co v Swaffield (1874) LR 9 Ex 132. The principal is required to reimburse the
agent, the expense incurred for protect ting the property of the interest. Some of the other notable
cases which deal with the principle of agency by necessity are Prager v. Blatspiel, Stamp and
Heacock Ltd [1924] 1 KB 566 and Springer v. Great Western Railway Company [1921] 1 KB
257
Application
As provided in the facts of the given scenario, it can be stated that Steve the Alpaca Breeder and
carer was in charge of the Alpaca that Bianca had left in his farm. However he assessed that
Bianca’s Alpaca had fallen seriously ill and required urgent treatment. He intended to contact
Bianca however, she was not reachable. Thus, in order to save the Alpaca he incurred the
medical expense of the surgery of the Alpaca. Thus, by analyzing the facts of the case and
applying the principle of the case Great Northern Railway Co v Swaffield, it can be stated that an
agency of necessity had been formed between Steve and Bianca. Such agency of necessity had
fulfilled all the three criteria:
 Steve intended but could not get the instruction of Bianca
 The decision of Steve to pay for the expense of the surgery of the Alpaca in the given
circumstance was necessary to save it
 Steve acted in good faith to prevent any damage to the Alpaca which belonged to Bianca.

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Thus, in the given scenario he is not liable to incur the expense of 3500 dollars personally and is
entitled to reimbursement of the amount from Bianca by the principle of the Great Northern
Railway Co v Swaffield case.
Conclusion
Thus to conclude, it can be stated that Steve acted on behalf of Bianca as her agent which was
created by necessity and therefore can claim the expense he incurred to save the alpaca from
Bianca.

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Reference List:
Burnett v Clark (1771) M 8491
Watteau v Fenwick [1893] 1 QB 346
Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Great Northern Railway Co v Swaffield (1874) LR 9 Ex 132
Prager v. Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566
Springer v. Great Western Railway Company [1921] 1 KB 257