Principles of the Law of Restitution - Assignment Example

Law of Agency What Is a Law? A law is a regulation imposed by the government or ruling body of any country. A law can be for anything practical and rational, and can be imposed all over the country or in any specific area of a country, as deemed suitable by the government in order to ensure appropriate behaviour of the people which are the citizens of the country. Why Are Laws Made? Laws are essentially made to control the behaviour of the people. If we see this practically, laws are meant to check the evil side of the human mind, which forces people to commit negative things harmful for any society and/or country. Law of Agency Agency is a relationship between two parties based upon an express or implied agreement whereby one person, called the agent, is authorised to act for another, called the principle, in transaction with third parties. General Rules for Agency From the above definition the following general rules emerge: 1. Unlimited Contract: By virtue of agency device, one person can make contract for innumerable persons at innumerable at the same time. 2. Right to Act for Other: Where agency exists, one person acquires legal authority to act for another person. 3. Connecting Link: The concept of agency relationship indicates that the agent is merely a connecting link between the principle and the third parties. 4. Consensual Relationship: Since agency is based upon consent and for that reason it may be called a consensual relation. 5. Contractual Relation: Where in an agency consideration is present, the relationship may be called contractual. 6. Sue Juris: Whatever a person Sui Juris can do himself he may do that through another. Creation of Agency The relationship of principal and agent (i.e. agency) can he created in the five different ways, namely. 1. By Direct appointment: When the agent’s authority is express he is said to be directly appointed. The authority is said to be express when it is given by words spoken or written e.g. A by a letter appoints B his agent. 2. By Implication: Agency is implied when it is to be inferred from the conduct, situation of parties, mediary course of dealings, the necessity or circumstances of the case, e.g. master and servant, husband and wife, a person left in charge of the shop by the owner. 3. By Necessity: Agency by necessity arises when a person under certain circumstances acts as an agent of another without authority of that other. Such agency arises under extraordinary situations, e.g. a deserted wife pledges her husband’s credit for necessaries of life; a master of ship can pledge the owners credit for necessary repairs during voyage, carrier of goods. 4. Agency By Esstoppel: When a person by his words or conduct willfully leads another to believe that certain set of circumstances or fact exist, and that other person has acted on that behalf, he is estopped from denying the truth of his statement. 5. By Ratification: Agency by ratification arises when one ratifies or adopts the act of another who without his knowledge and authority, acted as his agent. Illustration A makes a contract with B as the agent of C but without C’s authority. C may after the contract is made, ratify it and make it his own. Minor as Principal Any person who is of the age of the age of majority according to the law to which he is subject, and who is of sound mind, may appoint an agent. Thus a minor being incapable to contract cannot be a principal. This is because principal is the person who is personally liable on the contract, and a minor being incompetent to contract under section ten of the Contract Act cannot become principal so as to incur such liability. Minor as Agent Any person may become an agent, but no person who is not of the age of majority and of sound mind can become as agent so as to be responsible to his principal. In other words, if a person employs an agent who is a minor, the acts of the minor would bind the principal so far as they are done in the regular course of his agency, but if, that minor agent violates any instructions of the principal so far as the principal is concerned, he cannot sue his minor agent. Agency is a relation based upon an express or implied agreement whereby one person, the agent, is authorised to act for another, his principal, in transactions with third persons. The idea of relation indicates that the agent is merely a connecting link between the principal and the third party. The acts of the agent bind the principal to third persons or give the principal rights against the third persons. Agency is based upon consent and for that reason; it is called a consensual relation. If consideration is present, the relationship is also contractual. There are two general rules regarding agency. One, with certain exceptions, whatever a man sui juris may lawfully do of himself he may do by another. In other words, a person may, in general, act through an agent. The second rules follow from the first: the acts of the agent are the acts of the principal. The maximum qui facit per alium facit per se - he who acts through an agent in himself acting. The agent is clothed with the capacity of the principal. Who may be a principal- Any person, if he is competent to act for himself, may act through an agent. A person under a legal or natural disability or incapacity cannot appoint an agent. For example, the appointment by a minor is held void, and if an agent acts for a minor, he will be personally liable to the third party. Who may be a Principal - Since a contract made by an agent is in law the contract of the principal, it is immaterial whether or not the agent has legal capacity to make a contract for himself. Thus a minor can be agent: the agent is only a connecting link and is not personally bound by his acts performed on behalf of his principal. The law requires the principal and the third party to be competent to contract. In considering, however, whether the contract of agency itself as between the principal and agent is enforceable, the contractual capacity of the agent becomes important. Where an agent is an adult of sound mind (competent to enter into contract) then, where the agent has misconducted himself in the business of agency, he will be responsible to the principal for damages arising from such misconduct. But, if the agent happens to be a person incapable of entering into a contract, e.g., a minor, then the principal cannot hold the agent liable, in case of misconduct or negligence For example, where P, a principal, gives A, A minor, a ring worth £ 500 and asks him not to sell it on credit or for less than £ 450, and A sells the ring to Con credit for £ 350, the transaction will positively bind P and, but P will have no right to claim damages as against A for his misconduct, since the latter happens to be minor, and the contract with the minor is void. Had A being an adult, he would have been liable to P for damages sustained by his misconduct. Capacity to contract must be distinguished from authority to contract. Capacity means power to bind oneself; authority means power to bind another. Capacity is the part of the law of status; authority is part of the law of principal and agent. Capacity is usually a question of law; authority is usually a question of fact. Thus, a minor has no capacity to contract, but he may have authority to act as agent. Termination of Agency Agency may terminate in the same manner as any other contract viz by the operation of law or by the act of parties. In particular a contract of agency may be terminated on any one of the following grounds: By performance of contract of agency 1. By agreement between parties 2. By expiration of fixed term 3. By death of principal or agent 4. by insanity of principal or agent 5. by insolvency of principal and agent 6. by destruction of subject matter 7. by agent renunciation 8. by revocation by principal Agency of Necessity – Common Example Nowadays, we see that thousands of people become agents of necessity regularly. Accidents are perhaps the most common and frequent examples of creation of these agencies. An agent of necessity is entitled to receive reimbursement from the victim’s parents/guardians. In an accident situation, the agency by necessity is formed due to the fact that the victim of accident (if injured or died) cannot contact to his/her parents/guardians/relatives. Here a person who is helping the person becomes the agent of necessity. Of course, the situation of accident usually does not allow the victim(s) to contact their parents/guardians/relatives to ask at which hospital they should go and are not able to spent money on their treatment or on other expense that incurs in their transportation. Generally, in these situations the agency of necessity is formed. In accident situations, asking for money to the victim’s parents or first contacting to the victim’s loved ones and then taking him/her to the hospital is quite impractical. Thus, it is clear that in accident situations, if an agent’s intention and immediate actions are only for the best interest of the principal and the third person who is the accident victim then he will adequately reimbursed. On the other hand, if an agent is just to want get some money from the principal then certainly he would not receive a single penny – the agent will definitely lose the case. Doctrine of Necessitous Intervention It is indeed desirable for the English law to have a doctrine of necessitous intervention. For a person to be watchful in the performance of his part of the obligation; he/she must do his agreed part with the utmost service. If one of the parties does not perform his part as prescribed or on merit, then there will be restitution to the aggrieved party. The law of agency tells us that if an agent does what is requested to him to do, the agent will not be held liable. The agent will only be liable if he acts against or without the permission of the principal. The agency of necessity will have to play the role of doing what is prescribed to be done, as like a good father of a family. Authority and Necessity in Law of Agency “The rules relating to agency of necessity are called from so many disparate sources that it has proved consistently impossible to forge the law into one coherent body of doctrine. The origins of this agency are found in the authority of the shipmaster to act in emergencies as agent of the ship-owner in order to preserve the ship and her cargo, and the acceptor of a bill of exchange for the honour of the drawer who has an entitlement to be reimbursed by the person for whom he pays. The rules have been extended to encompass carriers of goods by land faced with crises and also apply but with less certainty, to other bailess. The deserted wife’s right to pledge her husband’s credit for necessaries was, formerly drawn within agency of necessity, and currently, agency arising from cohabitation is within this category. Finally, clinging most precariously to the rules of necessity is the troublesome area corresponding to the Roman law classification of negotiorum. Gestio. This unwieldy conglomerate has little in common, ranging as it does from commercial agency relationships rooted in formal contracts between principal and agent to negotiorum gestio where strangers intervene on behalf of other without even the latter’ consent. It is often assumed that it is an emergency affecting the principal which provides the lowest common denominator of these situations, but even this notion is not comprehensive as, in the deserted wife’s agency, the necessity is patently her own, not that of her principal. Not surprisingly, agency of necessity remains fragmented and bound loosely by the practical conditions which render it operative, viz there must be a necessitous situation, communication with the principal must be impracticable and the agent must act bona fide in his principal’s best interests. Overall, there has been a marked reluctance to extend the notion of necessity beyond the recognized categories. It would be thus seem to be a reasonable assumption, at least in situations where there is an explicit pre-existing agency relationship, that this apparently immutable doctrine would have substantial theoretical foundations. In fact, even within a contractual agency the juridical basis of agency of necessity remains indistinct”. Ian Brown. Modern Law Review, Vol. 55, No. 3 (May, 1992), pp. 414-420. Agency may also arise from the necessities of the case. In certain circumstances, a person who has been entrusted with another’s property, may have to incur unauthorized expenses to preserve it. In such a case, although specific, authority to act does not exist, the law presumes it. Such an agency is known as agency of necessity. In Sims & Co. vs. Midland Rly. Co (1913) 1 K.B 103, a quantity of butter was consigned with the defendant railway company. It was delayed in transit owing to a strike. The good being perishable the company sold them. The sale was held building on the owner. The company action was justified by the necessities of the case and it was also not practicable to get instructions form the owner. Remember! The doctrine of necessity applies only when there is a real emergency; the agent is not in a position to get instructions from the principal and acts bona fide in the best interests of the principals. In the famous case of the deserted wife or one compelled to live apart from the husband (e.g. either ejected or ill-treated by him) and lacking means of support for herself and her children becomes an agent of necessity. She can pledge her husband’s credit for necessaries, provided she has not been given an adequate allowance. The point to understand is if she voluntarily leaves, there is no agency of necessity. Agency of Necessity - Cases Prager v. Blatspiel (1924, Eng. K.B.) “P was a fur merchant in Romania. B was his agent for the purchase of skins. B bought the skins but could not deliver them or communicate with P because WWI had broken out and Romania was occupied. After holding the skins for two years, B sold them and held the money in trust for P. After the war, however, P demanded delivery of the skins and was upset that they had been sold, as the market had risen sharply. P accused B of conversion, and B responded that he had the authority to sell the skins because of an agency of necessity - the skins were deteriorating. Held, it was not actually necessary to sell the skins, as the deterioration had been minimal and was unlikely to progress further. B should have continued to hold them at P’s expense. General requirements for an agency by necessity were laid out: (1) Communication between “A” and “P” must be impossible; (2) “A”’s actions must have been strictly necessary; and (3) “A” must have acted in good faith and in the best interests of “P”. Sachs v. Miklos (1948, Eng. K.B.) S owned furniture which M offered to store free of charge (a gratuitous bailment, without suggestion of any agency agreement). After a while, M had lost touch with S and needed the space. He tried to contact S but could not, so he sold the furniture and held the proceeds in trust for S. Six years later, S returned for the furniture, and because the market had risen, S sued M in conversion. Held, M was liable as his actions had not been motivated by any necessity or urgency regarding the furniture, which was non-perishable and was in no danger of being damaged. Hastings v. Semans (Village) (1946, Sask. C.A.) Late one night, an indigent resident of the village was struck by a car and required immediate treatment. The medical officer, acting in accordance with the village’s statutory responsibility to care for any indigent resident, arranged to have the resident admitted into a private hospital, H, which later wanted to be paid. (The resident was hospitalized for 76 days for a broken leg - which probably contributed to S’s reluctance to pay!) S argued that the medical officer lacked the authority to do what he did, since the decision to admit the resident into a private hospital needed to be made by a council resolution. H argued agency of necessity. Held, there was an agency of necessity, as it would have been impracticable to call the council together at the time of the accident, and thus the doctor could not communicate with the principal. Since the village had a statutory obligation to care for the indigent, the doctor had to hospitalize her and the village had to pay. (Note that the doctor probably also had apparent authority, but the finding of actual authority by necessity was obviously better for him.) There is no specific rule as to whether the necessity must relate to the principal’s well-being or whether it can be the necessity of the agent. Osborne thinks it should be the necessity of the principal, though, since A has an obligation to act in the best interests of P. There are no cases which have supported an agency of necessity where the necessity was A’s. Can P sue A for failing to act in a situation that might be seen to give rise to an agency by necessity? Osborne doesn’t know, but thinks it may be unreasonable to expect a person to act in an “emergency” situation in the face of cases which might render him liable for acting improperly. On the other hand, it may be open to the court to imply a duty to act when circumstances so require. Note that there is some debate as to whether the agency of necessity can apply where there is no pre-existing agency arrangement (e.g., Sachs). The better view seems to be that it can”. Agency [Osborne] 96-97 Chisick.doc http://www.edchan.ca/docs/year3/Agency/Agency%20[Osborne]%2096-97%20Chisick.doc (Accessed 12th January 2006) The Word “Restitution” “The word ‘restitution’ does not itself denote an event. That is to say, it does not signify a fact or composite set of facts giving rise to legal consequences. In this it differs from contract and from tort. Also from trust if that word is taken to denote the act of reposing trust rather than the relationship so created. law of ‘Restitution’ properly belongs in a series of words denoting responses rather then events. Compensation, punishment, restitution, others is a properly aligned series. Contract, tort, restitution others is not. No trained lawyer would ever make an exclusive opposition between compensation and tort. Confining our attention to the sense in which restitution is always of something to someone and, therefore, always supposes a previous receipt by the person who is to make the restitution, we can advance a very simple definition. Restitution is the response which consists in causing one person to give back something to another. This is based on the ordinary meaning of the word but after cutting away the other usage. This definition is too simple. Some adjustments have to be made. The reason is that the matter which the law of restitution seeks to organise developed long before anyone thought of calling it restitution. Without some refinements the chosen name fails to embrace the intended subject-matter”. P. Birks. An Introduction to the Law of Restitution. (1985). pp. 9-11.Oxford Publication. What is Law of Restitution? “Before the principles and rules which form the law of restitution are examined it is vital to ask what this body law of is actually about. The answer is simple, but it is an answer which has rarely been articulated by judges or commentators. The law of restitution is about the award of a generic group of remedies which have one common function, namely to deprive the defendant of a gain rather than to compensate the plaintiff for loss suffered. These are called the restitutionary remedies. Whilst there is a great deal more to the subject than this remedial aspect, since it is also vital to determine what circumstances will trigger the award of restitutionary remedies, it is only because there are a group of remedies which have a common function of depriving defendants of gains that we are able to assert that there is an independent body of law which can be called the law of restitution”. Graham Virgo. Principles of the Law of Restitution. (1999). pp. 3. Oxford Publication. Water Pollution Case - Restitution “In 1991, in Branch v. Mobil Oil Corp., plaintiff homeowners claimed that the defendants “saved” the costs of pollution abatement when their oil wells and salt pits polluted plaintiffs’ land and water. The plaintiffs sought the value of the savings. A federal district court in Oklahoma denied defendant’s motion to dismiss Citing Olwell v. Nye & Nissen Co., the famous egg washing case, the court said that “Oklahoma recognizes a claim for negative unjust enrichment.” The court also cited Tilghman v. Proctor. In Tilghman, the Court said that “if, for example, the unauthorized use by the defendant of a patented process produced a definite saving in the cost of manufacture, he must account to the patentee for the amount so saved.” Not Available http://llr.lls.edu/volumes/v36-issue2/kovacic.pdf (Accessed 12th January 2006) The law of restitution law concentrates on whether the efforts and actions taken by an agent of necessity in the legal ways or not. The law comes into action where there is unjust enrichment of one or more persons at the unfair expense of another person. The law of restitution is an integral part of the United Kingdom’s common law. It is also related to tort or damages. If a person causes harm, whether intentional or not, there must be restitution to the plaintiff. It is important to understand that enrichment is unjust if payments are made under mistake of fact, or goods and services are given by mistake to a person. Defensing Restitution Generally, the defenses that a principal could put up against a plaintiff are: Officiousness; Compromise; Submission; Estoppels; and Change of position. Intervention It has been observed that children quickly learn that if they give their toys away they cannot expect to get them back. Anxious about spoiling, parents will not intervene unless there is more to it than a mere change of mind. Between adults the courts maintain the same simple rule. One who parts with value cannot just demand it back, not even if he received nothing in return. The other has an interest in the security of his receipt. If he is to be disturbed there has to be a good reason, one strong enough to be compatible with respect for stability. Suppose that you have paid me £500 and now you want it back, not just because you have changed your mind but because the original payment was made by mistake. Here the impulse to relieve mistakes is something to weigh against the interest in security. In order to get the balance right questions have to be asked about the exact nature of your mistake, but if these are answered in your favour I shall have to repay. So, subject to safeguards, receipt of a mistaken payment is an example of an event which does give rise to restitution. A common case is where an insurance company wrongly believes that the event against which premiums have been paid has happened. Or that a policy which has lapsed had in fact been maintained. Where payment is made under such mistakes, restitution follows. The principal business of any work on this subject is to organise and understand the whole class of events which give rise to that response. Restitution and Unjust Enrichment There is a natural law that states that we must not unjustly enrich ourselves at the expense of others. The law of restitution states that the principal must restitute or refund whatever money the agent for necessity paid because the agent for necessity felt at the time of his action or non-action, his deed was beneficial to the unwanted principal. When there is result of an unjust enrichment to the principal because of a person who performed a task without the authorized person’s permission to do the action then the plaintiff has the right to demand refund of expenses. For example, a man sees a minor girl who is lost in a department store; he picks up the lost girl with the intention to hand her over to the girl’s parents. In this situation, after successfully returning her back to the parents, he can ask for refund the expenses incurred during the two days (or whatever time) that he had been looking for the parents. If the plaintiff spent too much money unnecessarily, then the dependant principal can argue that the plaintiff wasted too much money unnecessarily. Thus, the court can reduce the amount that the complainant (plaintiff) will get in this situation. Some of the remedies of restitution for damages are in terms of money and compulsory performance by the defendant. Therefore, if a person does an act that will stop a future possible danger that should have been done by the principal, the plaintiff can ask the court of law to force the principal to refund the expenses plus incurred in making the agency of necessity. Conclusion From the above discussion we can conclude that the doctrine of necessitous intervention is vital in the English Law. As long as agencies of necessities are being formed the doctrine is indeed required. Agency by necessity is formed when a person is helpless, or goods/services require immediate intervention by another to save them from perishing. We reviewed various cases related to the agency of necessity as well the cases of restitution. The law of restitution is also related to the law of agency. The law of restitution comes into action when a person plays on the expense of another believing that he/she is acting in the best interest of the principal; whereas, in reality he/she is just fulfilling his/her deeds. According to the law, the principal has a right to defend him/her self whenever a person tries to play on his/her expense. In a nutshell, the law of agency tells us how an agency by necessity is formed. It teaches us the limitations of forming an agency by necessity. And, the doctrine of necessitous intervention is essential for the British law. References English law - Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/English_law (Accessed 12th January 2006) Dalhousie Law School – Courses. http://law.dal.ca/law_2475_378.html (Accessed 12th January 2006) Not Available http://www.lexisnexis.com.au/aus/academic/text_updater/covell/ch04.pdf (Accessed 12th January 2006) Not Available http://llr.lls.edu/volumes/v36-issue2/kovacic.pdf (Accessed 12th January 2006) Agency [Osborne] 96-97 Chisick.doc http://www.edchan.ca/docs/year3/Agency/Agency%20[Osborne]%2096-97%20Chisick.doc (Accessed 12th January 2006) Damages, Restitution, Reliance and Expectation Interests http://sunsite.queensu.ca/localov/dhoucc97/law2.htm (Accessed 12th January 2006) Ian Brown. Modern Law Review, Vol. 55, No. 3 (May, 1992), pp. 414-420. M.C. Shukla. A Manual of Mercantile Law. (1997). S. Chand & Company Ltd. L. Baig. Business and Industrial Law. (1998). Ghaz Academy Ltd. P. Birks. An Introduction to the Law of Restitution. (1985). pp. 9-11. Oxford Publication. Graham Virgo. Principles of the Law of Restitution. (1999). pp. 3. Oxford Publication. Read More