Agency by Ratification

Agency by ratification is a legal principle that deals with the creation of an agency relationship through the acceptance or ratification of the unauthorised act done by a person who is not an agent. It is a type of implied agency where the principal approves the actions of the agent after the agent has acted on behalf of the principal without prior authorisation.

In India, the principle of agency by ratification is recognised under the Indian Contract Act, 1872, and it is a widely used concept in the commercial and business sectors. The purpose of this article is to provide a comprehensive understanding of the concept of Agency by Ratification in India, its legal implications, and its practical applications.

What is Agency by Ratification?

The term “ratification” means the confirmation or approval of an act done by someone else on behalf of the ratifier. In the context of agency law, ratification refers to the act of a principal approving or accepting an unauthorised act done by an agent, thereby making it binding on the principal.

The principle of agency by ratification arises when a person, without the authority or knowledge of the principal, acts on behalf of the principal as if he were an agent. In such a case, the principal has two options- either to ratify or to repudiate the act of the agent. If the principal ratifies the act, it becomes binding on him, and he becomes liable for the consequences of the act as if he had authorised it in the first place.

For example, A, who is not an agent of B, enters into a contract with C on behalf of B. If B ratifies the contract entered into by A, B will become liable to perform the obligations under the contract, and the contract will be binding on B as if he had authorised A to enter into the contract.

Essentials of Agency by Ratification

To establish agency by ratification, certain essential elements must be present. These essentials are as follows:

• An act must be done by a person who is not an agent of the principal.
• The act must be done on behalf of the principal.
• The principal must have knowledge of the act.
• The principal must have the capacity to ratify the act.
• The principal must ratify the act with the intention of becoming bound by it.
• If any of these elements are missing, the principle of agency by ratification cannot be invoked.

Ratification is a process by which a person (the principal) can confirm an act performed by another person (the agent) on their behalf. In India, the following are essential elements of ratification:

Express or Implied Ratification

According to Section 197 of the Indian Contract Act, both express and implied ratification are possible. For instance, in the Hukumchand Insurance case, the customer paid the insurance premium directly to the company’s manager, who deposited it into the customer’s account. If the insurance company is aware of this and still accepts the payment, it is an example of implied ratification.

On Behalf of the Supposed Principal

The agent must clearly indicate on whose behalf they are acting. If a third party is led to believe that the agent is not acting as an agent but rather on their own behalf, the principal cannot ratify the agreement to protect the agent’s interests. 

This is illustrated in the Keighley Maxstead Co. v Durant case, where the agent purchased wheat for the same price from another shop after the indicated shop did not have the wheat. However, the business owner was not compensated for the wheat since they believed that the agent was purchasing it for themselves.

Legal Implications of Agency by Ratification

The principle of agency by ratification has several legal implications, some of which are discussed below:

The Ratified Act becomes Binding

When a principal ratifies the unauthorised act of an agent, the act becomes binding on the principal as if he had authorised it in the first place. The principal becomes liable for the consequences of the act and cannot deny his liability.

The Ratification is Retroactive

The ratification of an act relates back to the time when the act was done. It has a retroactive effect, and the act is deemed to have been authorised from the beginning. This means that the principal cannot escape liability by claiming that he did not authorise the act when it was done.

The Ratification is Irrevocable

Once an act is ratified, the ratification cannot be revoked. The principal cannot change his mind and repudiate the act once he has ratified it. The ratification is binding on the principal, and he must perform the obligations arising out of the act.

Illustrations of Agency by Ratification

The following illustrations will help in understanding the concept of agency by ratification  in a better way:

A, who is not an agent of B, enters into a contract with C on behalf of B. B comes to know about the contract and ratifies it. The contract becomes binding on B, and he becomes liable to perform the obligations arising out of the contract.

X, who is not authorised by Y, sells Y’s goods to s. Y comes to know about the sale and ratifies it. The sale becomes binding on Y, and he becomes entitled to the proceeds of the sale.

P, who is not authorised by Q, rents out Q’s property to R. Q comes to know about the rental agreement and ratifies it. The rental agreement becomes binding on Q, and he becomes entitled to the rent.

Rules governing agency by ratification

The principles and rules that govern the concept of agency by ratification can be summarised as follows:

• Free Option: Ratification occurs only when the principal has a free option to either accept or reject the unauthorised act done on his behalf.
• Pretended Agency: The agent must have pretended to be an agent of the principal, and the principal can only ratify the activities performed by the agent on his behalf. If the agent claimed to be acting on his own behalf, the principal cannot ratify the act.
• Legal Capacity: The person who ratifies must be legally capable of doing so. This means that the principal must have the capacity to contract not only at the time when the agent overstepped his power but also at the time when he validates the agency’s act.
• Express or Implied Ratification: Ratification can be expressed or implied from the conduct of the principal on whose behalf the acts were performed. For example, if A’s brother B leased his house to C without A’s permission, and A accepts the rent paid by C, it can be considered as ratification by A.
• Presence of Principal: The principal must be present at the time the act is performed. Therefore, pre-incorporation agreements cannot be ratified by a corporation.
• Complete Awareness: The principal must have a complete awareness of the material facts at the time of ratification.
• Entire Transaction: The principal must ratify the entire transaction and cannot endorse part of the deal while rejecting the whole of it later. For example, if A lends B’s money to C without B’s permission, and B accepts the first installment, it constitutes ratification of the entire transaction.
• Reasonable Time: Ratification must occur within a reasonable amount of time. If a deadline for completion is specified, the contract cannot be ratified after the deadline has passed. If no deadline is specified, the principal must ratify it within a reasonable time after becoming aware of the unauthorised act.
• Third-Party Rights: Ratification is not possible if it affects the rights and interests of a third party. For example, if A requests the transfer of a chattel that belongs to B from C, who is in possession of it, without being authorised by B, B cannot ratify the request to hold C responsible for refusing to deliver.
• Retroactive Effect: The date of ratification should correspond to the date on which the agent and the third party signed the contract. It should have a retroactive rather than prospective effect.
• Legal Actions: Ratification is not limited to legal activities, but it cannot be used to legitimise conduct that is simply void. Only legal actions can be validated through ratification.

Legal Objective of Ratification

Ratification must have a legal objective. By law, the principal is not obligated to ratify criminal activities or tenders carried out on their behalf by the agent. For example, in the Sunil v. Maharashtra State Mining Corporation case, the company’s Managing Director fired an employee without sufficient justification. 

When the employee questioned the Managing Director’s authority, the Managing Director claimed that as the company’s agent, he had significant authority. However, the company’s ratification of the Managing Director’s actions was ruled illegal by the court since it had an illegal purpose and violated the company’s statutes and the employee’s rights.

Conclusion

In conclusion, the principle of agency by ratification  is an important concept in the law of agency. It enables a principal to accept the consequences of an unauthorised act done on his behalf by ratifying it. However, the principal must be careful while ratifying an act as the ratification is irrevocable and binds him to the consequences of the act.