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Agency by Ratification

Agency by Ratification

Introduction

Agency refers to a relationship where one person (the agent) is authorized to act on behalf of another person (the principal) to create legal obligations.
An agency by ratification occurs when a person acts on behalf of another without prior authorization, but the principal later approves (or "ratifies") the actions taken by the agent. This approval makes the act legally binding as if it was initially authorized.

Definition of Agency by Ratification

Under Section 196 of the Indian Contract Act, 1872, agency by ratification is defined as the situation where:

"An act done on behalf of a person, who is not previously authorized to do so, can be considered as an act of agency when the principal, by subsequent approval (ratification), accepts the act and makes it binding."

In simple terms:

  • The agent acts without authority.

  • The principal ratifies the action, making it valid as if it was originally authorized.

Key Features of Agency by Ratification

  1. Unauthorized Action:
    The agent acts without any prior authorization from the principal. This means that the agent does not have permission to act on behalf of the principal when taking the initial action.

  2. Subsequent Ratification:
    The principal, after becoming aware of the agent’s actions, approves or ratifies the agent’s actions. This approval makes the transaction legally binding.

  3. Retrospective Effect:
    The ratification has a retroactive effect. Once the principal ratifies the action, it is treated as though the agent was authorized from the beginning.

  4. No Liability for the Agent:
    Before ratification, the agent might be personally liable for their actions. After ratification, the principal assumes responsibility, and the agent is no longer personally liable.

Example of Agency by Ratification

Example:
Imagine that Agent A enters into a contract to sell a car on behalf of Principal B without any prior authorization.
Later, Principal B finds out about the sale and approves the contract by ratifying the agent’s actions.

  • Before the ratification, the agent (A) could be liable to the other party in the contract.

  • After the ratification, the contract is considered as if Principal B had authorized Agent A to make the sale from the beginning.

Conditions for Agency by Ratification

  1. Knowledge of the Principal:
    The principal must have full knowledge of all the material facts related to the transaction done by the agent. If the principal is unaware of important facts, the ratification is not valid.

  2. Principal Must Be Competent:
    The principal must be legally competent to authorize the action at the time the agent acts. If the principal lacks the capacity to contract (for example, due to age or mental incapacity), the ratification is not valid.

  3. Ratification Must Be Voluntary:
    The principal must give their consent voluntarily, without any force or fraud. If there is any coercion or misrepresentation, the ratification may not be considered valid.

  4. No Inconsistent Acts:
    The principal must ratify the entire transaction or act. If the principal ratifies part of the action and rejects the rest, the agency by ratification cannot be considered valid.

  5. No Ratification for Unauthorized Acts:
    The ratification can only occur for acts that are legally possible. If the agent does something illegal or impossible, the principal cannot ratify it.

Rights and Liabilities in Agency by Ratification

  1. Rights of the Principal:

    • After ratification, the principal can enforce the contract made by the agent.

    • The principal has the right to reject the agent’s actions if they are not satisfied with the outcome.

  2. Liabilities of the Principal:

    • The principal becomes bound by the contract once the agency is ratified.

    • The principal assumes all liabilities that come with the contract once ratification is complete.

  3. Rights of the Agent:

    • Once the principal ratifies the agent’s actions, the agent is no longer liable for the contract. The principal takes full responsibility.

  4. Liabilities of the Agent:

    • Before ratification, the agent may be personally liable for the unauthorized act.

    • After ratification, the agent is released from liability and is protected by the principal’s approval.

Examples of Ratification in Daily Life

  1. Unauthorized Purchase of Goods:
    If an employee (agent) buys goods from a supplier for the company (principal) without prior permission, the company can later ratify the purchase, making it valid.

  2. Unauthorized Rental Agreement:
    If someone signs a rental agreement on behalf of a friend (principal) without consent, the friend may ratify the agreement after learning about it, making the contract legally binding.

Case Law on Agency by Ratification

1. Lalman Shukla v. Gauri Datt (1913)

In this case, it was held that:

  • An act done by an agent without prior authority can be ratified by the principal.

  • The principal must have full knowledge of the act done by the agent before ratification.

2. Keighley, Maxsted & Co. v. Durant (1901)

The court held that for ratification to be effective:

  • The principal must adopt the contract in its entirety, and it should not be inconsistent with the principal’s intentions.

Conclusion

Agency by ratification is a concept that allows a person to approve and make valid actions done by another on their behalf, even if those actions were initially unauthorized. It provides a way for the principal to approve the actions of the agent retrospectively.
However, for the ratification to be effective, certain conditions must be met, such as full knowledge of the facts by the principal and the legality of the agent’s actions. Agency by ratification ensures that contracts and agreements made without proper authority can still be legally binding with the principal’s approval.


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