Ratification of Acts by principal can also create agency. A principal is bound by acts done by the agent with his authority which may be express or implied. He is also bound by acts done in emergency. In addition, he is bound on grounds of estoppel when there is apparent or ostensible authority vested in the agent. It has also been noted that when the agent does an act for which he does not have any authority, the principal is not bound for the same. To this there is an exception when the principal may be bound even for acts done without any authority. If the principal ratifies, i.e., accords subsequent approval to an act done without his authority, but on his behalf, the principal would be bound in respect of such act. Section 196 to 200 cover law dealing the principal bound by ratification.
Section 196 makes the following provision regarding the right of a person to ratify an act which has been done on his behalf, and also regarding the effect of ratification:
“196. Right of person as to acts done for him without his authority. Effect of ratification.-Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority.”
When an act has been done by one person on behalf of another, though without his authority or knowledge, the person on whose behalf the act is done has the following options:-
Either: (i) To disown the act; or
(ii) To ratify the same.
A person untruly representing himself to be the authorized agent of another, and thereby inducing a third person to deal with him as such agent, is liable if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred.( Section 235)
If a person falsely represents that he is an agent of another, the principal may ratify the act even though the same was done without his authority. On ratification, the principal becomes bound by the act. If the principal does not ratify the act but disowns it, the pretended agent is personally liable to the third person, who had entered into the contract on the basis of the misrepresentation made by the pretended agent.
It has been noted above that the person on whose behalf an unauthorized act has been done has an option to ratify the act. Ratification means according approval to the act by a person on whose behalf the act is done. If the act done on behalf of a person, although without the knowledge or the authority of that person is ratified, the person ratifying the act becomes the principal and the person who has done the act becomes the agent, although no such relationship, in fact, existed at the time of doing the act. Once the act is ratified, its validity relates back to the time of doing the act. The same effect follows as would have been there if the act had been done with prior authority.
Essentials of Valid Ratification
1. The act should be done on behalf of another person. (Section 196).
2. The principal should be in existence, and competent to contract when the act is done.
3. Ratification may be express or implied. (Section 197).
4. Ratification should be with full knowledge of the facts. (Section 198).
5. Ratification should be of the whole transaction. (Section 199).
6. Ratified acts should not be injurious to third person. (Section 200).
7. Ratification should be made within a reasonable time.
1. Act done on behalf of another (Section 196)
According to Section 196, for the act to be ratified, it is necessary that the same has been done on behalf of the person who seeks to ratify the same.
A person cannot ratify an act done on behalf of his wife.( Saunderson v. Griffiths, (1826) 5 B & C. 909)
Similarly, if an agent acts on his own account, such an act cannot be ratified by another person. The point is explained by the case of Keighley, Maxsted & Co. v. Durant. In this case, Keighley, Maxsted & Co.( (1901) A.C. 240; (1900-3) All. E.R. 40) instructed Roberts to buy wheat on joint account, i.e., for them and himself, at a certain rate. Wheat was not available to Roberts at that rate, so he purchased wheat at a slightly higher rate. It was purchased by Roberts on his own account only. Keighley, Maxsted & Co. purported to ratify the agreement, but subsequently, when the price fell, refused to take delivery of wheat. In an action by the seller for breach of contract against Keighley, Maxsted & Co., it was held that they could not be made liable, because the act by Roberts not having been done on their behalf, purported ratification by them was ineffective.
2. Principal should be in existence and competent to contract
When a principal ratifies an act, the validity of the act relates back to the time of doing of the act by the agent. The act is as valid as if the same had been done with the prior authority of the principal. So that ratification is valid, it becomes necessary that the principal must have been in existence, and also competent to contract, at the time the act purported to be ratified was done. Thus, if a contract is purported to be made on behalf of a company which has not yet been formed, the company cannot ratify the contract after coming into existence.
In Kelner v. Baxter (1866) L.R. 2 C.P. 174: (1866) 15 L.T. 213, the promoters of a company, which had not yet been formed, entered into a contract on behalf of the company. After the company was formed, it ratified the contract. Then the company went into liquidation. An action was brought against the promoters to make them liable on the contract. They tried to avoid their liability by pleading that after the contract made by them had been ratified by the company, their liability was over. It was held that since the company was not in existence at the time of the doing of the act, the purported ratification was a nullity, and, therefore, the liability of the promoters continued in spite of ratification.
It is also necessary that the act must have been done on behalf of a principal, who was capable of making the contract when the act was done. If an agent purports to make a contract on behalf of a principal, who at that time is himself incapable of making that contract, the principal cannot validate that contract by subsequent ratification.
Similarly, a minor’s agreement being void ab initio, a minor, on whose behalf a contract is made, cannot subsequently ratify the contract and validate it. In this connection, the Privy Council has observed in Irvine v. Union Bank of Australia, (1877) 3 Cal. 280, at 285:
A ratification in law is treated as equivalent to a previous authority, and it follows that, as a general rule, a person, or body of persons, not competent to authorize an act, cannot give it validity by ratifying it.
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3. Ratification may be express or implied (Section 197)
According to Section 197, ratification may be express or may be implied in the conduct of the person on whose behalf the acts are done. This may be explained by the following illustrations:
(a) A without authority, buys goods for B. Afterwards, B sells them to C on his own account. B’s conduct implies a ratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’s money to C. Afterwards, B accepts interest on the money from C. B’s conduct implies a ratification of the loan.
4. Ratification with full knowledge of facts (Section 198)
According to Section 198, no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective. In Savery v. King (1856) H.L.C. 627, A entered into a mortgage agreement on B’s behalf. The agreement was invalid. Without knowing this fact, B purported to ratify the transaction. It was held that since B was not knowing about the invalidity of agreement, the purported ratification of the same by him, was of no effect.
5. Ratification of the whole transaction (Section 199)
According to Section 199, a person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which the act formed a part. The object of this provision is that no principal may ratify only those parts of the transaction which are favourable to him, and disown others. If he makes a ratification, it is deemed to be the ratification of the whole of the act.
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6. Ratified act should not be injurious to a third person (Section 200)
If ratification of an act done without the authority of a person would result in injury to the interest of a third person, the ratification would be invalid. Section 200 makes the following provision in this regard :
“200. Ratification of unauthorized act cannot injure third person.-An act done by one person on behalf of another, without such other person’s authority, which if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have such effect.”
(a) A, not being authorized thereto by B, demands on behalf of B, the delivery of a chattel, the property of B, from C, who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damage for his refusal to deliver.
(b) A holds a lease from B, terminable on three months notice. C, an unauthorized person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding
7. Ratification within a reasonable time
In order that ratification is valid, it is necessary that the same must be done within a reasonable time. Delay in ratification could prejudice the interest of the third person and, therefore, undue delay in ratification should not be there.
Effect of Ratification: The doctrine of Relating Back
When the principal ratifies an act, which has been done on his behalf but without his authority or knowledge, the same effects follow as if the act had been performed with the principal’s prior authority.(Section 196)
The validity of the act relates back to the time of the doing of the act. In Risbourg v. Bruckner (1858) 3 C.B.N.S 812, the act of the agent which had been done without the principal’s authority was ratified by the latter. It was held that on ratification, a valid contract between the principal and the third person was created from the date when the agent had done the act, and, therefore, the agent could not be made personally liable because the agent’s position had become the same as in the case of a previously authorized act.
The effect of ratification of a contract entered into by the agent without the principal’s prior authority is, that the contract is deemed to have been made when the agent made the agreement rather than the date of ratification by the principal of that agreement.
In Badri Prasad v. State of Madhya Pradesh A.I.R. 1966 S.C. 58, there was an auction sale of cut timber of forest on 24th December, 1956. A made the highest bid and his bid was accepted by the Divisional Forest Officer. The payment was to be made in 4 installments, and the first installment was paid was paid immediately. Second, third and fourth installments were to be paid subsequently, and for this payment, B (the appellant) stood as surety. The auction sale was ratified by the Chief Conservator of Forests, and the sale deed was signed by him on 3rd May, 1957. A week before the Chief Conservator of Forests had ratified the contract, a fire had broken out and the goods purchased by A had been destroyed by fire.
The appellant, B, filed a suit for declaration that he was not liable to pay the 2nd, 3rd and 4th installments as a surety for A. His contention was that the date of making of the contract was, 3rd May, 1957, when the contract was ratified, and since the goods had been destroyed a week before that date, there could not be a contract regarding that subject-matter and, therefore, there was no liability to pay any price for the same.
It was held that: (i) The formal signature of the competent authority ratifying the deed of contract, though made on 3rd May, 1957, the contract was deemed to have been made on 24th December, 1956, i.e., the date of the auction sale.
(ii) At the time of auction, the goods were specific, in a deliverable state, and there was an unconditional contract, and, therefore, according to Section 20 of the Sale of Goods Act, the property in the goods had passed to A, when his highest bid was accepted in the auction sale.
(iii) B was liable as surety to pay the remaining installments guaranteed by him.
In M/s. Chandur Forgings (P.) Ltd. v. M/s. Bhandari Interstate Carriers A.I.R. 2008 Mad. 218, the respondent company, a registered partnership firm, by Special Power of Attorney, signed by only one partner of the firm, authorized its Regional Manager to file the suit for recovery of freight and other charges from the appellant. Subsequent to the filing of the suit, another power deed signed by all the partners of the firm was executed. In view of Section 196 read with Section 199 of the Contract Act, 1872, the Madras High Court held that the defect in the first power deed stood rectified by the execution of another power deed and the respondent firm could not be held to be non-suited.
Revocation of offer before ratification
Yet It has been noted above that upon ratification of a contract by the principal, its execution relates back to the time when the contract was entered into by the agent.
If A enters into an agreement with B (agent) on 1st January, and B’s principal ratifies the same on 1st February, the date of making of the contract for all purposes is deemed to be 1st January. A question has arisen in a number of cases that, if A wants to revoke his offer before B’s principal has ratified the contract, can he do so? The question was answered in the negative in Bolton Partners v. Lambert (1889) 41 Ch. D. 295, and it was held that in spite of the fact that A seeks to revoke the offer, B’s principal can ratify the agreement entered into between A and B. In other words, as stated in the above illustration, the contract between A and B’s principal is deemed to be made on 1st January, and A cannot, therefore, revoke his offer after that.
In Bolton Partners v. Lambert, A offered to purchase some Sugar Works belonging to a company. The company’s managing director, purporting to act on behalf of the company, but within any authority, accepted this offer. Before the company had ratified the acceptance made by the managing director, A withdrew his offer. The company still ratified the agreement. It was held that ratification related back to the making of the agreement between A and the company’s agent, A could not withdraw his offer, and he was bound by the ratification.
The position would be different if the agent purports to make the contract ‘subject to ratification’ by the principal, or the other contracting party knows about the limitation of the agent’s authority. In such a case, the date of the making of the contract is the date of ratification, and there can possibly be revocation of the offer before ratification.
In Watson v. Davies (1931) 1 Ch. 455, A offered to sell his property to the Board of management of a charity for £ 6,500. A deputation consisting of the Chairman and 12 other members of the Board, having been so authorized, viewed the property and interviewed A. They purported to accept A’s offer ‘subject to formal meeting’ of the Board. A meeting of the Board was fixed “to receive the report and the recommendations of the deputation.” Before the report of the deputation was considered by the Board, A informed the secretary of the Board cancelling all the negotiations. The meeting overlooked the revocation of offer by A, and passed resolutions ratifying the deputation’s acceptance of A’s offer to sell his property for £ 6,500. An action was then brought against A for specific performance.
It was held that acceptance of offer by the deputation was only subject to ratification by the Board, and in such a case, there arises no contractual relation until ratification by the principal, and, therefore, A was free to withdraw his offer at any time before ratification. As such, A could not be made liable.