Meaning of Agency by Ratification
Agency by Ratification arises when a person, known as the agent, acts on behalf of another person (the principal) without authority, but later the principal accepts or ratifies the act. This concept is codified under Section 196 of the Indian Contract Act, 1872, which states that if an act is done by one person on behalf of another without authority, the latter may elect to ratify or disown such act. Ratification, once made, has a retrospective effect; it relates back to the date of the original act.
This means the act becomes valid as if it had been authorized from the beginning. However, for ratification to be valid, the principal must have been in existence and competent to contract at the time the act was done, and he must have full knowledge of all material facts. The doctrine ensures flexibility in contractual dealings while also protecting the principal from unauthorized acts unless he voluntarily chooses to adopt them.
Essential Conditions of Valid Ratification
For ratification to be legally effective, certain essential conditions must be satisfied. Firstly, the agent must have acted on behalf of the principal and not in his own name. Secondly, as per Section 197, ratification may be expressed in words or implied from the conduct of the principal. Thirdly, the act ratified must be lawful, and the principal must have full knowledge of all material circumstances surrounding the act. Additionally, under Section 200, ratification cannot injure the rights of third parties; for example, an act that was void or illegal at the time it was done cannot be validated by ratification.
Importantly, the principal must be competent to contract both at the time of the original act and at the time of ratification. Lastly, ratification must be made within a reasonable time; otherwise, it loses its validity. These conditions ensure that ratification is not misused to unfairly bind parties or to validate acts that are inherently void or harmful.
Legal Effect and Limitations
The effect of ratification is that it creates a valid agency relationship from the beginning, binding the principal as though he had originally authorized the act. This retrospective effect is unique to agency law. Once ratification is made, the principal becomes liable for all obligations and benefits arising from the contract. For example, if the agent entered into a contract on behalf of the principal without authority, and the principal ratifies it, he is bound to perform all contractual obligations as if he had signed the contract himself. However, limitations exist.
According to Section 199, ratification of a part of a transaction amounts to ratification of the whole, meaning the principal cannot selectively approve parts of an unauthorized act. Additionally, acts performed beyond the scope of ratification, acts that are void, or those against public policy cannot be validated. Hence, while ratification provides a legal tool for flexibility in commercial transactions, it is bound by statutory safeguards to ensure fairness and legality.
Real-Life Example
Consider a situation where Mr. X, without authority, enters into a contract with a supplier on behalf of Mr. Y, agreeing to purchase machinery for Y’s business. At the time of the agreement, Y had not authorized X to act as his agent. However, when Mr. Y learns about the transaction, he finds the terms beneficial and decides to accept it. By expressly or impliedly approving the act, Y ratifies the contract under Section 196, thereby creating an agency relationship.
The contract is now binding on Y as if he had authorized X from the beginning. Conversely, if Y disowns the act, no legal relationship is created, and X may be personally liable to the supplier. This illustrates how ratification protects principals when beneficial transactions are made on their behalf, while also ensuring that they are not unfairly bound unless they consent.
Mnemonic to Remember – “RATIFY”
To recall the essentials of Agency by Ratification, use the mnemonic RATIFY:
- R = Ratification must be of the whole act (Sec. 199).
- A = Act must be done on behalf of principal (Sec. 196).
- T = Time – ratification must be within reasonable time.
- I = Principal must have Information of all material facts (Sec. 198).
- F = Principal must be Fit (competent) and in existence.
- Y = Act must not harm rights of third parties (Sec. 200).
Think: “To RATIFY, Remember All The Important Facts Yourself.”
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