Understanding Agency by Ratification
In the world of contracts and business relationships, an agent often acts on behalf of a principal to create legal obligations. But what happens when a person acts without authority or beyond the authority given to them? Can their actions still bind the principal? The answer lies in the doctrine of Agency by Ratification.
Agency by ratification is a powerful legal principle that allows a person to approve or adopt an act done on their behalf without prior authority, thereby giving it retrospective effect as if it were originally authorized. This doctrine ensures commercial convenience and fairness by validating acts that were beneficial to the principal, even if they were unauthorized at the time.
This essay explores the meaning, conditions, and legal illustrations of agency by ratification under the Indian Contract Act, 1872, along with a simple mnemonic to remember the essentials.
Definition of Agency by Ratification (Section 196 – Indian Contract Act, 1872)
Section 196 of the Indian Contract Act, 1872 defines the concept as follows:
“Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or disown such acts. If he ratifies them, the same effect will follow as if they had been performed by his authority.”
In simpler terms, ratification means the approval of an act done without authority, making the act binding on the person on whose behalf it was done. The person who performs the unauthorized act is called the agent, and the person who later approves it is the principal.
When the principal ratifies, the act is treated as if authority had existed from the beginning, thereby creating an agency relationship by ratification.
Nature and Legal Effect of Ratification
Agency by ratification works on the principle that a person should have the right to adopt an act done on his behalf, even if it was initially unauthorized. The act of ratification makes the previous act valid and enforceable from the date of the original act, not from the date of ratification.
This principle protects business dealings and ensures that beneficial actions taken in good faith are not invalid merely because prior authority was missing.
However, ratification is not automatic; it must be intentional and in accordance with the legal conditions laid down under the Act. If these conditions are not satisfied, the ratification is void and cannot bind the principal.
Conditions for Valid Ratification
For a ratification to be legally valid and effective, several essential conditions must be fulfilled. These conditions are derived from Sections 196 to 200 of the Indian Contract Act, 1872.
1. The Act Must Be Done on Behalf of the Principal
Ratification is possible only when the act was done on behalf of another person. If a person acts in their own name or on behalf of a non-existent person, it cannot be ratified later.
Case Law: Keighley, Maxsted & Co. v. Durant (1901) – A person bought wheat in his own name but intended it for a firm. The firm later tried to ratify it, but since the act was not done in the firm’s name, ratification was held invalid.
2. The Principal Must Be in Existence at the Time of the Act
For ratification to occur, the principal must exist and be competent to contract when the act was done. A person who did not exist (e.g., a company not yet incorporated) cannot later ratify an act done before its formation.
Example: A promoter cannot ratify a contract made on behalf of a company before its incorporation.
3. The Principal Must Have Full Knowledge of Material Facts
Ratification is valid only when made with complete knowledge of all material facts related to the transaction. If the principal ratifies without full awareness, such ratification is not binding.
Example: If B, without authority, purchases goods for A, and A later ratifies it without knowing the goods are defective, he can revoke ratification upon discovering the truth.
4. The Act Must Be Lawful and Capable of Ratification
Only lawful acts can be ratified. An act that is illegal, void, or against public policy cannot be made valid by ratification.
Example: If an agent makes a contract involving smuggling, the principal cannot later ratify it to make it legal.
5. Ratification Must Be Made Within a Reasonable Time
Ratification must be done within a reasonable period before the rights of third parties are affected. Delay may render it ineffective, especially if circumstances have changed or third parties have withdrawn from the contract.
Example: If an unauthorized sale is made on A’s behalf, and A ratifies it after the buyer has revoked the offer, ratification is invalid.
6. Ratification Must Cover the Whole Transaction
Ratification must be of the entire act, not a part of it. The principal cannot accept the beneficial part of the transaction and reject the rest.
Example: If B, without authority, sells 100 bags of rice for A, A cannot ratify the sale of 50 bags and reject the remaining 50. It must be ratified as a whole.
7. Ratification Must Not Injure the Rights of Third Parties
A principal cannot ratify an act if doing so would cause harm to the legal rights of third parties.
Example: If B, without authority, sells C’s goods in A’s name, A cannot ratify the sale because it would harm C’s ownership rights.
Legal Provisions Supporting Ratification (Sections 196–200, ICA, 1872)
- Section 196 – Right of principal to ratify or disown acts done without authority.
- Section 197 – Ratification may be expressed or implied.
- Section 198 – Ratification must be with full knowledge of facts.
- Section 199 – Ratification may be implied by conduct.
- Section 200 – Ratification of an act that would injure third-party rights or is illegal is not allowed.
These sections collectively form the foundation for understanding how and when ratification can make an unauthorized act legally binding.
Illustrative Real-Life Example
Imagine Mr. A, a businessman, is away from town. His employee Mr. B, without A’s authority, purchases goods worth ₹2,00,000 on A’s behalf from Mr. C because prices are likely to rise. When A returns, he learns about the transaction and approves it in writing, as he finds the decision beneficial.
Here, A’s approval constitutes ratification. Legally, it is treated as if A had authorized B from the very beginning. The contract between A and C becomes valid and enforceable, demonstrating a classic case of agency by ratification.
However, if B had purchased the goods in his own name, or if A ratified after the offer expired, the ratification would be invalid.
Distinction Between Express and Implied Ratification
- Express Ratification: When the principal explicitly confirms the act in words or writing (e.g., signing a document or sending written approval).
- Implied Ratification: When the principal’s conduct shows approval (e.g., accepting benefits or using the goods purchased without authority).
Both forms have the same legal effect — they make the unauthorized act binding on the principal from the date of the original act.
Mnemonic to Remember Conditions of Valid Ratification – “R.A.T.I.F.Y.”
Use this easy mnemonic “R.A.T.I.F.Y.” to recall the conditions for a valid ratification:
- R – Represented person must exist (Principal must exist & be competent)
- A – Act done on behalf of the principal
- T – Timely ratification within a reasonable period
- I – Informed decision with full knowledge of facts
- F – Full and entire transaction must be ratified
- Y – Yields no harm to third parties or public policy
Mnemonic Sentence:
“Real Acts Taken In Full Yield validity.”
This helps remember that ratification validates only real, lawful, timely, and informed acts done for an existing principal.
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