Agency by Ratification | Law Optional Notes for UPSC PDF Download

Agency by Ratification Overview

• The concept of agency by ratification involves the confirmation or acceptance of an unauthorized act performed by someone on behalf of another party, known as the ratifier.
• Ratification, within the realm of agency law, signifies the principal's approval of an act carried out by an agent without prior authorization, thereby binding the principal to the consequences of that act.

Ratification in Agency Law

When an individual acts on behalf of a principal without explicit authority, the principle of agency by ratification comes into play. The principal then has the choice to either ratify or reject the agent's action.

Example Illustration

For instance, if a non-agent, A, enters into a contract with C on behalf of B without B's knowledge, upon B's ratification, the contract becomes legally binding on B. Consequently, B assumes the responsibilities outlined in the contract as if B had originally sanctioned the agreement.

Understanding Agency by Ratification

• Act by Non-Agent: An essential aspect of agency by ratification involves an action performed by an individual who is not officially an agent of the principal.
• Act on Principal's Behalf: The action must be carried out on behalf of the principal, indicating a representation of the principal's interests.
• Principal's Knowledge: It is crucial for the principal to have awareness of the specific act conducted on their behalf.
• Capacity for Ratification: For ratification to occur, the principal must possess the legal capacity to approve the act performed.
• Intention to Ratify: Ratification demands that the principal ratifies the act with the clear intention of being bound by it, thus accepting the consequences.
• Missing Elements: If any of the mentioned elements are absent, the principle of agency by ratification cannot be legally invoked.

Ratification Process Overview

Ratification is a formal process where a principal confirms an action undertaken by another individual on their behalf. In India, the following key elements characterize ratification:

• Express vs. Implied Ratification: Section 197 of the Indian Contract Act acknowledges both express and implied forms of ratification. For example, in the Hukumchand Insurance case, if the insurance company accepts a payment made by a customer through its manager, it implies ratification.
• Representation of the Principal: An agent must explicitly indicate that they are acting on behalf of a specific principal to avoid any confusion. In the Keighley Maxstead Co. v Durant case, failure to clarify led to misunderstandings, causing financial repercussions. By understanding these fundamental principles, individuals can navigate the complexities of agency by ratification effectively.

Legal Implications of Agency by Ratification

• The Act Becomes Legally Binding: When a principal approves an unauthorized act performed by an agent through ratification, it holds the same legal weight as if the principal had initially authorized it. The principal assumes responsibility for the outcomes of the act and cannot disown their liability.
• Retroactive Effect of Ratification: Ratification essentially operates retroactively, meaning that it is considered to have been authorized from the moment the act was carried out. Consequently, the principal cannot evade liability by claiming non-involvement when the act took place.
• Irrevocability of Ratification: Once an act receives ratification, it becomes irreversible. The principal is prohibited from retracting the ratification and disavowing the act post-approval. The ratified act binds the principal, necessitating the fulfillment of any obligations arising from it.

Illustrations of Agency by Ratification

• Contract Ratification Example: If someone, not officially representing another person, enters a contract on their behalf and the represented individual later approves it, the contract becomes valid. The represented individual then becomes responsible for fulfilling the contract's terms.
• Goods Sale Ratification Example: When an unauthorized person sells someone else's goods and the owner later confirms the sale, it becomes legally binding. The owner then gains the rights to the proceeds from the sale.
• Property Rental Ratification Example: In a scenario where someone leases out another person's property without permission, and the owner later agrees to the rental agreement, it becomes enforceable. The owner then becomes entitled to the rent from the property.

Rules governing agency by ratification

• Free Option: Ratification occurs only when the principal has the choice to accept or reject an unauthorized act done on their behalf. This means the principal must have the freedom to decide on whether to ratify the act or not.
• Pretended Agency: For ratification to take place, the agent must have falsely represented themselves as an agent of the principal. The principal can only ratify activities performed by the agent on their behalf. If the agent claims to be acting on their own, the principal cannot ratify the act. For example, if an agent acts as if they are representing the principal without authority, the principal cannot later approve those actions.
• Legal Capacity: The individual who ratifies must have the legal capacity to do so. This means that the principal must be legally capable of entering into contracts not only at the time when the agent acted beyond their authority but also at the time of validating the agent's actions.
• Express or Implied Ratification: Ratification can be either explicitly stated or inferred from the principal's conduct. For instance, if someone leases a house without permission and the owner later accepts rent payment, it can be seen as ratification of the lease.
• Presence of Principal: The principal must be physically present when the act is carried out for ratification to be valid. This implies that actions performed when the principal is absent cannot be ratified.
• Complete Awareness: The principal must have full knowledge of all relevant facts at the time of ratification. It is crucial that the principal understands the details and implications of the actions being ratified.
• Entire Transaction: The principal must ratify the entire transaction and cannot selectively endorse parts of it while rejecting others later on. For example, if someone lends another person's money without permission and the owner accepts part of the funds, it implies the entire transaction is being ratified.
• Reasonable Time: Ratification must occur within a reasonable timeframe. If a specific deadline is set, the contract cannot be ratified after that deadline. If no deadline is specified, ratification should take place within a reasonable period after the unauthorized act is discovered.
• Third-Party Rights: Ratification is not possible if it infringes upon the rights of a third party. For instance, if someone requests the transfer of another person's property without authorization, the rightful owner cannot later ratify this request to hold the third party accountable for refusal to transfer.
• Retroactive Effect: The date of ratification should align with the date when the agent and the third party entered into the contract. Ratification should have a retroactive effect rather than a prospective one, meaning it validates actions that have already taken place.
• Legal Actions: Ratification is not restricted to legal activities but cannot legalize void actions. Only legally valid actions can be confirmed through ratification.

Legal Objective of Ratification

• Ratification in legal terms must have a specific lawful purpose.
• According to the law, a principal is not required to approve or validate illegal actions or transactions conducted by their agent on their behalf.
• For instance, in the case of Sunil v. Maharashtra State Mining Corporation, the company's Managing Director terminated an employee without proper justification.
• When the employee questioned the authority of the Managing Director, he argued that, acting as the company's agent, he possessed substantial powers.
• However, the court deemed the company's ratification of the Managing Director's actions as illegal because they served an unlawful purpose, contravening the company's regulations and infringing upon the rights of the employee.

Conclusion

• Agency by ratification is a crucial concept in the field of agency law. It allows a principal to accept the consequences of an unauthorized action carried out on their behalf by later approving or ratifying it.
• Ratification Process: Ratification involves the principal acknowledging and approving an unauthorized act after it has been done on their behalf.
• Consequences: Once ratified, the principal becomes bound by the act and its consequences, as if they had originally authorized it.
• Irrevocability: It's important to note that ratification is irrevocable, meaning the principal cannot undo or retract their approval once it's given.
• For instance, imagine a scenario where an agent, without proper authorization, enters into a contract on behalf of the principal. If the principal later learns of this action and decides to ratify it, they are legally bound by the terms of that contract.
  Implications of Ratification
• Ratification carries significant implications for the principal, as it essentially validates an initially unauthorized act, making it legally enforceable as if it had been authorized from the start.

• The principle of agency by ratification is a fundamental aspect of agency law, allowing principals to sanction unauthorized acts on their behalf. However, it's crucial for principals to exercise caution when ratifying such acts, as the decision is binding and cannot be undone.