Ratification.docx

Ratification by Agency Submitted to:

Submitted by:

Dr. Virender Negi

Dishant Mittal Roll no. : 130/15 Bcom LLB 2nd Semester

Acknowledgment I take this opportunity to express my profound gratitude and deep regards to my teacher Dr. Virender Negi for his exemplary guidance and constant encouragement through out the course of this assignment on the topic 'Ratification by Agency'. Also I would like to express my special thanks of gratitude to my director Mrs. Sangeeta Bhalla who gave me this opportunity to do this wonderful assignment.

Dishant Mittal

Index 1. 2. 3. 4. 5.

Meaning of Agency and Ratification Section 196 of Ratification Essentials for valid Ratification Act done on the behalf of other Principal should be in existence and competent to contract 6. Ratification may be express or implied 7. Ratification with knowledge of facts 8. Ratification of whole transaction 9. Ratification not be injurious to third party 10. Ratification within a reasonable time 11. Effect of Ratification

Agency:An agency relationship has a tripartite structure. It involves the principal, the agent and a third party. The agent acts on behalf of the principal in relation to the third party. Consequently, an agent is said to be a conduit pipe between the principal and the third party. In the circumstance, the agent acts under the express or implied authority of the principal. However, there are occasions when the agent acts without the pre-knowledge of the principal. This places the principal in a position to legally ratify the agent’s acts.

Ratification :Confirmation of an action which was not pre-approved and may not have been authorized, usually by a principal (employer) who adopts the acts of his/her agent (employee). The ratification of the acts of the agent by the principal by definition must be retrospective as it makes the principal bound by the contract entered into by the agent without authority, as though the agent had the authority of the principal in the first place. Thus, the ratification cures the agent’s initial lack of authority when the contract was entered into and creates rights between the principal and the third party. On the part of the agent, the ratification makes him entitled to some remuneration in respect of the transaction or to be indemnified for losses incurred in the course of the transaction. It is noteworthy that where the contract entered into by an agent is in the form of a deed, the ratification too must be by deed When an act has been done by one person on the 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 authorised 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. 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 unauthorised 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 the behalf of a person although without the knowledge or the authority of that person is ratified, the person ratifying the act becomes the agent, although no such relationship, in fact, existed, at the time of doing the act. Once the act is ratified is validity relates back to time of doing the act. Section 196 of Indian Contract Act makes the following provisions regarding the right of a person to ratify an act which has been done on his behalf and also regarding the effect of ratification :

Section 196. Right of a 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.

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 done 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 party. (Section 200). 7. Ratification should be made within a reasonable time.

1) Section 196. Act done on the behalf of another: According to Section 196 of Indian Contract Act, for the act to be ratified, it is necessary that the name has been done on behalf of the person who seek to ratify the same. A person cannot ratify the an act done on behalf of his wife1. 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. Durant2. In this case, Keighely, Maxsted & co. 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. Keighely, Maxsted & co. 1 2

Saunderson V. Griffins, (1826) (1901) A.C. 240

purported to ratify the agreement, but subsequently, when the price fell, they refused to take delivery of wheat. In an action by the seller for breach of contract against Keighely, Maxsted & co.., it was held that they could not be made liable, because, 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 time of doing of the act by the agent. The act is as valid as if the same had been done with 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 same time the act purported to be ratified was done. Thus, if 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 case Kelner v. Baxter, the promoters of the company, which had not yet been formed, entered into a contract on the 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 time of the doing of the act, the purported ratification was a nullity, and, therefore, the liability of the promoters continued inspite of ratification. It is also necessary that the act must have been done on the 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 the time is himself incapable of making that contract, the principal cannot validate that contract by subsequent ratification3. 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 : " A ratification In law is treated as equivalent to a previous authority, and it follows that, as general rule, a person, or body of persons, not competent to authorise an act, cannot give it validity by ratifying it."

3) Section 197. Ratification may be express or implied : According to section 197 of Indian Contract Act, ratification may be express or implied in the conduct of the person on whose behalf the acts are done. This can be explained in this way : (a) The ratification where there is wording and expression is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A from C. There after, A has given his Support to B`s activity, it is called ratification and now A is principal and b is agent. (b) The ratification where there is no expression is called implied ratification. Here the mode of behavior of the party indicates that support is given to activity concern. For example: Mr. Q has P`s money with him. Without P`s direction Q has lent that amount to R. Thereafter, R pays interest directly to P and P has

3

Ashubury Railway Carriage and Iron Co. Ltd. V. Riche, (1875).

taken the amount of interest. It indicates that P has given his support to Q`s activity.

4) Section 198. Ratification with full knowledge of facts : According to section 198 of Indian Contract Act, no valid ratification can be made by a person whose knowledge of facts of the case is materially defective. The agent is expected to disclose all the facts of the contract to the principal before the principal can ratify the acts of the agent in relation to the contract. In case Savery V. King, 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) Section 199. Ratification of whole transaction : According to section 199 of Indian Contract Act, a person ratifying any unauthorised 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. For example, A, without B’s authority, lends B’s money to C on the term that C will repay the same in four equal yearly installments along with an interest at the rate of 12 per cent to be calculated on yearly reducing balance. Afterwards B accepts the first installment and it amounts to the ratification of the whole transaction.

6) Section 200 Ratified act should not be injurious to a third person : If a 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 of Indian Contract Act, makes the following provision in this regard : "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.

Illustrations (a) A, not being authorized thereto by B, demands, on behalf of B, the delivery of a cattle, 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 damages 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 on A.

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. The concept of reasonable period depends upon nature of the situation.

Effect of Ratification : The doctrine of Relations Back The effect of ratification is to put the principal, agent, and the third party into the position that they would have been if the agent’s acts had been authorized from the beginning. Ratification, in fact, relates back to the time of the unauthorized act, and not to the date when the principal ratified the said act. The doctrine of relating back is based on the assumption that the unauthorized act is not a nullity; if it were, ratification itself would be ineffective either because a nullity cannot be ratified or, the principal himself could not have validly done the act in question, when it took place. 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. The validity of the act relates back to the time of the doing of the act. In Risbourg V. Bruckner, 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, 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 authorised act.

Bibliography    

R.K Bangia, Indian Contract Act www.businessdictionary.com www.lawsofbusiness.com “ratification of contract” available at http:// www.getfreelegalforms.com/ratification.html 22/3/2016  R.G. Padia. Pollock & Mulla’s Indian Contract and Specific Relief Act

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