Agency by Ratification

Introduction

An agency through ratification (also known as an ex post facto agency) is formed when a person, the principal, authorizes or accepts the unlawful activities or conduct of another person, the agent, after it has already occurred.

To put it another way, an agent acts on behalf of the principle without having explicit authorization to do so, and the principal eventually “ratifies” or accepts the consequences of the agent’s actions or behaviour. In this Article we come to know about -When does Agency by Ratification arise? And what were the rules which governs agency by ratification, as well as what is the essential & effects of ratification.

What is the actual definition of Agency by Ratification?

When one person (the principal) accepts the actions and conduct of another (the agent), legal responsibilities are created or consequences are imposed on a third party who reasonably believed it was interacting with the principal.

To put it another way, ratification agency occurs when someone without power acts on behalf of someone else (even if there was never an agent-principal connection to begin with), but the unintended principal subsequently approves the action or conduct.

When does Agency by Ratification arise?

When a person acting as agent without being authorized or when a validly authorized agent acts outside of his or her authority, the principal has the option to ratify or disown such conduct. An agency by ratification emerges if he chooses to confirm the agent’s transactions ostensibly on his behalf. Ratification has the effect of binding the ratifier (i.e., the principal) to the contract as if he had expressly authorized the person to conduct business on his behalf.

Ex post facto agency, or agency arising after the event, is another name for an agency created by ratification.

Although the law allows for an agent to go beyond his mandate at times and gives the principal the ability to ratify or disclaim such activities, it also spells out the conditions and regulations under which such acts may or cannot be deemed agency by ratification.

Rules governing agency by ratification

 

The rules governing the agency by ratification are given below.

  1.  Only if the principal has a free option whether or not to do anything is it considered as ratification.
  • The agent must pretend (pretend to be) to be an agent. Only the principle can confirm activities that the agent purportedly performed on his behalf. As a result of this regulation, the principal cannot ratify if the agent claims to be acting on his own behalf.
  • The person who ratifies must be legally capable of doing so. This means that the principle had to be competent to contract not only when the agent overstepped his power, but also when he validated the agency’s act.
  • In the conduct of the person on whose behalf the acts are performed, ratification may be expressed or implied. For example, A’s brother B leased his house to C without A’s permission. C pays the rent for the home later, and A accepts it. By acting in this manner, B is seen to have ratified A’s act.
  • The principal must be present at the time the act is performed. As a result, per-incorporation agreements cannot be ratified by a corporation.
  • The principal must have complete awareness of the material facts at the time of ratification.
  • The entire transaction must be ratified by the principal. This means he can’t endorse part of the deal while rejecting the whole of it at his leisure. For example, A lends B’s money to C without B’s permission, with the understanding that C will repay the money in four equal year payments, plus a 12% interest rate computed on a yearly diminishing balance. Following that, B accepts the first installment, which constitutes ratification of the entire transaction.
  • The act must be ratified within a reasonable amount of time. A contract cannot be confirmed after the deadline for completion has passed. If no such deadline is specified, it must be ratified within a reasonable time after the principal becomes aware of the illegal act.
  • Ratification is impossible if it affects a third party’s rights & interests. For example, A, without being authorized by B, requests the transfer of a chattel that is B’s property from C, who is in possession of it, on behalf of B. This request cannot be approved by B in order for C to be held responsible for his refusal to deliver.
  1. The date of ratification should correspond to the date on which the agent and the third party signed the contract. To put it another way, it should have a retroactive rather than prospective effect. For example, suppose A lends B’s money to C without being allowed to do so, and B later ratifies the transaction. B will be regarded to have approved the contract on the day when A lent B’s money to C.
  1.  Although ratification is not limited to legal activities, it cannot be used to legitimate a conduct that is simply void i.e. cannot be validate by ratification. To put it another way, only legal actions may be validated.

Essential of Ratification

Either Express or Implied- Sec 197: Both express & implied ratification are possible. Hukumchand Insurance Case[1]– The consumer used to pay the insurance premium straight to the company’s management. The manager would accept and put the premium amount into the customer’s account. It’s a form of implied Ratification if the Insurance Company is aware of this and still takes the payment.

On behalf of the supposed Principal: The agent should indicate on whose behalf he or she is acting. If the 3rd party is led to think that the agent is not an agent & is acting on his own behalf, the principal cannot ratify the agreement to safeguard the agent’s interests since the 3rd party entered the agreement with the assumption that there is no agent or sub delegation involved.

 Keighley Maxstead Co. v Durant[2]:

The KM company had instructed the agent to get Karachi wheat at a specific price from a specific shop. The indicated shop did not have Karachi wheat, but the agent purchased it for the same price from another shop. However, the business owner was not compensated for the wheat. Even if  KM Company refused to pay at a later date, the other store owner thought he was buying it for himself, & he would be forced to personally pay for the wheat purchased.

The Ratification should have a legal objective:  By law, the principle is not obligated to ratify criminal activities or tenders carried out on his behalf by the Agent.

Sunil v. Maharashtra State Mining Corporation (2001):

A company’s Managing Director fired an employee without providing a sufficient basis for his dismissal. When the employee questioned the Managing Director’s authority, the Managing Director responded that as the company’s Agent, he had significant authority; yet, the company validated the Managing Director’s actions.

When the case was brought before the court, the judge ruled that the termination was illegal and that a firm cannot ratify an action that has an illegal purpose and violates company statutes and an employee’s rights.

Effects of Ratification

Ratification has the effect of putting the principal, agent, as well as the third party in the position they would have been in if the agent’s actions had been allowed from the start. In reality, ratification refers to the moment of the unlawful act, not to the day on which the principal validated the act. The relating back doctrine is founded on the presumption that the prohibited conduct is not a nullity; if it were, ratification would be ineffectual either because a nullity cannot be ratified or because the principal himself could not have lawfully performed the act in issue at the time it occurred.

Conclusion

According to the AN approval philosophy, the agent can do some actions on behalf of the principal or owner, but the ultimate power rests with the principal or owner solely since he has the capacity to approve or disapprove identical. If the conduct is sanctioned, it will be considered as if it was carried out with the principal’s or owner’s approval. If this is not done, the contract will be void.

However, the principal or owner is bound by certain restrictions, which are detailed above. Similarly, even if the principle or owner has not provided his authority, he will still be bound by contracts entered into by the agent with 3rd parties, because the principal or owner is bound by the agents’ acts in the same way as he is bound by his own acts. The frauds or torts committed by the agent are under the control of the principal or owner, even though the agent was acting on behalf of the principal or owner at various times during the course of business.

References


[1]  AIR 1977 Kant 204, ILR 1977 KAR 980

[2]  [1901] AC 2004

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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