Liability by Ratification

Liability by ratification refers to the legal principle under which a person becomes bound by the acts of another, even though those acts were initially unauthorised, if he subsequently approves or adopts them. This principle is particularly relevant in the law of agency, where an agent acts on behalf of a principal. When the principal later ratifies the unauthorised act, it is treated in law as though the act had been authorised from the beginning.

Concept and Meaning

Ratification literally means the approval or confirmation of an act already done. In agency law, it occurs when a person (the principal) accepts the benefits or consequences of an act performed on his behalf by another (the agent), though that agent acted without prior authority.
The Indian Contract Act, 1872, in Section 196, defines and governs the concept. It provides that when acts are done by one person on behalf of another, but without his knowledge or authority, the latter may ratify or disown such acts. If he ratifies them, the same effect follows as if they had been performed with his authority.
In essence, ratification retroactively validates an unauthorised act, binding the principal to it as though authority had existed from the start.

Essentials of Valid Ratification

For a ratification to be legally valid and effective, certain conditions must be satisfied. These include:

1. Existence of a Principal: There must be a principal who was in existence and capable of being bound at the time the act was done. A person who did not exist at that time, such as a company not yet incorporated, cannot ratify an act.
2. Unauthorised Act Performed on Behalf of the Principal: The act must have been performed by the agent purporting to act for the principal, and not on his own account. If the person acts in his personal capacity, ratification is not possible.
3. Full Knowledge of Material Facts: Ratification must be made with full knowledge of all material facts of the transaction. If the principal ratifies in ignorance of essential facts, the ratification is not binding.
4. Entire Transaction to be Ratified: The principal must ratify the whole transaction and not only a part of it. Partial ratification is invalid, as it would unfairly alter the position of the other party.
5. Lawful Act: The act to be ratified must be one which the principal could lawfully authorise at the time it was done. Ratification cannot validate an illegal or void act.
6. Within Reasonable Time: Ratification must occur within a reasonable time after the act, particularly before the rights of third parties have been affected or altered.
7. Free Consent: Ratification, like any contractual act, must be voluntary and not obtained by coercion, misrepresentation, or undue influence.

Modes of Ratification

Ratification may be expressed or implied.

• Express Ratification: This occurs when the principal clearly communicates his approval in words or writing. For example, by signing a document confirming the agent’s unauthorised act.
• Implied Ratification: This arises from the principal’s conduct. For instance, if he accepts the benefits of an unauthorised act or behaves in a manner consistent with approval, the law will presume ratification.

An example would be a merchant accepting goods ordered on his behalf by an unauthorised agent, thereby implying ratification of the order.

Legal Effect of Ratification

Once a valid ratification occurs, its effect is retrospective, meaning that the act is deemed to have been authorised from the very beginning. The legal relationship between the principal, agent, and third party is then governed as though authority had existed initially.
The principal becomes liable for all obligations arising out of the act, including any contractual or tortious liability. Similarly, the third party gains the same rights against the principal as if the act had been duly authorised at the outset.

Case Law and Judicial Precedents

Several judicial decisions have shaped the interpretation of liability by ratification.

• In Keighley, Maxsted & Co. v. Durant (1901), the House of Lords held that a principal can ratify only those acts which were performed on his behalf. In this case, an agent had bought wheat in his own name without disclosing the principal; thus, the principal could not ratify the transaction.
• In Bolton Partners v. Lambert (1889), an offer was accepted by an unauthorised agent. The principal later ratified the acceptance, and it was held that ratification related back to the date of acceptance, thereby binding both parties.
• In India, National Bank of Lahore Ltd. v. Sohan Lal (1962) reaffirmed that once ratified, the principal becomes bound by all obligations arising from the unauthorised act, and the agent ceases to be personally liable.

Distinction between Ratification and Authorisation

Although both involve conferring authority upon an agent, there is a key difference:

• Authorisation occurs before the act, empowering the agent in advance.
• Ratification occurs after the act, giving retrospective approval.

Hence, ratification essentially cures the defect of prior unauthorised action.

Implications for Liability

Liability by ratification creates binding legal effects on both the principal and third parties:

• The principal becomes liable for the obligations arising from the ratified act, as if he had authorised it from the beginning.
• The agent is released from personal liability if the act is ratified, since he then acted as an authorised representative.
• The third party can enforce the contract or claim damages against the principal, and not against the agent, once ratification occurs.

However, if the principal refuses to ratify, the agent may be personally liable to the third party for breach of implied warranty of authority.

Limitations and Exceptions

Ratification cannot be used to defeat justice or to harm the rights of third parties. Certain limitations apply:

• Illegal or Void Acts: No ratification can validate an act which is unlawful or void ab initio.
• Acts Affecting Third-Party Rights: If third-party rights have intervened before ratification, it cannot operate to their detriment.
• Non-Existent Principal: Acts done before the existence of a principal, such as by promoters on behalf of an unregistered company, cannot be ratified later.

Moreover, under public law, certain government acts cannot be ratified if performed without statutory authority.

Commercial and Practical Applications

In commercial dealings, liability by ratification frequently arises when agents, managers, or employees act beyond their authority but their actions are later accepted by the employer or company. For example:

• A company’s manager, without authority, enters into a contract with a supplier. The company later accepts the goods delivered under the contract. This acceptance constitutes ratification, making the company liable for payment.
• In partnership firms, if one partner enters into an unauthorised agreement and the firm later benefits from it, the firm is deemed to have ratified the act and becomes liable.