Law of Contract: Doctrine of Ratification

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The doctrine of ratification is an important of the Contracts Law and is explained by the Latin maxim “Omnis ratihabitio retrorahitur et mandato priori aequiparatur”, which means that every ratification is dragged back and treated as equivalent to a command or prior authority. This is a well settled principle of agency law. The doctrine of ratification comes into play when a person has done something on behalf of another person, without their knowledge or consent. The other person on whose behalf the act is done, has the option to either adopt the act by ratification or disown it completely. Under the Indian Contract Act, 1872 ratification is defined in section 196 where the right of the person on whose behalf the ratification has been done is given, as well as the effect of ratification is also given. It further says that if the person ratifies the act done on his behalf, then the same effects would follow as if the acts were done by his authority. This doctrine is only concerned with voidable contracts and not void or void ab initio contracts as they do not have the capacity to be enforced legally.

Moreover, section 197 of the act states that the ratification may be expressed or implied by the conduct of the person on whose behalf the act is being done. Acts which are done when there was an excess of authority have the same footing with acts which are done without the consent or knowledge of the person. Communication of ratification of contract is essential, it can also be shown through subsequent transactions.

If the ratification is made by a person whose knowledge of the facts of the case are materially defective then the ratification made will not be valid, as provided under sec 198 of the act. Under section 199, if a person ratifies an unauthorized act done on his behalf, then he ratifies the whole of the transaction and not only such part. Further, as per section 200, the doctrine of ratification cannot cause injury to a third party when the act ratified is an unauthorised act. For example- X holds a lease from B, which is to end after 5 months. C, an unauthorized person, gives notice of termination to X. The notice cannot be ratified by B, so as to be binding on X.

Evolution of the Doctrine

The basis of relationship between an agent and his principal is consent and the agent has the right to act on behalf of his principal. This right also creates certain liabilities and obligations on the part of the agent as well as the principal. Section 182 of the act defines that agent is a person who is appointed by another person to do certain acts for him and also represent him in front of third parties. The person to whom the agent represents is known as the principal. Under the law of contract, agency could be created by various means one of them being – by ratification where the assent to do an act is given to someone who has acted but had no authority or to an act that exceeds the authority which has been given to the agent. After ratification of the act is done, the principal-agent relationship comes into existence. It is also known as ex post facto agency.

The basic difference between consent and ratification is that consent is given when the act which is to be ratified is still in action but, in ratification the aforementioned act has been completed already. After the completion of the act only the ratification can be done. With this doctrine of ratification, there is a doctrine of relation back which states that something which is done today will be treated as if it were done earlier. This implies that the principal and the third party had a contract not after ratification but from the date when the agent first contracted with the third party. This doctrine doesn’t come into existence when the contract made by agent says it is “subject to approval or ratification”. The third party can withdraw its consent until ratification has been done. Therefore, it has now put both the parties on equal power in the concept of revocation which is essential for the justice to prevail.

Salient features

The following are some salient features of the doctrine of ratification in contracts law:

  • The act must be done on behalf of another person, the person must profess that the act was done not for himself but on behalf of another person.
  • The act must be done without the knowledge or authority of the other person.
  • The ratifier must be competent to contract.
  • The ratifier may be a natural or a juristic person and must be in existence at the time of the contract.
  • The ratifier must be the person for whom the act was done.
  • The contract must exist at the time of ratification.
  • The ratification may be expressed or implied.
  • The ratification must be based on full knowledge of the facts, there can be no ratification without an intention to ratify.
  • The ratification must be done of the whole act and not of any part thereof i.e. the ratifier cannot ratify one part of the contract and reject the other part. However, under the English Law, ratification of one part operates as ratification of the whole.
  • The act to be ratified must be lawful, a voidable contract can also be ratified but not a void contract.
  • Any act done under section 23 of the act cannot be ratified.
  • The ratification must not injure any third party.
  • A minor when he attains the age of majority cannot ratify an agreement he entered into while he was still a minor, since the contract from the beginning would be void ab initio.

Landmark judgements

  • Intention and Ratification

In Premila Devi v. People’s Bank of Northern India Ltd., the Privy Council held that there can be no ratification without an intention and there can be no intention to ratify any illegal or irregular act without there being knowledge of its illegality. This decision of Privy Council was followed by Allahabad High Court in Lakshmi Ratan Cotton Mills Co. v. J.K. Jute Mills Co.In this case it was held that in order to bind the purported principal by ratification it must be shown that the ratification has been made by him with a full and complete knowledge of all material facts connected with the transaction to which it relates.

  • Ratification for Illegal Act

In Gaya Prasad v. Durga, it was held that if a contract is formed when it was legally not possible to do so, it cannot be enforced when it has become legally possible to carry out the same contract. Similarly, in Gauri Shankar v. Jwala Prasad, it was held that ratification and acceptance cannot be made for the transaction which is void or illegal.

  • Ratification for acts of Public Servants

Acts which are done by public servants can be ratified in the same way as private transactions, by simple declarations or by conduct but officer should be acting in accordance with discharge of duty. There exists only one difference between private agents and public officers, in private agent’s principal is liable to the extent of power it has apparently given to his agent whereas state will be liable only to the extent of power it has actually given to its officers.

  • Ratification by Minor

In Mohori bibi v. Dharmodas Ghose, Dharmodasmortgaged his house in favour of a money lender for a loan of Rs.20000. After mortgaging the actual amount of loan received was less than 20000. The plaintiff contended that, when he mortgaged his house, he was a minor, so the contract with the money lender was void. It was held that contract with a minor is void. further, clarified that a minor can’t even enters into contract through guardian or any other agent because its void contract and the same is not capable of ratification by minor.

  • Communication of Ratification

Communication of ratification to the other party is essential or the contract if ratified can be shown by subsequent transactions is upheld as legal in Ganpat Rao v. Iswar Singh. In the case of Arunugham v. Dara Singh, a promissory note was given by a person on attaining majority as renewal of another promissory note given by him during his minority in consideration of money then borrowed. Held, as the consideration for the promissory note is only the note executed during minority, the fresh promissory note was unenforceable.

Critical analysis  

As a component doctrine within the law of agency, ratification is both useful as a practical matter and somewhat ragged from the perspective of theory. This theory consists of a transaction to which the principal is bound by when the agents performs an unauthorised act. The practical value of enabling principals to create the legal consequences of actual authority after the fact of an agent’s unauthorized action is undeniable. This doctrine helps in clarifying circumstances for the principal or rather the other parties, which were earlier uncertain or ambiguous. For example, ratification may serve to reassure a fourth parties concerned with the enforceability of the contract between the principal and the third party.

The doctrine’s theoretical unevenness and its variability across systems follow inevitably from the fact that ratification reflects a trade-off between the sometimes-conflicting demands of two basic considerations. On the one hand, to be effective as a ratification the principal’s act must reflect the principal’s consent, comparable to the consent by the principal that underlies the creation of actual authority. On the other hand, considerations of fairness to third parties require that ratification doctrine also constrain the extent of a principal’s power to bind the third party after the fact of an agent’s unauthorized action, distinct from whether the principal consents to be bound.

How ratification doctrine’s ragged edges are or should be resolved may turn in part on the degree of significance accorded ratification: is it on a par with apparent authority and the liability of the falsus procurator, the foundational doctrines applicable when an agent acts without actual authority? Or should it play more of a character role, complementing and supporting the field’s major doctrinal players?

Conclusion

According to the doctrine of ratification, the agent can do some acts out of authority but the actual power vests with the principal only as he has the power to approve or disapprove the same. If the act is ratified then it will be treated as the act was done with the permission of the principal. If not, then the contract will lose its validity.

However, the principal is also bound by certain limitations which have been discussed above. Similarly, if the principal has not given his authority, he will still be bound to contracts entered by the agent with third parties, because the principal is bound by the acts of the agents in the same manner as if the acts were done by him only. The principal is liable for the frauds or torts committed by the agent, while he was acting in the course of the business for the principal.

Author: Kavya Arora from UPES, Dehradun.

Editor: Priyanshu Grover from Symbiosis Law School, NOIDA, Uttar Pradesh.

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