AGENCY BY RATIFICATION

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Q.2      Describe Agency by ratification, its modes and essentials?

Ans:    AGENCY BY RATIFICATION [Section 196]

(A)       MEANING

Agency by ratification is said to arise when a person, on whose behalf the acts are done without his knowledge or authority, expressly or impliedly accepts such acts. Thus, when the principal approves an act of the agent who never had the authority to undertake such an act, it is called Ratification. It is also known as ex-post facto agency, i.e. agency arising after the event.

(B)       EFFECT Of RATIFICATION [Section 196]

The effect of ratification is to make the agent’s unauthorized acts as authorized as if they had been performed with the principal’s authority. It may also be noted that ratification is tantamount to prior authority. This means that the ratification relates back to the date when the act was done by the agent and not to the date when the principal ratified the act. Hence, the agency is deemed to have come into existence from the time when the agent fist acted and not from the time when the principal ratified the act.

EXAMPLE

X the managing director of a company, without prior authority from the company accepted and offer made by Y on behalf of the company. Y later on revoked the offer but the company ratified X’s acceptance. It was held that Y is bound by ratification because ratification related back to the time of X’s acceptance.

(C)       MODE OF RATIFICATION [SECTION 197]

Ratification may be express or may be implied by the conduct of the person on whose behalf the acts are done.

EXAMPLE I

A, without authority, buys goods for JB. afterwards B sells them to C on his own account; B’s conduct implies a ratification of the purchases made for him by A.

EXAMPLE II

A, without B’s authority, lends B’s money to C afterwards B accepts interest on the money from C. B s conduct implies a ratification of the loan.

(D)       ESSENTIALS OF A VALID RATIFICATION (SECTIONS 198 TO 200)

The essentials of a valid ratification are shown in Fig.

 

(i)         Full Knowledge [Section 198]

No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

EXAMPLE

X instructed Y to arrange a house on a reasonable rent in Karachi. Y lets out his own house at a rent, which is much higher than the prevailing rentals in those areas. X started living in the house. Later on X came to know that the house belonged to Y. X’s ratification is not binding upoh himself.

(ii)        Whole Transaction [Section 199]

The ratification must be made for the whole transaction and not for a part of transaction. When a person ratifies a part of the unauthorized transaction, it is treated as the ratification of whole transaction.

EXAMPLE

X, without Ys authority buys 100 bales of cotton. Y wants to ratify this transaction to the extent of 60 bales and reject the rest. Y cannot do so. F the does so, it will be treated as the ratification of whole transaction of 100 bales.

(iii)       No Damage to Third Party [Section 200]

An act, which has the effect of subjecting a third person to, damages or of terminating any right or interest of a third person, cannot be ratified. 

EXAMPLE

X is in possession of a horse belonging to Y, 2 without Ys authority demands on behalf of y the delivery of that horse. X re ruse to deliver xhe horse to Z. Y cannot ratify the demand made by Z so as to make X liable for damages for hi* refusal to deliver,

 

(iv)       Act on behalf of Another Person

The acts done by an agent on behalf of another person can only be ratified. Thus, the acts done by the agent in his own name cannot be ratified.

EXAMPLE

XP without Ys authority or knowledge buys 100 bales of cotton on behalf of Y and buys 50 bales of cotton iri his personal name from Z on different dares. Subsequently, the prices of cotton go up. Y wants to ratify the purchase of 140 bales of cotton. Ke can ratify only the purchase of 100 bales made on his behalf and not the purchase of 50 bales.

(v)        Existence of Principal

The principal must be in existence at the time when the act is done in his name. EXAMPLE

The promoters of a company enter into contract for a company before its incorporation. The company after incorporation cannot ratify such contracts because the company was not in existence at the time when the contract was entered into.

(vi)       Contractual Capacity

The principal must have contractual capacity both at the time of contract ant* at the time of ratification. EXAMPLE

A minor on attaining majority cannot ratify the contracts made on his behalf during his minority.

(vii)      Within Reasonable Time

The ratlfic ition must be done within a reasonable time; otherwise it will not be binding.

EXAMPLE

X without authority from Y insured his goods against fire. After the policy was taken, the goods were destroyed by fire subsequent to the fire, Y ratified X’s act of insuring the goods and

accepted the insurance policy. It was held that the ratification made by Y was not valid because X’s

act should have been ratified before the loss of goods.

(viii)     Lawful Acts

Only those acts, which are lawful, can be ratified,

EXAMPLE

X forges Y signature on 2 cheque and withdraws Rs.1,000/- from Ys bank account. Subsequently, Y ratifies the act of withdrawing money. Such ratification is not valid because forgery is an offence.

(ix)       Acts within Principal’s Power

Only those acts, which are within the principal’s power, can be ratified. Thus, an act, which is beyond the competence of a principal, cannot be ratifying.

EXAMPLE

A director of a non-trading and non-banking company borrowed Rs. 1,00,000/= on behalf of the company. The company cannot ratify such act of director because it is ultra-vires the company (i.e. beyond the power of the company).

(x)        Communication

The ratification must be communicated to the third party so as to be binding on the third

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