Contracts II Agency by Ratification

DR. RAM MANOHAR LOHIA

NATIONAL LAW UNIVERSITY, LUCKNOW

ACADEMIC SESSION: 2017-18

CONTRACTS II: FINAL PROJECT
AGENCY BY RATIFICATION AND RELEVANT CASE LAWS

Submitted To: Submitted By:

Dr. Visalakshi Vegesna Srajika Gupta
Associate Professor (Law) B.A.L.L.B. (Hons.)
Dr. Ram Manohar Lohiya National 3rd Semester
Law University, Lucknow Roll no 151; Sec. B

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Contracts II Agency by Ratification

TABLE OF CONTENTS

LIST OF CASES............................................................................................................................. 3

DECLARATION ............................................................................................................................ 4

OBJECTIVE ................................................................................................................................... 4

NEED OF THE STUDY ................................................................................................................. 4

STATEMENT OF THE PROBLEM .............................................................................................. 4

LITERATURE REVIEW ............................................................................................................... 4

INTRODUCTION .......................................................................................................................... 5

REQUIREMENTS OF RATIFICATION....................................................................................... 6

RULES GOVERNING AGENCY BY RATIFICATION .............................................................. 9

EFFECTS OF RATIFCATION .................................................................................................... 10

CONCLUSION ............................................................................................................................. 12

REFERENCES ............................................................................................................................. 14

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Contracts II Agency by Ratification

LIST OF CASES

Bird v Brown, (1850) 4 Exch 786. ................................................................................................ 11

Bolton Partners v Lambert, (1889) LR 41 Ch D 295. ............................................................ 10, 11
Commercial Banking Co of Sydney Ltd. v Mann, 1961 AC 1: (1960) 3 WLR 726. ....................... 4
Hukumchand Insurance Co Ltd v Bank of Baroda, AIR 1977 Kant 204. ...................................... 4
Keighley Maxseted & Co v Durant, 1901 AC 240. ........................................................................ 5
Masulipatam v Cavaly Vencata Narrianpah, (1861) 8 MIA 529, 554 PC. .................................... 7
Metropolitan Asylums Board of Manager v Kingham & Sons, (1890) 6 TLR 217. ....................... 8
Mulamchand v State of M.P., AIR 1968 SC 1218: (1968) 3 SCR 214........................................... 6
Prince v Clarke, (1823) 1 B&C 186. .............................................................................................. 8
Secretary of State in Council for India v Kamachee Boye, & MIA 476 ........................................ 4
Sunil v Maharashtra Mining Corporation, (2006) 1 Mah LJ 495. ................................................. 6
Watson v Davies, (1931) 1 Ch 455. .............................................................................................. 11

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Contracts II Agency by Ratification

DECLARATION
I, hereby, declare that the project work entitled Agency by Ratification submitted to Dr. Ram
Manohar Lohiya National Law University, Lucknow, is a record of an original work done by me
under the tutelage of Dr. Visalakshi Vegesna, Associate Professor of Law. The Detailed study on
the topic embodied in the project has not been submitted to any other University or Institute.

OBJECTIVE
This project aims to elucidate the circumstances surrounding the agency by ratification from
sections 196-200 of the Indian Contract Act, 1872. Agency by ratification is very different from
the common parlance and should always be construed in a manner so as to bring out the legal
interpretation associated with it. This project, therefore, brings out the essentials, effects and
problems in agency by ratification.

NEED OF THE STUDY

The project topic Agency by Ratification is highly challenging as a topic because of the
misinterpretations and the suits that follow in the legal field. Therefore, a thorough research is
essentially required in this area.

STATEMENT OF THE PROBLEM

This project aims to find out the answers to the following questions:
Which sections deals with the concerned topic and what are the essential requisites for
ratification?
What are the effects of agency by ratification?
What are the rules governing agency by ratification?

LITERATURE REVIEW
Avtar Singh, Contract and Specific Relief (12th edn, EBC Publishing Ltd 2017)
Dinshah Fardunji Mulla, Mulla The Indian Contract Act (13th edn, Lexis Nexis Ltd 2011)
PC Markanda The Law Of Contract (2nd Ed, Wadhwa Nagpur 2008).

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Contracts II Agency by Ratification

INTRODUCTION
The doctrine of ratification comes into play when a person has done an act on behalf of another,
but without his knowledge or consent. The doctrine gives the person on whose behalf the act is
done an option either to adopt the act by ratification or disown it. An agency by ratification is also
known as ex post facto agency, i.e., agency arising after the event. Although the law provides for
an agent, exceeding his brief at times, and has given the principal the power to ratify or disclaim
such acts, it has also spelt out the circumstances and rules under which such an act can or cannot
be considered as agency by ratification.
Ratification is thus a kind of affirmation of unauthorized acts. It is thus explained in Section 196
of the Indian Contract Act, 1872:
S. 196. Right of 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 ratify them, the same effects will follow as if
they had been performed by his authority.1
Where, for example, a person insures the goods of another without his authority, the owner may
ratify the policy and then the policy will be as valid as if the agent had been authorised to insure
the goods as stated in the case of Secretary of State in Council for India v Kamachee Boye2.
Section 197 further explains the nature of ratification i.e. if it express or implied.
S. 197. Ratification may be express or implied. Ratification may be ex-pressed or may be
implied in the conduct of the person on whose behalf the acts are done.3
It was held in the case of Hukumchand Insurance Co Ltd v Bank of Baroda4 that where the manager
of an insurance company effected an assurance which he had no authority to do, but the company
accepted the money which was received under the policy, which was held to be a sufficient
ratification. Further, ratification will be implied from any act showing an intention to adopt the
transaction, even silence or mere acquiescence and if an act is adopted at all, it will be held to have
been adopted throughout. Moreover, ratification of a contract required to be in writing need not be
in writing, but ratification of a contract made by deed must be by deed.5

1
Section 196, The Indian Contract Act, 1872.
2
Secretary of State in Council for India v Kamachee Boye, & MIA 476, unauthorized act of an agent ratified by the
Government.
3
Section 197, The Indian Contract Act, 1872.
4
Hukumchand Insurance Co Ltd v Bank of Baroda, AIR 1977 Kant 204.
5
Commercial Banking Co of Sydney Ltd. v Mann, 1961 AC 1: (1960) 3 WLR 726.

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Contracts II Agency by Ratification

REQUIREMENTS OF RATIFICATION
A valid ratification has to fulfil certain conditions. Some of them are as follows:-
1. On behalf of another
In the first place, it is necessary that the act in question must have been done on behalf of the
person who wants to ratify it. The agent must have been done on behalf of the person who
wants to ratify it. The agent must profess to act as an agent and on behalf of an identifiable
principal. It is not necessary that he should be named, but there must be such a description of
him as shall amount to a reasonable designation of the person intended to be bound by the
contract. If the agent acts in his own name and makes no allusion to agency, his act cannot be
ratified by another person, even if his agent in secret mind intended to act for another. This is
the principle of the famous case of Keighley Maxseted & Co v Durant.6
Keighley Maxseted & Co. authorised their agent to buy Karachi wheat at specified rates on
their joint account. Wheat was not obtainable at those rates. He bought wheat from Durant at
a higher rate. He did so in the hope and confidence that is act would be adopted by the
principals, but he never mentioned the principles and contracted in his own name. The
principals approved the purchase, but when the price of wheat fell, refused to take delivery.
Durant sued the agent and the principals for breach of contract.
But the principals were held not liable. The agent having contracted in his own name, he's at
was open to anybody is ratification and, therefore, the purported ratification was ineffective.
Lord Macnaghten said: "Buy a Wholesome and convenient fiction, a person ratifying the act
of another, who, without authority, has made a contract openly and avowedly on his behalf, is
deemed to be a party to the contract. Does the fiction cover the case of a person who makes no
avowal at all, but assumes to act for himself and for no one else? On principle I should say
certainly not, Obligations are not to be created by, or founded upon, undisclosed intentions.7
Similarly Lord James said: "To establish that a man's thoughts unexpressed and unrecorded
can form the basis of a contract so as to bind other persons and make them liable on a contract
they never made with persons they never heard of, seems a somewhat difficult task."8
The words "on behalf of another" as used in Section 196 expressly recognise the rule. The
section, however, does not insist upon the principal being disclosed. Marine insurance policies
are often affected on behalf of anybody interested and are, therefore, open to anybody's

6
Keighley Maxseted & Co v Durant, 1901 AC 240.
7
Ibid.
8
Nilima Bhadbhade, Pollock and Mulla The ICA, 1872 and Specific Relief Act, (Lexis Nexis 14 th Ed).

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Contracts II Agency by Ratification

ratification. Where the act is purported to be done on behalf of another, that other may ratify
even if the agent used his name to commit a fraud upon the third party.
2. Competence of principal
Since ratification relates back to the date when contract was originally made by the agent, it is
necessary that the principal who purports to ratify must be in existence at the time of the
contract and should also be competent. It is this principle which prevents a person from
ratifying a contract made by him during his minority. Similarly, a company cannot ratify a
contract made in its name before its incorporation, except as provided in Specific Relief Act,
1963.9 Section 15 of the Act provides that where the promoters of a company have made a
contract before kits incorporation, for the purposes of the company, and if the contract is
warranted by the terms of incorporation, the company may enforce it. Warranted by the terms
of incorporation means within the scope of the companys objects as stated in the
memorandum. The contract should be for the purposes of the company. A contract to allot
shares after the company is incorporated is not for the purposes of the company so that the
company cannot enforce it against the other party.10
3. What acts can be ratified?
The act must be lawful.
S. 200. Ratification of unauthorized act cannot injure third person. an act done by one
person on behalf of another, without such other persons 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.
Only lawful acts can be ratified and are open to ratification- An act which is void from the very
beginning cannot be ratified. It was observed in Mulamchand v State of M.P.11 that ratification
must be in relation to a transaction which may be valid in itself and not illegal. 12 Where the
managing director of a corporation removed an employee belonging to a category of employees
whom he was not authorised to remove, it was held that the act was an illegal termination of
employment and could not be cured by ratification.13

9
Avtar Singh, Contract and Specific Relief, (EBC 12th Ed) 820.
10
Nilima Bhadbhade, Pollock and Mulla The ICA, 1872 and Specific Relief Act, (Lexis Nexis 14 th Ed).
11
Mulamchand v State of M.P., AIR 1968 SC 1218: (1968) 3 SCR 214.
12
Avtar Singh, Contract and Specific Relief, (EBC 12th Ed) 820.
13
Sunil v Maharashtra Mining Corporation, (2006) 1 Mah LJ 495.

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Contracts II Agency by Ratification

Subject to this, any act may be ratified whether it is founded on a tort or on a contract. A
forgery of signatures, being a crime, cannot be ratified. A minors agreement being void cannot
be ratified by him on attaining majority.
Acts which would become injurious by ratification Similarly, acts which would become
injurious to others by ratification cannot be ratified. This principle is incorporated in Section
200 which says that an act cannot be ratified which by ratification would have the effect of
subjecting a third person to damages. Therefore, an unauthorized notice terminating a lease
cannot be ratified.14
Acts done on behalf of government Such acts are ratifiable in the same way in which private
acts can be. In one of the cases, it was observed that if there had been any doubt about the
original intention of the government, it has clearly adopted and ratified the acts of its agents
which is equivalent to precious authority. Thus acts of public servants in excess of their
authority may be ratified by the government.15
Where public officers exceed their authority the State will be liable only to the extent it has
expressly or impliedly ratified or approved the acts of such officers. This was laid down
specifically as early as 1861 in Collector of Masulipatam v Cavaly Vencata Narrianpah16
where the court said: The acts of a Government officer bind the Government only when he is
acting in the discharge of a certain duty within the limits of the authority or if he exceeds that
authority, when the Government in fact or in law directly or by implication ratifies the excess.
4. Knowledge of facts
S. 198. Knowledge requisite for valid ratification.- No valid ratification can be made by a
person whose knowledge of the facts of the case is materially defective.
To constitute a binding adoption of acts a priori unauthorized these conditions must exist: (1)
the acts must have been done for and in the name of the supposed principal, and (2) there musgt
be full knowledge of what those acts were, or such an unqualified adoption that the inference
may properly be drawn that the principal intended to take upon himself the responsibility for
such acts, whatever they were.
5. Whole transaction

14
Avtar Singh, Contract and Specific Relief, (EBC 12th Ed) 820.
15
Avtar Singh, Contract and Specific Relief, (EBC 12th Ed) 821.
16
Masulipatam v Cavaly Vencata Narrianpah, (1861) 8 MIA 529, 554 PC.

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Contracts II Agency by Ratification

S. 199. Effect of ratifying unauthorized act forming part of a transaction. A person

ratifying any unauthorized act done on his behalf, ratifies the whole of the transaction of which
such act formed a part.
A person cannot ratify a part of the transaction which is beneficial to him and repudiate the
rest. So a ratification of a part of a transaction operates as a ratification of the whole of the
transaction.17
6. Within reasonable time
A ratification to be effective must come within reasonable time. If a time is fixed for the
performance of the contract, ratification must come before that time otherwise it will be too
late.18 For example, a tender for supply of eggs was approved by a board, but not formally.
The time for commencement of performance was September. Before this date the tender was
withdrawn. The board ratified its approval of the tender on October 6. It was held this was too
late as it was done after the date fixed for performance.19
The only exception is marine insurance, where a policy can be ratified even after the owner
has come to know of the loss. The principal has no right to pause and wait for the fluctuation
of the market, in order to ascertain whether the purchase is likely to be beneficial. He is bound
if he decides to notify his determination in a reasonable time provided he has an opportunity
of doing it, as stated in the case of Prince v Clarke20.

RULES GOVERNING AGENCY BY RATIFICATION

The following are the rules governing the agency by ratification:
1. An act will be regarded as a ratification only if the principal had a free choice whether to do it
or not.
2. The agent must purport (intend to seem) to act as an agent. A principal can only ratify acts,
which the agent purported to do on his behalf. This rule follows that if the agent purports to act on
his own behalf the principal cannot ratify.
3. The person ratifying must have contractual capacity. This implies that the principal must be
competent to contract not only at the time when the agent exceeded his authority, but also when
he ratified such act-of the agent.21

17
Commercial Banking Co of Sydney Ltd v Mann, 1961 AC 1: (1960) 3 WLR 726.
18
< http://www.lawsofbusiness.com/2012/04/agency-by-ratification.html> accessed 28 October 2017.
19
Metropolitan Asylums Board of Manager v Kingham & Sons, (1890) 6 TLR 217.
20
Prince v Clarke, (1823) 1 B&C 186.
21
< http://www.lawsofbusiness.com/2012/04/agency-by-ratification.html> accessed 28 October 2017.

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Contracts II Agency by Ratification

4. Ratification may be express or it may be implied in the conduct of the person on whose behalf
the acts are done. For instance, without As authority, his brother B, lent his house to C. Later on
C pays the rent for the house and A accepts the same. By this conduct B shall be deemed to have
ratified the act of A.
5. The principal must exist when the act is done. Hence, a company cannot ratify per-incorporation
agreements.
6. The principal at the time of ratification must have the full knowledge of the material facts.
7. The principal must ratify the whole of the transaction. This implies that he cannot ratify at his
sweet will a part of the transaction and repudiate the rest. For example, A, without Bs authority,
lends Bs 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.22
8. The act must be ratified in time. A contract cannot be ratified after the time fixed for
its performance. If no such time is fixed, it must be ratified within a reasonable period of time, from
the principals acquiring notice of the unauthorized act.
9. Ratification cannot be made when it affects the rights and interest of a third party. For example,
A, not being authorized thereto by B, demands, on behalf of B, the delivery of a chattel which is
the property of B, from C who is in the possession of it. This demand cannot be ratified by B so as
to make C liable for his refusal to deliver.
10. The ratification should relate back to the actual date of the formation of the contract between
the agent and the third party. In other words, it should have retrospective effect and not prospective.
For example, if A without being authorized thereto lends Bs money to C and afterwards B ratifies
the transaction. The contract will be deemed to have been ratified by B on the date on which A
lent Bs money to C.23
11. Although ratification is not confined to lawful acts, an act, which is simply void in law, cannot
be validated by ratification. In other words, only lawful acts can be ratified.

EFFECTS OF RATIFCATION
The effect of ratification is to put the principal, agent, and the third party into the position that they
would have been if the agents 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

22
< http://www.lawsofbusiness.com/2012/04/agency-by-ratification.html> accessed 28 October 2017.
23
<http://www.legalservicesindia.com/article/article/contract-ratification-434-1.html> accesses 28 October 2017.

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Contracts II Agency by Ratification

said act.24 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.
(1) It establishes the relationship of principal and agent in so far as the act ratified is concerned
between the person ratifying and the person doing the act.
(2) Ratification establishes the relationship of contract between the principal and the third
party.
Doctrine of Relation Back: Ratification relates back to the date which the agent first
contracted. Section 196 declares that if an unauthorised act is ratified by the person on whose
behalf it was done, the same effects will follow as if they had been performed by his
authority. Thus there is a contract between the principal and the third party, not from the date
of ratification, but from the date when the agent first contracted. One of the effects of relation
back is demonstrated by Bolton Partners v Lambert.25
The defendant made an offer to the managing director of a company who, having no authority
to do so, accepted it. That gave the company an option to ratify the contract. But the company
ratified only after the defendant had withdrawn his offer. The company sued the defendant for
specific performance.
The company was held entitled to it. The companys ratification related back to the date on
which the managing director first accepted the offer. Thus, there was a contract between the
company and the defendant from that date. The defendants revocation of his offer was
ineffective. LJ Lindlay believed that it was not a question of withdrawal of offer, but
withdrawal from contract. The managing director, having accepted the offer, though without
authority, there was contract, and it was not an offer, but a contract that was ratified. He said:
I can find no authority in the books to warrant the contention that an offer made, and in fact
accepted by a principal through an agent or otherwise, can be withdrawn. The true view on the
contrary appears to be that the doctrine as to retrospective action of ratification is applicable.
The decision has been criticised on the ground that it leaves the third party in a worse position
than he would have been in if he contracted with the principal, for then he could have revoked
his offer until the principal had accepted it. But if he contracts through an unauthorised agent,
he neither has a contract nor can he withdraw from it. The American restatement suggests a

24
< https://accountlearning.com/agency-by-ratification-governing-rules-effects/> accessed 27 October 2017.
25
Bolton Partners v Lambert, (1889) LR 41 Ch D 295.

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Contracts II Agency by Ratification

different rule: To constitute a ratification, the affirmation of a transaction must occur before
the other party has manifested his withdrawal from it either to the purported principal or to the
agent, and before the offer or agreement has been otherwise terminated or been discharged.
The decision has also been justified. The defendant had contracted to sell the property for a
certain price was given the same terms. Hence, the ratification had not caused him any
prejudice.
But the general trend of opinion is against the decision. That is why it is not to be extended
and was not followed in Watson v Davies.26
The defendant offered to sell his property to a charitable institution. The offer was accepted by
a few members of the board subject to approval by full members of the board. The day on
which the board was to meet, the defendant withdrew his offer. The board ratified it and
brought an action for specific performance.
The ratification was held to be too late, and the revocation effective. Maugham J said: An
acceptance by an agent, subject in express terms to ratification by his principal is legally a
nullity until ratified, and is no more binding on the other party than an unaccepted offer which
can, of course, be withdrawn before acceptance.
The above decision may be said to constitute an exception to the principle in Bolton Papers v
Lambert27. Another exception is where ratification would prejudice the interests acquired by
others. For example, an unauthorised stoppage of goods in transit cannot be ratified after the
transit has ended.28
The doctrine of relation back does not come into play where the contract made by the agent
says that it is subject to approval or ratification. In such cases, the other party would have
the option to withdraw until ratification. Retrospective ratification also becomes ruled out
where the agent and third party have already by mutual consent cancelled the contract.

CONCLUSION
Thus, contractual validity agreement in subject to ratification clearly says that where acts are done
by one person on the 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. Agreements which are subject to ratification are voidable in nature. If

26
Watson v Davies, (1931) 1 Ch 455.
27
Bolton Partners v Lambert, (1889) LR 41 Ch D 295.
28
Bird v Brown, (1850) 4 Exch 786.

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it is ratifies by the principal then it becomes legally valid in the court of law. If it is not ratified
then the contract will lose its validity. Similarly if the principal has not consented and not given
his consent to his agent to enter into agreement still he owes a duty towards third party because
principal is bound by the acts done by an agent or the contracts made by him on behalf of the
principal in the same manner, as if the acts had been done or the contracts had been entered into
by the principal himself, in person. The principal is vicarious liable for the frauds or torts
committed by the agent, while acting in the course of the business for the principal.
Hence, the effect of ratification is that it renders the ratifier (i.e., the principal) bound to the
contract, as if, he had expressly authorized the person to transact the business on his behalf.

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REFERENCES
Books
Avtar Singh, Contract and Specific Relief, (EBC 12th Ed)
Nilima Bhadbhade, Pollock and Mulla The ICA, 1872 and Specific Relief Act, (Lexis
Nexis 14th Ed).
Online Resources
< https://accountlearning.com/agency-by-ratification-governing-rules-effects/>
<http://www.lawsofbusiness.com/2012/04/agency-by-ratification.html>
<http://www.legalservicesindia.com/article/article/contract-ratification-434-1.html>
Cases

Bird v Brown, (1850) 4 Exch 786.

Bolton Partners v Lambert, (1889) LR 41 Ch D 295.
Commercial Banking Co of Sydney Ltd. v Mann, 1961 AC 1: (1960) 3 WLR 726.
Hukumchand Insurance Co Ltd v Bank of Baroda, AIR 1977 Kant 204.
Keighley Maxseted & Co v Durant, 1901 AC 240.
Masulipatam v Cavaly Vencata Narrianpah, (1861) 8 MIA 529, 554 PC.
Metropolitan Asylums Board of Manager v Kingham & Sons, (1890) 6 TLR 217.
Mulamchand v State of M.P., AIR 1968 SC 1218: (1968) 3 SCR 214.
Prince v Clarke, (1823) 1 B&C 186.
Secretary of State in Council for India v Kamachee Boye, & MIA 476
Sunil v Maharashtra Mining Corporation, (2006) 1 Mah LJ 495.
Watson v Davies, (1931) 1 Ch 455.
Statutes
The Indian Contract Act, 1872.

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Contracts II Agency by Ratification

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