AMITY LAW SCHOOL, NOIDA

Law of Contract - II
Ratification of Agency

SUBMITTED TO : ` SUBMITTED BY :
Dr. Amit Dhall Aakarsh Chauhan
A032170123003
LLB (Hons.)

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 Table of Contents

S.No Topic Page No.

.
1. Abstract 3

2. Introduction 4–7

3. Research Problem 8

4. Methodology 9

5. Discussion 10 - 14

6. Critical Analysis 15

7. Case Laws 16

8. Conclusion 17

9. Bibliography 18

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 ABSTRACT

THE INDIAN CONTRACT ACT, 1872 talks about many concepts that play a major
role in how a contract can be formed and how it must be proceeded with and how
important it is in the eyes of law that a contract must be valid in nature.

This law tries to look into every possible measure to check up on the validity of a
contract and how one can, not find loopholes in the law itself. As we know this act
consists of something known as SPECIFIC CONTRACTS which investigates the
contracts, may it be indemnified-indemnifier, bailor-bailee, pledger pledgee, principal
debtor-surety-creditor etc.

One such relation we can see is between a Principal and an Agent. This research
paper will try to revolve around the concept of Ratification of Agency and how it is
necessary to hold up the rights and duties of both the party. If not abided, what can be
done and what might be the obligations of one another. Indian contract law has taken
much sensitivity and bigger minds to help pave way for a better contractual obligation
one can have with the other and how that will help India as a whole in being a better
nation like the developed nations.

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 INTRODUCTION

The basic meaning of Ratification is “an act of voting on a decision or signing a

written agreement to make it official”. Legal Meaning of Ratification is “The consent
to an act that has already been performed”.

The Latin maxim “Omnis ratihabitio retrorahitur et mandato priori

aequiparatur”, which means that every ratification is dragged back and treated as
equal to a command or previous authority. In simple terms, it means that Doctrine of
ratification comes into a picture if a person has done something on behalf of another
person without any authority, knowledge or consent, then if such “other person”
ratifies the same, then the same result would come as if the act was done on his own.

The Indian Contract Act, 1872 brings within its ambit the contractual rights that have
been granted to the citizens of India. It endows rights, duties and obligations on the
contracting parties to help them to successfully conclude business may it be daily life
or a stipulated time process.

Contracts might happen in a small grocery shop to a multinational company because

contracts are universal throughout the nation and every valid transaction that happens
must happen through a valid contract only. This law was enacted on 25th April, 1872
and subsequently came into force on 1st of September 1872.

The essence of the India Contract Act has been modelled on that of the English
Common Law. It is one of the most important Legislation ever drafted by Britishers
and the principles enacted therein are nothing but the codification of the general
principle governing transactional relationship because of which it has seen seldom
amendments.

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AGENCY (SEC 182-238) –

Agency is when one party delegates to perform an act for the other in more or less
independent fashion on behalf of the first part, the relationship formed between the
two is called the agency. Under Section 182-238 of the Indian Contract act,1872 we
can understand the concept of Agency as a whole.

Sec 182 of the Indian Contract Act,1872 defines Agent and Principal as – Agent is a
person employed to do any act for another or to represent another in dealing with third
persons. The person for whom such act is done, or who is so represented, is called as
the Principal. He is the one who delegates the authority.

ILLUSTRATION:

Max appoints Maria to deal with his bank transactions on his behalf. Here, Max
becomes the principal and Maria the agent. When there is a delegation of authority
like we saw in the illustration we can clearly say that there is an agency established
and when the same is converted to a contractual obligation both the parties are legally
bound to one other.

According to Section 183, any person who has attained the age of majority and has a
sound mind can appoint an agent. In other words, any person capable of contracting
can legally appoint an agent. Minors and persons of unsound mind cannot appoint an
agent. In the same way under Section 184, the person who has attained the age of
majority and has a sound mind can become an agent. A sound mind and a mature age
is a necessity because an agent has to be answerable to the principal.

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As per S. 196 of Indian Contract Act, 1872, A person can elect to ratify or disown
the act of another, when such other person performs any act on behalf of him without
his authority, knowledge or consent.

For Example – “A” sells good of “B” on credit to “C” without any authority. Then in
such a case, “B” may ratify the same or void the transaction by not ratifying the same.

As per S. 197 of Indian Contract Act, 1872, Ratification may either be expressed or
implied on behalf of that person who is in a position of election of option of ratifying
or disowning the transaction.

For Example –

1. “A” lends money from “B” to “C” on interest. Then in such case, if “B”
accepts the interest from “C”. This is implied ratification under Indian Contract
Act, 1872.

2. “A” sells good of “B” on credit to “C” without any authority. Then in such a
case, “B” accepts the money from “C” after one month. This is expressed
ratification under Indian Contract Act, 1872.

As per S. 198 of Indian Contract Act, 1872, If A person is ratifying act of another
person, then such person must have complete knowledge of facts. Ratification is
considered to be invalid if a person ratifies the act with knowledge of the facts of the
case is not complete.

For Example – “A” sells good of “B” on credit to “C” without any authority & “A”
does not provide the material fact that on what price the goods have been sold then
ratification of transaction by “B” will be invalid.

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As per S. 199 of Indian Contract Act, 1872, If A person is ratifying a single act of
another person of a transaction, then such ratification would be considered for whole
transaction but not for a single act.

As per S. 200 of Indian Contract Act, 1872, Any act done by a person on behalf of
another person without any authority, knowledge or consent, and 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.

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 RESEARCH PROBLEM

The doctrine of ratification comes into play when a person has done an act on or
behalf of another without his knowledge or consent. This doctrine gives the person on
behalf of whom the act is done to either adopt the act done by RATIFYING it or by
disowning it.

Section 196- 200 speaks about ratification of an agent. Where it’s upon the principal
to either acknowledge the act done or not. But the main problem with this is if an
agent has done an act without the authority of the principal with a third person and he
withdraws the contract even before the principal ratifies it, what exactly can a person
do in this situation.

The research problem basically navigates around what might be the problems in the
concept of ratification. This research paper will try to throw some light upon the 3rd
party entanglement during the ratification of agency.

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 METHODOLOGY

This research paper has taken immense information from secondary data available to
us on different portals, journals, articles, law books, extensive readings of research
papers and internet browser and websites etc.

This research paper has reviewed different sources of data and compiled it to one and
came up with the summary of it which indeed helped in understanding the pathway in
which this paper wants to move ahead.

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 DISCUSSION

Ratification of Agency (Section 196 to 200)

The doctrine of ratification comes into play when a person has done an act on behalf
of another 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 to disown the
act as a whole. This is given under the Section 196 of ratification of agency.

For example, A person insures the goods of another without his authority, the owner
may elect to ratify the policy and then the policy will be as valid as the agent had been
authorized to insure the goods.

If the principal ratifies it, he becomes bound by the act and will be liable for the same.
A ratification will have a retrospective effect i.e., when an act is ratified, it gives
validity to the act from the date of doing the act and not from the date of ratification.

Section 197 provides that ratification may be either express or implied. An express
ratification cannot be treated as complete until it is communicated to the third party
with whom the agent had entered that transaction unauthorized.

Before the completion of the communication of ratification, it may also be revoked.

Implied ratification is derived from the conduct of the person on whose behalf the act
is done. Accepting the benefit of the transaction by the principal is the strongest
evidence of implied ratifications.

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Essentials of a Valid Ratification –

1. For the act to be ratified, it is necessary that the same has been done on behalf
of the principal. If an agent acts for another or for himself, this cannot be
ratified by the principal.
2. The principal must have been in existence at the time of contract. A contract
cannot be ratified by a principal who was not in existence at the time of
contract.
3. The principal must have contractual capacity: If the principal was not
competent to enter into a contract at the time when the contract was entered
into (by the agent), he cannot ratify it.
4. Subsequently when he gets competence to contract. Thus, a minor on whose
behalf a contract is made cannot ratify it on attaining majority.
5. The act to be ratified must be legal and capable of being ratified by the
principal. It must not be illegal or void.
6. According to Section 198, no valid ratification can be made by a person whose
knowledge of the facts of the case is materially defective.
7. According to Section 199, ratification must relate to the whole transaction. He
cannot ratify a part of the transaction which is beneficial to him and reject the
rest.
8. According to Section 200, if ratification would result in injury to the interest of
a third person, then it would be invalid.
9. Ratification must be done within a reasonable time. Ratification after a long
delay may not be valid.
10. It must be communicated to the parties to contract.

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In this branch of the law i.e., AGENCY, there is less of anomaly and a smaller field in
which to look for traces of fiction than the last. A man is not bound by his servant's
contracts unless they are made on his behalf and by his authority, and that he should
be bound then is plain common-sense. It is true that in determining how far authority
extends, the question is of ostensible authority and not of secret order. But this merely
illustrates the general rule which governs a man's responsibility for his acts
throughout the law.

If, under the circumstances known to him, the obvious consequence of the principal's
own conduct in employing the agent is that the public understand him to have given
the agent certain powers, he gives the agent those powers. And he gives them just as
truly when he forbids their exercise as when he commands it. It seems always to have
been recognized that an agent's ostensible powers were his real powers;4 and on the
other hand it always has been the law that an agent could not bind his principal
beyond the powers given in the sense above explained.

There is, however, one anomaly introduced by agency even into the sphere of
contract, - the rule that an undisclosed principal may sue or be sued on a contract
made by an agent on his behalf; and this must be examined, although the evidence is
painfully meagre. The rule would seem to follow very easily from the identification of
agent and principal, as I shall show more fully in a moment. It is therefore well to
observe at the outset that the power of contracting through others, natural as it seems,
started from the family relations, and that it has been expressed in the familiar
language of identification.

Can the third party recede from the agreement prior to ratification by the
principal ?

This question is very different as it can be answered through several theories given.
There are three to four different theories given on this upon who can be held liable
and why. The research question basically questions if a third party who has had an

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agreement with an unauthorized agent recede or withdraw from the agreement prior to
principal ratifying it.

Ratification for Act which is not legal in Nature –

In a case it was held that if a contract is made which was non-legal in nature, and
when it was legally not possible to do so, it cannot be enforceable even it has become
legally possible to carry out the same contract.

Similarly, it was held that ratification and acceptance of transaction cannot be made
for such transaction which is void or illegal.

Ratification for acts of Public Servants –

Acts those are done by Govt. Officials 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 is only one difference between private
agents and government officials, which is referred as principal or owner of private
agent 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 officials.

Ratification by Minor –

In a case it was held that a person under 18 years of age mortgaged his house in
favour of a money lender for a loan of Rs. 30000. After mortgaging the actual amount
of loan received was less than 30000. The plaintiff stated that, when he mortgaged his
house, he was under 18 years of age, so the contract with the money lender was void.
It was held that contract with a person under 18 years of age is void. further, clarified
that a person under 18 years of age can’t even enter into contract through guardian or
any other agent because it would be a void contract and the same is not capable of
ratification by a person under 18 years of age.

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Communication of Ratification –

Communication of ratification to another party is necessary or the contract if ratified

can be shown by more subsequent transactions are held as legal.

In a case, a certificate of indebtedness was given by an individual on attaining

majority as renewal of another certificate of indebtedness given by him throughout his
minority in thought of cash then borrowed. Held, because the thought for the
certificate of indebtedness is simply the note dead throughout minority, the recent
certificate of indebtedness was not enforceable.

Ratification after Principal or Owner’s Death –

In general practice, it is being followed that if an agent functioning under written

authority of the principal or owner holds himself out in and of itself agent when the
death of the principal or owner and if person competent to formalize his action when
the death of the principal or owner formalize identical in manner famed to law, then
the agent ought to be deemed to own acted at intervals the boundaries of authority
which he with validity holds himself out as agent of the next proprietors.

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 CRITICAL ANALYSIS

As a component belief within the law of agency, confirmation is every useful as a

smart matter and somewhat ragged from the angle of theory. This theory consists of a
gaggle action thereto the principal or owner is definite by once the agents performs an
associated unauthorised act. the smart worth of enabling principal or owners to create
the legal consequences of actual authority once the actual fact of the associate agent’s
unauthorized action is easy.

This belief helps in instructive circumstances for the principal or owner or rather the
other parties, that were earlier unsure or ambiguous. as an example, confirmation may
serve to reassure a fourth party committed to the enforceability of the contract
between the principal or owner and thus the third party.

The doctrine’s theoretical unevenness and its variability across systems follow
inevitably from the actual fact that confirmation reflects a trade-off between the
sometimes-conflicting demands of two basic considerations.

On the one hand, to be effective as a confirmation the principal or owner’s act ought
to mirror the principal or owner’s consent, cherish the consent by the principal or
owner that underlies the creation of actual authority. On the other hand, considerations
of fairness to third parties want that confirmation belief together constrain the extent
of a principal or owner’s power to bind the third party once the actual fact of associate
agent’s unauthorized action, distinct from whether or not or not the principal or owner
consents to be sure.

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 CASE LAWS

1. Suraj Narain v/s N.W.F. Province

In this case, it was held that where the responsibility for the passing of a particular
kind of order is by statute vested in specific authority.

2. Mohori Bibee v/s Dhurmodas Ghose

In this case, Privy Council made it clear that that contract or agreement done with
Minor is void.

3. Sneh Gupta v/s Devi Sarup and Others

4. The Imperial Ice Manufacturing v/s Munchershaw Barorji Wadia

5. Anand Rai v/s Bhagwan Rai

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 CONCLUSION

Ratification of agency has been the main focus of the research paper and
understanding if the third party recedes from the bilateral contract can he be held
liable or no. This research paper corresponds and tries to find a solution for the same,
for this the sound solution would be to keep the main focus point on the rights and
corresponding liabilities of the parties thereto.

Ratification is a legal act that binds the parties' rights and obligations. The rights and
responsibilities of all three parties are transformed once the principal ratifies. For the
first time, the principal is tied, and he can no longer withdraw his ratification. Due to
the agent's lack of authority, the third party has lost his right to rescind. As a result of
the ratification, the agent is no longer liable for his implicit warranty of authority.

When this is kept in mind that all the three parties are entangled with rights and
obligations the court should keep the above points in their mind that 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.

At the time the assumed agent and the third party enter their agreement there is
consideration for the third party's promise; the agent's warranty is sufficient
consideration. The third party at this point can rescind the contract because of mutual
mistake, if the agent unknowingly exceeded his authority, or because of a unilateral
mistake, if the agent knew he had no authority. However, if the third party fails to
rescind the contract before the assumed principal ratifies then the third party should
no longer be permitted to do so. The third party is receiving exactly what he bargained
for and cannot complain that he was bound while the principal was not.

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 BIBLIOGRAPHY

1- https://www.lkouniv.ac.in/site/writereaddata/siteContent/
202003291623594854niharika_law_INDIAN_CONTRACT_ACT.pdf
2- https://blog.ipleaders.in/doctrine-of-ratification-in-light-of-the-indian-contract-act/
3- https://indiankanoon.org/doc/1460124/
4- https://lawbhoomi.com/agency-by-ratification/
5- https://www.legalserviceindia.com/legal/article-13292-agency-by-ratification.html
6- https://www.legalservicesindia.com/article/434/Contract-Ratification.html

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