Ratification is adopting or accepting subsequently a past act of an agent done on behalf of another without authority. It is subsequent conformation of unauthorized acts. An agency is created where a person ratifies or adopts the act of another who without the principal’s knowledge and authority acted as his agent.
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 ratifies them, the same effects will follow as if they had been performed by his authority (Sec 196) However, in order that a person may be able to validly ratify an unauthorized act, the rules of valid ratification must be observed. Ratification may be express or may be implied in the conduct of the person on whose behalf the acts are done (Sec 197)
a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account: B’s conduct implies a ratification of the purchase made for him by A.
b) 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.
The first essential to the doctrine of ratification, with its necessary consequence of relating back, is that the agent shall not be acting for him self, but shall be intending to bind a named or ascertainable principal.
By ratification, the person becomes an agent with retrospective effect i.e. the acts are accepted from the time when the agent entered into the contract. It establishes relationship of principal and agent. It also establishes privity of contract between the principal and the third party. It relates back to the date of the act ratified. In law, ratification would constitute as if the act was done with previous authority. Once the act is ratified the same effect will follow as if the act had been performed under the authority of the principal. Ratification may be express or implied but it must be for the whole contract.
When an agent acting for and on behalf of another, stipulates a benefit for the principal under a contract and the principal without demur avails himself of that benefit, the law implies a ratification of that contract on the part of the principal.
Rules governing ratification:
1) The act must be done by a person on behalf of another. If the agent contracts in his own name the act cannot be ratified and if ratified it would be ineffective.
2) The act must have been done without knowledge or authority of the person on whose behalf the act is done.
3) The person on whose behalf the act is done must be legally in existence at the time the act is done. Acts done prior to incorporation of a company are not done on behalf of the company.
4) Ratification may be express or may be implied by the conduct of the person (Sec 197 of Indian Contracts Act)
5) No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective (Sec 198). The ratifier must know that he is ratifying an act done on his behalf. The transaction must be valid and not illegal. The act to be ratified must not be void ab-initio.
6) The principal must be competent to ratify both at the time of contract and at the time of ratification. A company, therefore, cannot ratify the acts done in its name before its incorporation.
7) Ratification must be done within a reasonable time. However, where time to ratify is limited, ratification must be done before the time has expired.
8) Ratification must be communicated
9) Ratification can be for the whole contract and not part of it.
10) Ratification should not put a third party to damages.