Agency by Ratification Under the Indian Contract Act, 1872

Agency by ratification under Indian law: understand Sections 196–200, express and implied ratification, essential conditions, legal effects and important case law.

Introduction

Agency by ratification is a mode of creating an agency relationship in which a person subsequently approves an act performed on their behalf without prior authority. Once the act is validly ratified, it generally has the same legal effect as if the person had authorised it before it was performed.

The doctrine is governed by Sections 196–200 of the Indian Contract Act, 1872. It allows a principal to adopt an unauthorised transaction rather than reject it, provided the statutory requirements are satisfied.

For example, A purchases goods on behalf of B without obtaining prior permission. After learning the material facts, B accepts the goods and sells them as B’s own. B’s conduct may amount to ratification of the purchase.

Agency by ratification is also known as ex post facto agency, meaning agency recognised after the relevant act has occurred.

Meaning of Agency by Ratification

Agency by ratification arises when one person performs an act on behalf of another without that person’s knowledge or authority, and the person subsequently approves or adopts the act.

Section 196 of the Indian Contract Act, 1872, expressly recognises the right of the person on whose behalf the act was performed to ratify or disown it. If the person ratifies the act, the same legal consequences generally follow as if the act had originally been performed with authority.

Example: A, without prior authority, places an order for machinery on behalf of B. After learning the relevant facts, B accepts the machinery and confirms the transaction. If the requirements for valid ratification are satisfied, B may become bound by the purchase.

The essential feature is subsequent approval of an act originally performed without authority, subject to the statutory limitations.

Legal Provisions

Section 196: Right to Ratify or Disown

Section 196 provides that where a person performs an act on behalf of another without that person’s knowledge or authority, the person may elect to ratify or disown the act.

If the act is validly ratified, it has the same legal effect as if it had been performed with the principal’s authority.

This provision establishes the basic principle of ratification. However, the act must genuinely have been performed on behalf of the person who subsequently adopts it. A person cannot ordinarily transform a transaction undertaken entirely on someone else’s behalf or on the actor’s own account into an agency transaction merely by approving it afterwards.

Example: A places an order for goods expressly on behalf of B, although B has not authorised the purchase. B subsequently approves the transaction after learning its material details. Section 196 may apply.

Section 197: Express or Implied Ratification

Section 197 provides that ratification may be express or implied.

Express ratification occurs when the principal directly communicates approval of the unauthorised act through words, whether spoken or written.

Implied ratification arises from conduct that demonstrates adoption of the transaction.

For example, A purchases goods on behalf of B without authority. B subsequently sells those goods as B’s own. Under the statutory illustration to Section 197, B’s conduct implies ratification of the purchase.

The principal’s conduct must be sufficiently clear to establish adoption of the transaction. Mere knowledge of an unauthorised act does not invariably amount to ratification.

Section 198: Knowledge Required for Valid Ratification

Section 198 provides that no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

This requirement ensures that ratification represents an informed decision to adopt the transaction.

Example: A enters into a contract on behalf of B without authority. B approves it believing that the contract contains a particular price, but the actual price is substantially different and B is unaware of that material fact. The validity of the purported ratification may be affected by Section 198.

The provision requires sufficient knowledge of material facts, although the precise application depends on the circumstances.

Section 199: Ratification of the Whole Transaction

Section 199 provides that a person who ratifies an unauthorised act forming part of a transaction ratifies the whole transaction of which that act formed a part.

Also Read: Creation of Agency Under the Indian Contract Act, 1872

This prevents a principal from selectively adopting only the favourable part of a transaction while rejecting the remaining obligations of the same transaction.

Example: A enters into a transaction on behalf of B without authority. The transaction contains both an obligation to purchase goods and an obligation to pay the agreed price. If B validly ratifies the relevant transaction, B cannot ordinarily adopt the purchase while rejecting the associated payment obligation.

The section concerns the whole transaction of which the unauthorised act formed a part. It does not automatically extend ratification to unrelated transactions.

Section 200: Ratification Cannot Injure Third Parties

Section 200 limits the effect of ratification by protecting third-party rights.

An unauthorised act that would, if authorised, subject a third person to damages or terminate an existing right or interest cannot be made to have that effect through subsequent ratification.

For example, A holds a lease from B that is terminable by three months’ notice. An unauthorised person gives notice of termination on B’s behalf. Under the statutory illustration to Section 200, B cannot subsequently ratify that notice so as to make it binding on A.

This provision ensures that ratification cannot be used to impose liability on a third party or extinguish that person’s rights in circumstances prohibited by the section.

Essential Conditions of Valid Ratification

1. The Act Must Be Performed on Behalf of the Principal

The person performing the act must have purported to act on behalf of the person who subsequently ratifies it.

If a person enters into a transaction entirely in their own name and on their own account, the other person cannot ordinarily convert it into an agency transaction simply by approving it later.

Example: A purchases goods for A’s own business and later offers them to B. B’s acceptance of the goods does not, by itself, constitute ratification of A’s original purchase because that purchase was not made on B’s behalf.

2. The Act Must Initially Lack Authority

Ratification is relevant where an act was performed without the principal’s authority or knowledge, as contemplated by Section 196.

If the agent already possessed the necessary authority, the transaction ordinarily binds the principal through that existing authority rather than through ratification.

The absence of prior authority must be distinguished from a mere failure to document authority that already existed.

3. The Principal Must Be Legally Competent

The person ratifying the transaction must have the legal capacity necessary to adopt it. The transaction must also be capable of lawful ratification.

Ratification cannot validate an act that is prohibited by law or overcome mandatory legal requirements that apply independently of agency.

Where the principal’s legal capacity changes between the original act and the purported ratification, the relevant circumstances and applicable law must be examined carefully.

4. Knowledge of Material Facts

Under Section 198, the principal’s knowledge of the material facts must not be materially defective.

The principal must have sufficient information to make an informed decision about adopting the transaction.

Example: A purchases equipment on behalf of B without authority. If B approves the purchase without knowing that the equipment is subject to a material contractual restriction, the validity of the ratification may require examination under Section 198.

5. Ratification Must Cover the Relevant Transaction

Under Section 199, ratification of an unauthorised act forming part of a transaction extends to the whole transaction.

A principal cannot ordinarily accept the benefit of a transaction while rejecting its associated obligations merely because those obligations are disadvantageous.

6. Ratification Must Not Violate Section 200

Even where the principal otherwise satisfies the requirements for ratification, Section 200 prevents ratification from producing the specified prejudicial effects on third parties.

A purported ratification cannot be used to impose damages on a third person or terminate an existing right or interest where the section prohibits that result.

Legal Effects of Ratification

1. Retrospective Effect

A valid ratification generally operates retrospectively. The transaction is treated, for the purposes of the agency relationship, as if it had originally been performed with authority.

Also Read: Creation of Agency Under the Indian Contract Act, 1872

This principle is often described as the doctrine of relation back.

For example, A enters into a purchase contract on behalf of B without prior authority. If B validly ratifies the contract, B may become bound as though A had been authorised when the contract was made.

However, retrospective effect is subject to statutory limitations, particularly Section 200. Ratification cannot retrospectively prejudice third-party rights in a manner prohibited by law.

2. Principal Becomes Bound by the Transaction

Once validly ratified, the principal generally assumes the legal consequences of the transaction, including applicable contractual obligations.

For example, if B ratifies A’s unauthorised purchase of goods on B’s behalf, B may become responsible for paying the agreed price in accordance with the contract.

3. Principal Cannot Ordinarily Adopt Only the Benefits

Section 199 prevents selective ratification of an unauthorised act forming part of a transaction. The principal must ordinarily adopt the whole relevant transaction rather than accept its benefits while rejecting its associated obligations.

4. Third-Party Rights Remain Protected

Section 200 prevents ratification from being used to impose certain liabilities on third parties or terminate their existing rights or interests.

Consequently, the retrospective effect of ratification is not unlimited.

Important Case Law

Glaxo Laboratories (India) Ltd. v. Glaxo Staff Association

Citation: (1974) 2 LLJ 389 (All).

The Allahabad High Court considered whether an unauthorised action affecting an employee could subsequently be validated through ratification by the appropriate authority.

The decision discussed Sections 196 and 200 of the Indian Contract Act, 1872, and the limitation on ratification where the action would affect a third party’s rights. It emphasised that the general retrospective effect of ratification cannot override the protection afforded by Section 200.

The case illustrates why subsequent approval is not sufficient in every situation. The nature of the original act, the rights affected and the statutory restrictions must all be considered.

Legal principle: Ratification may validate an unauthorised act, but it cannot be used to produce an effect prohibited by Section 200, particularly where the act would prejudice a third party’s protected rights or interests.

Difference Between Agency by Ratification and Other Modes of Agency

Basis	Ratification	Express Agency	Implied Agency
Creation	Subsequent approval of an unauthorised act	Authority granted through spoken or written words	Authority inferred from circumstances and conduct
Relevant provisions	Sections 196–200	Sections 186–187	Sections 186–187
Timing	Approval follows the act	Authority precedes the authorised act	Authority is inferred from the relevant relationship and circumstances
Effect	Generally treats the act as authorised from the outset, subject to legal limitations	The act binds the principal when performed within authority	The act binds the principal when within the authority inferred under law
Example	Principal approves an unauthorised purchase made on the principal’s behalf	Principal expressly authorises an agent to purchase goods	A shop manager routinely orders stock with the owner’s knowledge

Key Points for Law Students

• Agency by ratification is governed by Sections 196–200 of the Indian Contract Act, 1872.
• Section 196 establishes the right to ratify or disown an unauthorised act.
• Section 197 recognises express and implied ratification.
• Section 198 requires sufficient knowledge of material facts.
• Section 199 requires ratification of the whole transaction of which the unauthorised act formed a part.
• Section 200 protects third parties from specified prejudicial effects of ratification.
• Ratification generally operates retrospectively, subject to statutory limitations.
• The act must have been performed on behalf of the person who subsequently ratifies it.
• Glaxo Laboratories (India) Ltd. v. Glaxo Staff Association, (1974) 2 LLJ 389 (All), is relevant to the limitation imposed by Section 200.

Conclusion

Agency by ratification is a recognised method of creating an agency relationship after an unauthorised act has occurred. Sections 196–200 of the Indian Contract Act, 1872, establish the rules governing the principal’s choice to adopt or reject the act, the form of ratification, the knowledge required and the protection of third-party rights.

Valid ratification generally gives the transaction the same legal effect as if it had originally been authorised. Nevertheless, the principal must satisfy the statutory requirements, including the requirement of adequate knowledge under Section 198, and cannot use ratification to prejudice third-party rights contrary to Section 200.

For examinations, the most important provisions are Sections 196, 197, 198, 199 and 200, together with the principles of retrospective effect and protection of third parties.

Frequently Asked Questions (FAQs)

1. What is agency by ratification?

Agency by ratification arises when a person subsequently approves an act performed on their behalf without prior authority. Under Section 196, valid ratification generally gives the act the same legal effect as if it had originally been authorised.

2. Which sections govern agency by ratification?

Sections 196–200 of the Indian Contract Act, 1872, govern ratification.

3. Can ratification be implied?

Yes. Section 197 provides that ratification may be express or implied from the conduct of the person on whose behalf the act was performed.

4. Is knowledge of material facts necessary for ratification?

Yes. Section 198 provides that ratification is not valid where the person’s knowledge of the facts is materially defective.

5. Can a principal ratify only part of a transaction?

Ordinarily, no. Under Section 199, ratification of an unauthorised act forming part of a transaction extends to the whole transaction.

6. Can ratification affect the rights of third parties?

Section 200 prevents ratification from producing specified effects that would subject a third party to damages or terminate an existing right or interest.

7. What is the retrospective effect of ratification?

Valid ratification generally treats the act as authorised from the outset. This retrospective effect remains subject to the statutory limitations, including Section 200.