Model Answer
0 min readIntroduction
In the realm of contract law, agency plays a pivotal role, enabling individuals (agents) to act on behalf of others (principals). However, situations arise where an agent acts without, or exceeding, their authority. Ratification, a concept deeply rooted in the principle of preventing unjust enrichment, provides a mechanism for a principal to approve and adopt such unauthorized acts, thereby binding them as if the act were originally authorized. This process essentially affirms what was initially unauthorized. The question asks us to critically examine this affirmation and delineate the differences between agency created through ratification and that arising from estoppel, both crucial concepts in understanding the scope of agency.
Ratification: Affirmation of Unauthorized Acts
Ratification, as defined under Section 196 of the Indian Contract Act, 1872, is the subsequent approval of an act done without authority. It operates retrospectively, validating the act from its inception as if it had been duly authorized. This is based on the principle that a principal should not be allowed to benefit from an unauthorized act without accepting responsibility for it.
- Requirements for Valid Ratification:
- The act must be one which the agent could have lawfully done had they been authorized.
- The principal must have full knowledge of all material facts.
- The principal must express their approval in a manner indicating an intention to be bound. This can be express or implied.
- Ratification must be done within a reasonable time.
The statement "Ratification is a kind of affirmation of unauthorized acts" is largely true. However, it's not without limitations. Ratification cannot validate an act that was illegal or fraudulent at the time it was performed. Furthermore, ratification cannot be selective; the principal must adopt the entire transaction, including any unfavorable terms. For example, if an agent sells goods at a price below market value without authority, the principal cannot ratify the sale and claim the full market price.
Agency by Estoppel vs. Agency by Ratification: A Comparative Analysis
Both agency by estoppel and agency by ratification lead to a principal being bound by the acts of an agent, but the underlying mechanisms are distinct.
| Feature | Agency by Ratification | Agency by Estoppel |
|---|---|---|
| Basis | Principal’s subsequent approval of an unauthorized act. | Principal’s conduct leading a third party to reasonably believe that the agent has authority. |
| Timing | Occurs after the unauthorized act. | Arises before or during the act, based on the principal’s representation. |
| Knowledge | Requires the principal to have full knowledge of the act and its material facts. | Focuses on the third party’s belief, induced by the principal’s conduct. |
| Retrospective Effect | Fully retrospective, validating the act from the beginning. | Operates prospectively, preventing the principal from denying the agent’s authority for future dealings with that third party. |
| Section of Indian Contract Act | Section 196 | Section 182 |
| Example | A buys goods on behalf of B without B’s authority. B later accepts the goods and pays for them, thereby ratifying the transaction. | B allows C to appear to the public as B’s manager. B does not deny C’s authority. C enters into a contract with D. B is bound by the contract. |
Key Differences Explained
Agency by estoppel arises from the principle of preventing a principal from misleading a third party. If a principal, through their words or conduct, allows a third party to believe that an agent has authority, they are estopped (prevented) from later denying that authority. This is about protecting the reliance of innocent third parties. In contrast, ratification is about the principal’s internal decision to accept responsibility for an act that was initially unauthorized. It doesn’t necessarily involve a third party’s reliance; it’s a unilateral act by the principal.
The case of Boston Deep Sea Fishing & Ice Co. v. Farnham (1908) illustrates agency by estoppel. The company allowed Farnham to collect debts for a period, leading creditors to believe he was authorized. The company was later held liable for Farnham’s unauthorized loans because of their prior conduct.
Conclusion
In conclusion, ratification is indeed a form of affirmation of unauthorized acts, but it operates within specific legal boundaries. It’s a powerful tool for principals to validate past actions, but it cannot legitimize illegality or fraud. The crucial distinction between agency by estoppel and agency by ratification lies in their genesis and effect. Estoppel focuses on protecting third-party reliance on a principal’s representations, while ratification centers on the principal’s voluntary acceptance of responsibility. Understanding these nuances is vital for navigating the complexities of agency law and ensuring fair outcomes in contractual relationships.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.