THE DOCTRINE OF RATIFICATION OF CONTRACT

This article is written by R Tushar Beeshm of 3^rd Year of REVA University, an intern under Legal Vidhiya

ABSTRACT

The doctrine of ratification plays a pivotal role in validating contracts that were initially formed without proper authority or capacity. Codified in Sections 196-200 of the Indian Contract Act, 1872, ratification allows for the retrospective acceptance of an otherwise voidable agreement, transforming it into a valid and binding contract. Central to ratification is the legal maxim “Omnis ratihabitio retrorahitur et mandato priori aequiparatur,” which treats ratification as equivalent to prior authority.

For ratification to be valid, several requirements must be met, including the act being done on behalf of an identifiable principal, the principal’s competence, the legality of the act, complete knowledge of facts, ratification of the entire transaction, and no injury to third parties. When these conditions are fulfilled, ratification establishes a principal-agent relationship, validates the contract retrospectively through the doctrine of relation back, and subjects the ratified contract to certain exceptions.

Landmark judgments have shaped the interpretation of ratification, addressing issues like the revocation of offers, intervening rights of third parties, and the ratification of illegal acts. The doctrine extends to the public sphere, enabling governments to validate acts of officials acting beyond authority. It also finds application in corporate law, allowing companies to ratify pre-incorporation contracts.

While ratification upholds contractual consent, it also considers fairness to third parties, leading to theoretical debates. Nonetheless, the doctrine’s practical utility in preserving contractual integrity and commercial certainty remains undeniable, necessitating a balanced approach that reconciles competing principles.

KEYWORDS

Ratification, Contract Law, Agency, Retrospective Validation, Voidable Contract, Principal, Agent, Authority, Consent, Relation Back, Third-Party Rights, Communication of Ratification

INTRODUCTION

The doctrine of ratification is a fundamental principle in contract law that addresses situations where a person initially lacks the authority to enter into a contract, but later affirms or endorses the contract, thereby retroactively validating the agreement. This doctrine serves a crucial role in upholding the intentions of contracting parties and promoting the overall enforceability of contracts, even in cases where the formalities of contract formation were not initially satisfied.

At the heart of the doctrine of ratification lies the principle of consent. When an agent or representative acts without proper authorization from the principal, the law provides the principal with the opportunity to subsequently affirm or “ratify” the unauthorized act. This retrospective validation effectively establishes the contractual relationship as if the principal had granted the agent the necessary authority from the outset.

The practical significance of ratification cannot be overstated. It allows parties to salvage agreements that might otherwise be rendered unenforceable due to deficiencies in the agent’s authority at the time of formation. This can be particularly valuable in commercial transactions involving unauthorized actions by agents, minors, or other parties with limited legal capacity.

The doctrine of ratification in Indian contract law is primarily codified under Sections 196 to 200 of the Indian Contract Act, 1872. These provisions set forth the key requirements, limitations, and legal effects of ratifying unauthorized acts. Moreover, a series of landmark judicial decisions have helped shape and refine the application of this important legal concept over time.

By examining the nuances of the doctrine of ratification, its underlying principles, and its evolution through case law, this article aims to provide a comprehensive understanding of this vital component of contract law. The careful balancing of the principal’s intentions, the rights of third parties, and the overall fairness of commercial transactions lies at the heart of the doctrine’s continued relevance and significance.

DEFINING RATIFICATION

Ratification can be defined as the act of knowingly and voluntarily confirming and adopting a prior act or agreement that was originally undertaken without proper authority. In the context of contracts, ratification occurs when a person who was not originally a party to the contract, or who lacked the capacity or authority to enter into the contract, subsequently affirms the agreement, thereby rendering it fully enforceable as if it had been duly authorized from the outset.

LEGAL MAXIM

The doctrine of ratification is encapsulated in the Latin maxim “Omnis ratihabitio retrorahitur et mandato priori aequiparatur,” which translates to “every ratification is dragged back and treated as equivalent to a prior command or authority.” This maxim captures the essence of ratification, where the retrospective validation of an act is deemed to have the same legal effect as if it were initially performed with proper authority.

REQUIREMENTS FOR VALID RATIFICATION

For ratification to be legally effective and binding, several essential requirements must be fulfilled:

1. Act done on behalf of another: The act in question must have been performed by someone professing to act on behalf of an identifiable principal, not for themselves. The agent must have purported to act for and in the name of the principal, even if the principal’s identity was not explicitly disclosed.
2. Principal’s competence: The principal ratifying the act must have been in existence and possessed the legal capacity to contract at the time of the original act. This requirement precludes ratification in instances where the principal lacked the requisite legal capacity, such as a company ratifying a contract made before its incorporation.
3. Lawful act: Only lawful acts can be ratified; void or illegal acts cannot be ratified. An act that is void from its inception, such as a forgery or a contract with a minor, cannot be subsequently validated through ratification.
4. Knowledge of facts: As per Section 198[1] of the Indian Contract Act, the principal must have complete knowledge of the material facts surrounding the act being ratified. Ratification based on incomplete or defective knowledge of the facts is deemed invalid.
5. Ratification of the whole transaction: Under Section 199[2], ratification must encompass the entire transaction; a principal cannot selectively ratify only the beneficial parts while disowning the remaining aspects.
6. No injury to third parties: As mandated by Section 200[3], ratification cannot subject a third party to damages or terminate their rights or interests. This provision safeguards the interests of third parties who may be adversely affected by the retrospective validation of the contract.
7. Communication and reasonable time: Ratification must be communicated to the other party within a reasonable time, considering the nature of the transaction and any stipulated deadlines or performance dates.

These key elements ensure that ratification is grounded in the principal’s genuine consent, akin to the role of consent in the creation of actual authority. At the same time, they also help to safeguard the interests and reasonable expectations of third parties who engaged with the unauthorized agent.

EFFECTS OF RATIFICATION

When the requirements for valid ratification are met, several significant legal consequences ensue:

1. Establishes principal-agent relationship: Ratification establishes the relationship of principal and agent retrospectively as if the act was initially performed with authority. This legal fiction creates a bond between the principal and the agent, attributing the agent’s actions to the principal.
2. Validates the contract: Ratification validates the contract between the principal and the third party, with retrospective effect from the date of the agent’s initial act. The contract, once voidable, is now deemed valid and binding upon all parties involved.
3. Doctrine of relation back: Perhaps the most significant effect of ratification is the application of the doctrine of relation back. According to this doctrine, the ratified contract is treated as if it had been validly formed from the outset, subject to certain exceptions. This retrospective effect is the hallmark of ratification, imbuing the contract with the same legal force as if it had been properly authorized from the beginning.

THE STATUTORY BASIS: RATIFICATION UNDER THE INDIAN CONTRACT ACT, 1872

The doctrine of ratification in Indian contract law is primarily codified under Sections 196 to 200 of the Indian Contract Act, 1872. These provisions set forth the key principles governing the ratification of unauthorized acts:

1. Section 196[4]: Right of Person as to Acts Done for Him Without His Authority This section establishes the foundational right of a person to either ratify or disown any act done on their behalf without their knowledge or authority. It states that “if he ratify them, the same effects will follow as if they had been performed by his authority.”
2. Section 197[5]: Ratification May be Expressed or Implied Ratification may take an express form, such as the principal’s explicit written or verbal confirmation of the unauthorized act. Alternatively, ratification can also be implied through the principal’s conduct, as evidenced by their acquiescence or other actions indicating an intent to adopt the transaction.
3. Section 198[6]: Knowledge Requisite for Valid Ratification For a ratification to be considered valid, the principal must have full knowledge of the material facts and circumstances surrounding the initial unauthorized act. Ratification will be deemed ineffective if the principal’s knowledge of the relevant facts was materially deficient.
4. Section 199[7]: Effect of Ratifying Unauthorized Act Forming Part of a Transaction This section clarifies that when a principal ratifies an unauthorized act, they are bound to ratify the entire transaction of which that act formed a part. The principal cannot selectively ratify only the beneficial portions while disowning the detrimental aspects.
5. Section 200[8]: Ratification of Unauthorized Act Cannot Injure Third Person The doctrine of ratification is subject to the limitation that it cannot be used to cause injury or detriment to the rights or interests of third parties who were not involved in the original unauthorized act. Ratification is not permitted if it would have the effect of subjecting a third party to damages or terminating their rights.

Together, these statutory provisions establish the key parameters, requirements, and limitations governing the ratification of contracts under Indian law. They provide the framework within which the broader doctrine of ratification has evolved through judicial interpretation and application.

THE PRACTICAL IMPORTANCE OF RATIFICATION

The doctrine of ratification serves several important practical functions within the law of contract:

1. Preserving Contractual Intentions: Ratification allows the law to uphold the reasonable expectations and intended contractual arrangements of the parties, even when the initial formalities of contract formation were not satisfied. It prevents the invalidation of agreements due to technical deficiencies in the agent’s authority.
2. Facilitating Commercial Transactions: By enabling principals to retrospectively validate unauthorized contracts, the doctrine of ratification facilitates the smooth functioning of commercial activities and business dealings. It provides a legal mechanism for salvaging agreements that might otherwise be rendered unenforceable.
3. Promoting Finality and Certainty: Ratification, when properly applied, enhances the finality and predictability of contractual relationships. Third parties can have confidence that their dealings with an agent will be upheld, provided the principal subsequently ratifies the transaction.
4. Aligning with Reasonable Expectations: The doctrine of ratification aligns with the reasonable expectations of third parties who engaged with the agent in good faith, believing them to be properly authorized. Ratification upholds these justified expectations by retrospectively validating the agent’s apparent authority.
5. Balancing Competing Interests: Ratification reflects a carefully calibrated balance between the principal’s consent and the interests of third parties. It allows the principal to affirm unauthorized acts, while also constraining their ability to do so in a manner that would unfairly prejudice others.

These practical benefits illustrate why the doctrine of ratification remains an essential component of the law of contract, both in India and across common law jurisdictions. Its ability to preserve contractual arrangements and align with the reasonable expectations of the parties contributes to the overall fairness and efficacy of the legal framework governing commercial transactions.

LANDMARK JUDGMENTS SHAPING THE DOCTRINE OF RATIFICATION

The doctrine of ratification in Indian contract law has been significantly shaped and refined through a series of landmark judicial decisions. These cases have helped to elucidate the underlying principles, requirements, and limitations of this important legal concept.

Intention and Full Knowledge of Facts

In the seminal case of Premila Devi v. People’s Bank of Northern India Ltd.[9], the Privy Council emphasized that for a valid ratification to occur, there must be a clear intention to ratify, and this intention must be based on a full and complete knowledge of all the material facts surrounding the initial unauthorized act. The court held that “there can be no ratification without an intention and there can be no intention to ratify any illegal or irregular act without there being knowledge of its illegality.”

This principle was subsequently followed by the Allahabad High Court in Lakshmi Ratan Cotton Mills Co. v. J.K. Jute Mills Co.[10], where it was reiterated that the ratification must be made by the principal with a comprehensive understanding of the relevant facts and circumstances.

Ratification of Acts by Public Servants

The question of whether the doctrine of ratification applies equally to acts performed by public servants, as it does to private transactions, was addressed in several judgments. The courts have generally held that the same principles govern the ratification of acts by government officials, with the only distinction being the extent of the state’s liability.

As the Supreme Court at Madras observed in one case[11], “If there had been any doubt about the original intention of the Government, it has clearly ratified and adopted the acts of its agents which according to the principle in Buron v Denman is equivalent to previous authority.” However, the state’s liability is limited to the scope of authority actually conferred upon the public servant, rather than the apparent authority the agent may have held.

Ratification by Minors

The issue of whether a minor can ratify a contract entered into during their minority was definitively addressed in the landmark case of Mohori Bibi v. Dharmodas Ghose.[12] In this decision, the Privy Council unequivocally held that a minor’s contract is void ab initio and cannot be retrospectively validated through ratification, even upon the minor attaining majority.

The court emphasized that a minor lacks the legal capacity to enter into a contract, either directly or through an agent or guardian. Consequently, any such contract is a nullity and cannot be cured by subsequent ratification, as the original transaction was a legal impossibility from the outset.

Communication of Ratification

The requirement of communicating the ratification to the third party was elucidated in the case of Ganpat Rao v. Iswar Singh.[13] The court held that for ratification to be effective, it must be communicated to the other contracting party, or else the transaction can be validated through subsequent conduct that demonstrates the principal’s adoption of the agreement.

This principle was further reinforced in Arunugham v. Dara Singh, where the court ruled that a promissory note issued by a person upon attaining majority, as a renewal of a note given during their minority, was unenforceable. The consideration for the new note was the original void contract, and therefore, the ratification was ineffective.

Ratification of Illegal or Void Acts

One fundamental limitation is that ratification cannot be used to validate contracts or transactions that are illegal or void ab initio. As the Privy Council observed in a landmark case[14], ratification “must be in relation to a transaction which may be valid in itself and not illegal.” Attempts to ratify transactions that are inherently void or unlawful from the outset will be ineffective.

This principle was further reinforced in the cases of Gaya Prasad v. Durga[15] and Gauri Shankar v. Jwala Prasad[16], where the courts held that ratification cannot be used to enforce contracts that were void or legally impossible to form at the time of their initial creation.

Ratification and Prejudice to Third Parties

Section 200 of the Indian Contract Act, 1872 expressly prohibits the use of ratification in a manner that would subject a third party to damages or terminate their existing rights and interests. This limitation reflects the law’s recognition that the principal’s power to ratify must be balanced against the legitimate expectations and interests of those who dealt with the unauthorized agent.

For example, in the illustration provided under Section 200, an unauthorized notice of termination of a lease cannot be ratified by the landlord, as it would have the effect of prejudicing the tenant’s rights. The doctrine of ratification cannot be employed to cause detriment to third parties who were not involved in the original unauthorized act.

RATIFICATION AND THE DOCTRINE OF RELATION BACK

A critical aspect of the doctrine of ratification is the principle of “relation back,” which holds that the legal effects of ratification are deemed to apply retroactively, as if the principal had provided prior authorization for the agent’s actions.

The statutory basis for this principle can be found in Section 196 of the Indian Contract Act, 1872, which states that “the same effects will follow as if they had been performed by his authority.” This means that the contractual relationship between the principal and the third party is established not from the date of ratification, but rather from the original date when the agent first entered into the agreement.

The landmark English case of Bolton Partners v. Lambert[17] illustrates the practical implications of the relation back doctrine. In this decision, the court held that the company’s ratification of the managing director’s unauthorized acceptance of an offer related back to the date of the initial acceptance, rendering the defendant’s subsequent attempt to withdraw the offer ineffective.

However, the application of the relation back doctrine is not without its limitations. Exceptions have been recognized in scenarios where allowing full retrospective validation would unfairly prejudice the interests of third parties. For example, in the case of Watson v. Davies[18], the court held that a ratification made after the third party had already withdrawn their offer could not be given retroactive effect.

CONCLUSION

The doctrine of ratification stands as a testament to the law’s recognition of the practical realities of contractual dealings and its commitment to upholding the reasonable expectations of parties engaged in commercial transactions. By providing a mechanism to retrospectively validate initially unauthorized contracts, the doctrine ensures that technical deficiencies in the agent’s authority do not inevitably lead to the invalidation of entire agreements.

At its core, ratification reflects a careful balancing of interests – between the principal’s consent and the rights of third parties who dealt with the agent in good faith. It acknowledges the principal’s autonomy to affirm or disown unauthorized acts while simultaneously safeguarding the legitimate expectations of those who engaged with the apparent authority of the agent.

The statutory provisions of the Indian Contract Act, 1872, coupled with a rich body of judicial interpretations, have contributed to the nuanced evolution of the doctrine of ratification in Indian contract law. Landmark decisions have elucidated key principles, such as the requirements of intention and full knowledge, the limitations on ratifying illegal or void acts, the applicability to public servants, the treatment of minors, and the necessity of communicating ratification.

However, the doctrine is not without its limitations and exceptions. Courts have recognized that ratification cannot be used to validate inherently illegal or void transactions, nor can it be employed in a manner that would unfairly prejudice the rights and interests of third parties. The principle of relation back, while a central tenet of ratification, is also subject to reasoned constraints to prevent undue harm to those who were not parties to the initial unauthorized act.

As commercial activities continue to evolve and become increasingly complex, the doctrine of ratification will undoubtedly maintain its relevance and significance. Its ability to preserve the integrity of contractual relationships while simultaneously promoting fairness and aligning with the reasonable expectations of parties engaged in good-faith dealings remains indispensable.

Ultimately, the doctrine of ratification represents a judicious reconciliation of competing interests, striking a delicate balance between upholding the principal’s autonomy and protecting the rights of third parties. Its enduring legacy lies in its capacity to facilitate the smooth functioning of commerce while ensuring that the fundamental principles of consent and fairness remain firmly entrenched within the fabric of contract law.

REFERENCES

1. Kavya Arora, Law of Contract: Doctrine of Ratification, Lexlife India (Apr. 10, 2024, 08:27 PM), https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-ratification/
2. Kanika Aggarwal, Doctrine of Ratification in Light of the Indian Contract Act., iPleaders (Apr. 11, 2024, 10:36 AM), blog.ipleaders.in/doctrine-of-ratification-in-light-of-the-indian-contract-act/
3. 12 Avtar Singh, Contract & Specific Relief 819-827 (EBC Publishing 2020)

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[1] Indian Contract Act 1872, § 198, No. 9, Acts of Parliament, 1872 (India).

[2] Indian Contract Act 1872, § 199, No. 9, Acts of Parliament, 1872 (India).

[3] Indian Contract Act 1872, § 200, No. 9, Acts of Parliament, 1872 (India).

[4] Indian Contract Act 1872, § 196, No. 9, Acts of Parliament, 1872 (India).

[5] Indian Contract Act 1872, § 197, No. 9, Acts of Parliament, 1872 (India).

[6] Indian Contract Act 1872, § 198, No. 9, Acts of Parliament, 1872 (India).

[7] Indian Contract Act 1872, § 199, No. 9, Acts of Parliament, 1872 (India).

[8] Indian Contract Act 1872, § 200, No. 9, Acts of Parliament, 1872 (India).

[9] Premila Devi v. People’s Bank of Northern India Ltd., (1939) 41 Bom LR 147

[10] Lakshmi Ratan Cotton Mills Co. v. J.K. Jute Mills Co, AIR 1957 ALL 311

[11] Secy of State in Council for India v Kamachee Boye, 7 MIA 476, 539.

[12] Mohori Bibi v. Dharmodas Ghose, ILR (1903) 30 CAL 539 (PC)

[13] Ganpat Rao v. Iswar Singh, AIR 1938 Nag 476

[14] La Banque Jacques-Cartier v La Banqued’ Epargne, (1887) LR 13 AC111 (PC),

[15] Gaya Prasad v. Durga, AIR 1928 ALL 112

[16] Kunwar Gauri Shankar Rao v. Jwala Prasad and another, (1931) ILR 6 LUCK 19

[17] Bolton Partners v Lambert, (1889) 41 Ch D 295

[18] Watson v. Davies, (1931) 1 Ch 455

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