Ratification: When an Unauthorized Act Becomes Valid
In commercial and agency law, sometimes an agent acts without authority or goes beyond the authority granted by the principal. When this happens, the principal is not automatically bound by the agent’s actions. However, there is a mechanism called ratification, which can retroactively validate the agent’s act and make it as if the agent had authority from the start.
1. What is Ratification?
Ratification occurs when a principal approves an act performed by someone acting as their agent without prior authority. This could be:
Ratification is different from apparent authority (where a third party is misled about the agent’s power) and also distinct from the unusual case in Watteau v Fenwick. Here, the principal consents to the act after it has occurred, making it valid retroactively.
2. Requirements for a Valid Ratification
For a ratification to be legally effective, several conditions must be met:
a) Intent of the Agent
The agent must have intended to act on behalf of the principal at the time of the act.
Example: A project manager signs a supply contract thinking they are representing the company. Even if unauthorized, the act was clearly intended for the company.
b) Disclosure to the Third Party
The agent must act as an agent—not as a principal.
If the agent acts as if they are the principal, the principal cannot ratify, because the third party believes they are dealing with someone else.
c) Third Party Belief
The third party must believe the agent has authority to act for someone else.
Example: A consultant signs a software license agreement on behalf of a company. The client believes the consultant is authorized to do so. Ratification by the company later validates the contract.
d) Competence of the Principal
The principal must have legal capacity to enter the contract both at the time of the agent’s act and at the time of ratification.
Example: A company cannot ratify an act if it was already dissolved or a person cannot ratify if they lost legal capacity.
e) Timely Ratification
Ratification must occur within a reasonable time after the unauthorized act.
Example: A company delays approving a large purchase order for months. If the supplier has relied on the contract, the delay could make ratification ineffective.
f) Knowledge of the Facts
The principal must ratify with full knowledge of all relevant facts.
Example: A marketing agency books expensive advertising slots without permission. The client can ratify only if they know the cost, terms, and scope of the booking.
3. Effects of Ratification
When a ratification is valid, the consequences are:
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Retroactive Authority
The act is treated as if the agent had authority from the outset.
Example: A freelancer signs a distribution contract without permission, and the company later ratifies. The contract is considered valid from the moment the freelancer signed it.
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Liability of the Agent
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The agent is not personally liable to the principal for exceeding authority.
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The agent is also protected from claims by the third party for lack of authority.
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The agent may be entitled to indemnification for any costs incurred.
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Rights of Third Parties
The third party can enforce the contract as if the agent had proper authority.
Example: A supplier delivers goods based on an unauthorized purchase order. Ratification ensures the supplier can claim payment as if the contract were valid from the start.
4. Limits of Ratification
Ratification is not always effective. Common limitations include:
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Acts that harm third parties not involved in the contract.
E.g., stopping delivery of goods already in transit to a bankrupt buyer may not be ratifiable (Brown v Bird type scenario).
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Rescinded agreements
If the agent and third party cancel the agreement before ratification, it cannot be revived.
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Illegal or void acts
Ratification cannot validate acts that are illegal or inherently null.
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Partial ratification
Attempting to ratify only part of a contract usually ratifies the whole agreement, not just the portion approved.
Example
Imagine a startup’s COO signs a partnership deal with a supplier without board approval. The supplier relies on the COO’s apparent authority. The company later reviews the contract and ratifies it formally. As a result:
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The startup is legally bound.
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The supplier’s reliance is protected.
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The COO is indemnified and not personally liable.
Without ratification, the supplier could pursue the COO personally, and the contract would not bind the company.
Summary
Ratification is a key mechanism in agency law that:
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Retroactively validates unauthorized acts.
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Protects agents acting on behalf of principals.
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Ensures third parties can rely on acts intended for a principal.
Key points to remember:
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Must show intent, knowledge, competence, and timely action.
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Ratification relates back to the moment of the act.
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Limits exist if ratification harms third parties or concerns illegal acts.
Agency of Necessity and Capacity
In commercial law, the concepts of Agency of Necessity and Capacity are essential when understanding how agents can act on behalf of principals, even in extraordinary circumstances.
1. Agency of Necessity
Agency of Necessity arises in rare emergency situations where an agent must act to protect the interests of the principal without explicit authority. It is recognized by law to prevent harm or loss.
Key Principles:
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Possession of the Principal’s Property:
The agent must already have legal possession of the principal’s property. For example, a delivery company storing goods for a client cannot act if the goods belong to a stranger.
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Inability to Obtain Instructions:
The agent must be unable to contact the principal. For instance, a warehouse manager may have to authorize urgent shipping of perishable goods when the owner cannot be reached.
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Emergency Threatening the Property:
There must be an actual threat to the property. It is not enough that acting would merely reduce inconvenience or cost to the agent.
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Good Faith and Proportional Action:
The agent must act reasonably, proportionately, and in the principal’s best interest.
Example :
Imagine a tech company storing high-value servers in a data center. Due to a sudden fire alarm and imminent threat to the equipment, the facility manager (agent) moves the servers to an alternate secure location without waiting for instructions from the CEO (principal). Later, the company reimburses the manager for the costs because the action was necessary and reasonable to prevent major losses.
Important: Only actions that create a true agency (binding the principal to third parties) count as Agency of Necessity. Actions that merely allow the agent to claim reimbursement are not “true” agency in legal terms.
2. Capacity of Principal and Agent
2.1 Principal’s Capacity
The principal must be legally capable of performing the act they authorize an agent to do. An agent cannot do what the principal themselves cannot legally do.
Key point: Any limit on the principal’s capacity automatically limits the agent’s authority.
2.2 Agent’s Capacity
The agent’s personal legal capacity is generally irrelevant because they act on behalf of the principal.
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Example: A minor working as a sales associate can still enter contracts on behalf of the company, even if they could not legally enter such contracts personally.
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Example: A foreign consultant may act on behalf of a UK company, even if the consultant alone would not have legal capacity to trade in the UK.
Exceptions: Certain roles, such as lawyers, insurance brokers, or financial advisors, must meet statutory qualifications to act as agents for specific transactions.
Summary
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Agency of Necessity protects principals’ interests in emergencies, allowing agents to act without prior authorization.
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Principal’s Capacity sets the limits of what the agent can do.
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Agent’s Capacity is usually irrelevant; the focus is on the principal’s authority and legal ability.
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Modern businesses, especially those handling logistics, digital assets, or high-value goods, should clearly define emergency protocols and reimbursement policies for agents acting under necessity.
Practical Tip :
Companies using AI-based management systems or remote operations should update contracts and policies to include agency of necessity clauses, ensuring agents can act during system outages or critical emergencies without breaching company policy.
What is ratification in agency law?
Approval by the principal of an agent's unauthorized act, making it valid retroactively.
When an agent exceeds authority but the third party has no knowledge of it.
Which of the following is required for a valid ratification?
Principal must act with full knowledge, intent, competence, and in a timely manner.
Agent must act without disclosure to the third party.
What happens when ratification is valid?
The act is treated as if the agent had authority from the beginning, and third parties are protected.
The act is null, and the agent is personally liable to third parties.
Which acts cannot be ratified?
Illegal acts, acts harming non-involved third parties, or rescinded agreements.
Any act by the agent can always be ratified.
What is Agency of Necessity?
An emergency situation where an agent must act to protect the principal’s interests without prior authority.
Any act by an agent for personal convenience.
How does Principal’s Capacity affect an agent’s authority?
The agent cannot do what the principal is legally unable to do.
The agent’s personal capacity limits the authority.
Does an agent’s personal legal capacity usually affect their authority?
No, the focus is on the principal’s authority and legal capacity.
Yes, the agent cannot act if they personally lack legal capacity.
