Page 63 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes However, for the rule of relation back to apply, the agent while accepting an offer should not
show lack of authority, e.g., where he accepts, ‘subject to ratification’, the rule of relation back
does not apply and revocation shall be valid, if communicated prior to such ratification.
Express and implied ratification (s.197): The ratification may be express or implied.

Examples:
1. Amar without Puran’s authority lends Puran’s money to Kamal. Later Puran accepts
interest on the money from Kamal. Puran’s conduct implies ratification of the loan.

2. Amar without Puran’s authority buys certain goods for him. Afterwards, Puran sells
those goods to Kamal. Puran’s conduct ratifies the purchase made by Amar.
Requisites of a valid ratification: To be valid, ratification must fulfil certain conditions. These
conditions are:
1. The agent must contract as agent; he must not allow the third party to imagine that he is
the principal. A person cannot enter into a contract at his own and later shift it to another.
2. The principal must have been in existence at the time the agent originally acted. This
condition is significant in case of a company. The preliminary contracts entered into by
promoters of a company on its behalf cannot be ratified by the company after incorporation
because, if permitted, ratification will relate back to the point of time when promoters
originally acted and at that time the company was not in existence. How can a person, not
in existence, be a party to a contract?

3. The principal must not only be in existence but must also have contractual capacity at the
time of the contract as well as at the time of ratification. Thus, a minor on whose behalf a
contract is made cannot ratify it on attaining majority.

4. Ratification must be made within a reasonable time. What is a reasonable time shall vary
from case to case.
5. The act to be ratified must be a lawful one. There can be no ratification of an illegal act or
an act which is void ab initio.
6. The principal should have full knowledge of the facts (s.198).
7. Ratification must be of the contract as a whole. The principal cannot reject the burden and
accept only the benefits.
8. Ratification of acts not within the principal’s authority is ineffective. This again is basically
relevant in case of companies. The acts of directors which are ultra vires the powers of a
company cannot be ratified by the company.
9. Ratification cannot be made so as to subject a third party to damages or terminate any
right or interest of a third person (s.200).

Example: Amar holds a lease from Bharat terminable on three months notice. Cooper,
an unauthorised person, gives notice of termination to Amar. The notice cannot be ratified by
Bharat, so as to be binding on Amar.

Self Assessment

Fill in the blanks:
5. A contract of agency may be created by an express agreement or by ……………………
6. ………………… agency arises from the conduct, situation or relationship of parties.

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