HIMACHAL PRADESH NATIONAL LAW UNIVERSITY

LAW OF CONTRACTS

TOPIC: RATIFICATION AND REVOCATION OF AGENCY

Submitted By: Submitted To:

Ayush Sharma Dr. Ambika

Course: BA.LLB (3rd semester) Assistant Professor

Roll no: 1020212276 Of Law of Contracts

 ACKNOWLEDGEMENT

I would like to thank my faculty Dr.Ambika, whose guidance helped me a lot with structuring of
my assignment. I take this opportunity to express my deep sense of gratitude for his guidance
and encouragement which sustained my efforts on all stages of this assignment. I owe the present
accomplishment of my assignment to my friends, who helped me immensely with materials
throughout the assignment and without whom I couldn’t have completed it in the present way. I
would also like to extend my gratitude to my parents and all those unseen hands that helped me
out at every stage of my assignment.

Ayush Sharma
B.A.LLB (3rd semester)
T Roll no: - 1020212276
 TABEL OF CONTENT

1. INRTODUCTION………………………………………………………………………….4
2. CONSENT AND AGENCY DOCTRINE…………………………………………………5
3. RATIFICATION AND FAIRNESS……………………..………………………………...6
4. SIGNIFICANT POINTS OF VARIATION………………………………………………10
5. COMPARISION……………………………………….…………………………...……..13
6. REVOCATION………………………………..…………………………………………..16
7. DEATH OR INSANITY……………………………………………...……………………18
8. EXPIRY OF TIME………………………………………………………...…………..…...19
9. BIBLIOGRAPHY………………………………………………………..………...…….…20
 INTRODUCTION:-
As a component doctrine of agency law, ratification is both useful as a practical matter and
somewhat ragged from the perspective of theory. Ratification consists of a unilateral expression
by the principal of assent to be bound by a prior unauthorized act of the agent; if effective, the
principal is bound as if the agent had acted with actual authority to bind the principal at the time
of the agents action.

Ratification, occurs when the principal assents to an agreement after it is made by someone
who lacks authority. Ratification is similar to actual express authority, because when the
principal ratifies the agreement, he is saying that it is satisfactory to him and he sees no
mistake worth the cost of renegotiation. The principal will generally be the least-cost-
avoider for the same reason as when the agent has actual express authority. Even
ratification has its nuances, however, as shown in the following case of ratification by
silence.
The Silent Client Case The State of New York appropriated land owned by Hallock and Phillips,
with payment, and they took the matter to court. They told their lawyer not to settle the case in a
particular way, but the lawyer did anyway. Phillips stood by without objecting at the settlement
conference, and Hallock waited two months to object. Was Hallock bound by the settlement?

The Court ruled that Hallock was bound by the settlement, and based its decision on ratification,
even though it might have emphasized that New York court rules (in contrast to the
Pennsylvania statute in the Lawyer Madnick Case) required that attorneys at pretrial
conferences have authority to bind their clients to settlements.

The significance of the case is that it shows the difficulty of naming the appropriate legal
doctrine. It is clear that Hallock was the least-cost-avoider of his lawyer's erroneous settlement of
his litigation, but it much less clear whether to call this ratification, or agency by estoppel, or
apparent authority, or even, based on the New York court rules, implied actual authority or
inherent agency power.
Ratification doctrine also has qualities that are difficult to rationalize completely within single
systems as well as notable variations across systems. The doctrine=s theoretical unevenness and
its variability across systems follow inevitably from the fact that ratification reflects a tradeoff
between the sometimes-conflicting demands of two basic considerations. On the one hand, to be
effective as a ratification the principals act must reflect the principal=s consent, comparable to
the consent by the principal that underlies the creation of actual authority. On the other hand,
considerations of fairness to third parties require that ratification doctrine also constrain the
extent of a principals power to bind the third party after the fact of an agents unauthorized action,
distinct from whether the principal consents to be bound. What might be termed ratifications

Aconsent for principle and its fairness for principle are themselves complicated, as are
interactions among them; determining how best to implement the demands of these
principles at a level of greater doctrinal specificity is not a straightforward exercise.

CONSENT AND AGENCY DOCTRINE:-

Although the principals consent is central to many elements of agency doctrine, the
specifics requisite to legal effectiveness are not constant, either across doctrinal systems or
within individual systems. These variations are a useful prelude to examining consent as an
element of a principals ratification.

Consider first variations in the specificity with which the principal may consent to
representation by a particular agent in dealings with third parties. Although the principal may
authorize an agent to deal with a particular third party on precise terms, the principals consent
to representation may be much more generalized and may amount to consent to all acts of the
agent carried out on the principals behalf. Such consent remain hidden in the background of the
agentss dealings. To be legally effective, it need not be particularized deal-by-deal and, if
limited to one transaction, it need not delineate the terms on which the agent has authority to
transact. In other contexts, however, a principals consent is not legally effective unless it is
highly specified. Relevant in this light are the requisites for legally effective consent by a
principal to conduct by the agent that, but for the principals consent, would constitute a breach
of the agents fiduciary duty of loyalty to the principal, such as a self-dealing transaction.
Legally-effective consent to ratification is situated toward the end of the range requiring more
specificity. To be effective to ratify an agents unauthorized conduct, a principal=s expression of
consent, by definition given after the fact of the agentss action, requires that the principal be
informed of all material facts.
Additionally, the principals expression of consent is ineffective if it is open-ended or
otherwise fails to specify the conduct of the agent to which the principal assents to be bound.
Ambiguity in this respect weighs against ratification.
In the case, Siener v. Zeff, the principal suffered injury in an automobile accident. Acting on the
principals behalf, his attorney filed suit against the other motorist. Soon thereafter and acting
without the principals authority, the attorney settled his principals claim with the defendantss
insurer for $25,000, cashed the settlement check, and absconded with the proceeds. When the
principal learned from the insurer what his attorney had done, he (now unrepresented by
counsel) filed a claim for $25,000 against the state bars client protection fund, which paid his
claim in full.

After the principal received and retained the proceeds of the funds payment, the insurer
argued that the principal had ratified his attorneys’ unauthorized settlement with it. The court
held that the principal’s actions did not clearly constitute ratification as a matter of law
without further factual investigation. Nothing in the documentation executed by the principal
indicated that accepting reimbursement from the fund would affect ratification of his
attorney’s unauthorized settlement with the other motorist’s insurer. Thus, consent for
purposes of ratification requires that its object be specific, a requirement furthered by
insistence that the principal be informed of all material facts.

RATIFICATION AND FAIRNESS TO THIRD PARTIES AND AGENTS:-

When an effective ratification operates it retrospectively creates a significant risks of

unfairness to the third party. One might think of the principals right to ratify as an
option, exercisable by the principal after the fact of the agents unauthorized action, but
exercisable by the principal with knowledge of the intervening time changes in market
conditions.

The unilaterally-exercisable right that the option represents has value even if the principal
ultimately determines not to exercise it. In determining whether to ratify, the principal may take
into account whether the transaction to which the agent purported to commit the principal is
advantageous as of the time of the principals later decision to ratify. Should the third party have
an offsetting option to withdraw from the transaction to which it has committed through the
agent on the basis of the third party’s later assessment of market changes?
In the intervening time, the third party, believing the principal to be bound, may have failed to
pursue opportunities for transactions with parties other than the principal that once foregone
cannot be revived at the time the third party learns that the principal was not bound to the
transaction and has determined not to ratify the agents actions.
Thus, a principal might, once it learns of the agent=s unauthorized action but knowing
that it has through ratification the ability to bind the third party, determine whether a transaction
on better terms is available from another party before deciding whether to ratify. But if
ratification doctrine confers a one-sided right solely on the principal, the third party is at a
strategic disadvantage. Moreover, if the effectiveness of the principal=s ratification does not
require communication to the third party, the principal might ratifyCbut in a manner that will
ultimately elude the third party=s ability to prove that it has done soCand wait still longer to
determine whether the terms of the
transaction with the third party remain advantageous as time passes. This imbalance is more
severe if the principal may ratify in part, either severing now-attractive portions of a particular
transaction from other less attractive portions or embracing the transaction but disowning as
unauthorized the means used by the agent to obtain the third party=s assent to it.

To be sure, the position of the third party is not always so straightforwardly sympathetic.
If the third party knows at the time of the transaction that the agent lacks actual authority to bind
the principal (which would rule out apparent authority as a basis on which the third party might
hold the principal) but can later establishes an act of ratification by the principal, the principal
may argue that there was nothing to ratify, especially if the third party made an offer that the
agent accepted. 5
This more complexly-motivated third party might seem to be acting
strategically, if not necessarily in bad faith. After all, the third party may be aware that the
principal has the option of ratifying the agents action. On the other hand, overall strategic
advantage still seems to lie with the principal. The third party unquestionably has determined to
gamble, a gamble that will pay off if the transaction remains advantageous to the third party at
the time the principal determines its advantage is also furthered by ratifying. Overall, though,
whether to ratify remains the principal=s decision, as does the time at which it communicates the
fact of ratification to the third party.

An agent also has interests that are affected by whether the principal ratifies the agents
prior unauthorized act. Although agents who act in an unauthorized fashion may be stereotyped
as rogues who are aware that they overstep the bounds of their authority, many are simply
mistaken. Additionally, in some instances the principals characterization of the status of the
agent=s action may be unreliable. Thus, although it breaches the agent=s duty to the principal
even unwittingly to act beyond the scope of actual authority, it is important not to assume that
such all agents have acted in bad faith or in deliberate contravention of limits on their authority.

Ratifications effect’s creating after-the-fact the legal consequences of actual authorityif it

operates in an all-or-nothing manner thus restores the agent to the principals good graces,
releasing claims the principal would otherwise have against the agent and reinstating claims the
agent may have against the principal for commissions and other compensation. However, from
the standpoint of the principal, so to treat the effects of ratification vis-à-vis the agent can be
both unfair and inconsistent with the consent principle. The act that constitutes ratification by
the principal may be prompted, not by consent fully to embrace all consequences that stem from
the agents unauthorized act, but by the necessity to avoid a greater loss that would follow were
the principal not to ratify. Unsurprisingly, ratification doctrine tends to mitigate to one degree or
another the impact of ratification on the principal’s relationship with the agent.
SIGNIFICANT POINTS OF VARIATION:-

Differences among the systems showed in The Unauthorised Agent illustrate the
complex tradeoffs between competing principles that underlie ratification doctrine, as well as
different understandings of what those principles require. Each system may place somewhat
different emphasis on the importance of ensuring the principals consent relative to guarding
against risks of unfairness to the third party were the principal to ratify an agents
unauthorized actions. Likewise, consent and unfairness are themselves open to different
understandings reflected in specific doctrinal requirements.
1. The Principals Capacity to Ratify
Integral to an agency doctrine that turns on a principals consent is the principals identity:
an act must be that of the principal for it to express the principals unforced expression of
will to be bound by an agents action. Requiring that the principal have capacity to ratify
assures that the principals expression should be treated as legally consequential, whether
or not the principal is an individual person.

Even on the basic question of capacity to ratify, answers differ in a basic respect among
systems of agency: for an act of the principal to be effective as a ratification, must the
principal have capacity only at the time of that act?
Or must the principal have had legal capacity at both the time of ratification, as well as at
the time of the underlying transaction or other act of the agent? In French, Belgian, and
Dutch law, whether a principal has capacity to ratify focuses solely on the time of
ratification. Likewise, in the United States, so long as the principal existed at the time of the
agents action, the sole question is the principals capacity at the time of ratification.
In contrast, English and Scots law require that the principal additionally have had capacity at
the prior time of the agents unauthorized act.

2. Ratification Through Silence

If a principal remains silent once the principal has learned of the agents action, the principal
has not indicated in any way that the principal consents to be bound by that action, even if the
principal knows all material facts.
However, other variations are readily imaginable in which inferring consent on the
principal’s part does no violence to the basic principle of consent. The principal may have
dealt through the agent with the third party in the past and, based on those dealings, have
reason to know that the third party will reasonably understand the principal’s failure to
repudiate a transaction after some period of time as a manifestation of the principals assent to
be bound by it. Consent may also be inferred when the principal receives and retains the
benefit of the agents unauthorized action; although ratification does not require that the
principal have benefitted from the transaction, retention of benefit is consistent with
consenting to the action of the agent that produced it. Such a principal may, of course, claim
unawareness of the specifics of the agents conduct, or the principal may have an independent
claim to the benefit.
The force with which the consent principle operates in this context is reflected in the
evidentiary onus placed on the third party who seeks to bind a silent or acquiescent principal.
Amon the systems canvassed by The Unauthorised Agent, South Africa may be the most
explicitly protective of the principal: only when the principals intention to ratify is the sole
reasonable interpretation to be placed on the principals conduct will the principal be held to
have ratified an agents unauthorized act.

European Contract Law also acknowledge the possibility of giving effect to apparent
ratification on the basis that another partys reasonable understanding of a party’s statements
or conduct may ground a determination of the intention of the party whose statements or
conduct are at issue.

3. Ratification Not Communicated to Third Party

The prospect that a principal may ratify an agent=s unauthorized act but not communicate
that fact to either the agent or the third party evokes divergent reactions among doctrinal
systems. These differences may reflect varying assumptions about the contexts in which
ratification matters more strongly than differing treatments of the consent requisite to
ratification. Whether or not a principal communicates its ratification to the agent or the third
party may be indicative of whether the principal has consented to be bound by the agent=s
act but is not determinative on the question of consent.
In French and English law, as in the United States and under the UNIDROIT
Principles, a ratification may be effective although the principal does not communicate it to
either the third party or the agent. The prospect of an effective ratification that is not
communicated beyond the principal may reflect the breadth of ratifications scope. If the
object of the ratification is a tort or other wrongful act committed by the agent, it may be
unlikely that acts indicating consent to the agents act would result in communication beyond
the principals organization. In contrast, German and South African law, like the PECL,
require communication to either the agent or the third party.

To be effective under Dutch law, a ratification must be communicated to the third party. So to
require communication may reflect a focus on ratifications operation and effects as applied to
transactions entered into by an agent, as opposed to ratification as a basis on which an agents
tortious or other wrongful acts may be ascribed to the principal. Requiring that the principal
communicate its ratification also reflects concern that the third party with whom the principal
has dealt not be treated unfairly. Thus, the co-editors of The Unauthorised Agent comment
that t is obviously unsatisfactory for the third party to be unaware of whether ratification has
actually taken place. Direct communication from the principal to the third party constitutes
the strongest assurance that the third party has ratified; communication from the principal to
the agent would often result in the agent the third partys point of contact, after all informing
the third party.

However, what is also unsatisfactory to the third party is the prospect that the principal, not
having communicated its consent to the transaction its consent provable, let us assume, by
the third party through the principals internal records would be able to defeat enforcement of
the transaction on the basis that it did not communicate its ratification to the third party or
the agent. Requiring external communication as a distinct element of ratification seems to
give the principal an additional option to be exercised further out in time. That is, added to
the principals right to determine whether to be bound by the agents unauthorized action is a
subsidiary right to determine when (and whether) to inform the third party or the agent that
the principal has, at a particular time, consented to be bound.
COMPARISION TO OTHER THREE METHODS:-

  1. Agency by appointment
     
a. An agency is created by express appointment when the principal appoints the
agent by express agreement with the agent. This express agreement may be an
oral or written agreement between the principal and the agent.
   
b. Contract law principles apply to an agency agreement. An agent may agree to act
in consideration for a reward. On the other hand, an agency is gratuitous if the
agent agrees to act for no consideration.
   
   
c. The general rule is that agency may be created orally and there is no formality for
the creation of agency by express agreement, except for one situation which is
discussed below. This general rule applies even to cases of appointing agents for
the signing of agreements for sale and purchase of immovable property, whether
on behalf of the vendor or the purchaser.
The one exception is where an agent is appointed to execute a deed on behalf of
the principal. In this case, the agent will have to be appointed by deed, which is
called a power of attorney.

     
  2. Agency by estoppel (implied appointment)
     
    a. Agency by estoppel arises when A makes a representation to a third party,
whether by words or conduct, that B is his agent, and subsequently that third
party deals with B as A's agent in reliance on such representation. A will not be
permitted (is estopped) to deny the existence of the agency if to do so would
cause damage (usually financial loss) to that third party.
   
b. The person who makes such representation ("A" in paragraph (a) above) is treated
as having created an agency relationship between himself as the principal and the
other person ("B" in paragraph (a) above) as his agent, although there is in fact no
 agreement between the two parties ("A" and "B" in paragraph (a) above) as to the
creation of the agency relationship. Agency by estoppel is sometimes called
implied appointment of agent.
   
c. In agency by estoppel, the authority of the agent is described as only apparent or
ostensible but not actual, as the principal has, in fact, not granted the agent such
authority to act on the principal's behalf.
   
d. The extent of apparent or ostensible authority of the agent in an agency by
estoppel depends largely upon the contents of the representation made by the
principal to the third party who relies and acts on the representation. The principal
is said to "hold out" a person as his agent with such authority as the principal may
induce the third party to believe and is estopped from denying the existence of
agency.
     
  3. Agency by ratification
     
a. Agency by ratification arises when a person (the principal) ratifies (that is,
approves and adopts) an act which has already been done in his name and on his
behalf by another person (the agent) who in fact, had no actual authority (whether
express or implied) to act on his (the principal's) behalf when the act was done.
   
b. Ratification by itself only creates an agency relationship between the principal
    and the agent in respect of the act ratified by the principal, but not in respect of
any other act, whether past or future.
   
c. The person who ratifies an act of another person must have been in existence and
have the legal capacity to carry out that act himself both at the time when the act
was done and at the time of ratification. A person may lack legal capacity on
grounds of bankruptcy, infancy or mental incapacity.
     
 4. Agency of necessity
     
    a. Agency of necessity arises when a person ("A") is faced with an emergency in
which the property of another person ("B") is in imminent jeopardy and it
becomes necessary, in order to preserve the property for A to act for and on
behalf of B. In this case, A acts as an agent of necessity of B.
   
b. Agency of necessity arises only when it is practically impossible for the agent to
communicate with the principal before the agent acts on behalf of the principal.
(This would be difficult to establish with today's advanced communication
systems and is the reason why agency of necessity does not often arise.)
   
c. Authority to act in case of emergencies cannot usually prevail over express
instructions to the contrary given by the principal.
What is Revocation of agency?

O According to Section 201- An agency is terminated by the principal

revoking his authority or by the agent renouncing the business of the
agency or by the business of the agency being completed or by either the
principal or agent dying or becoming of unsound mind or by the principal
being adjudicated an insolvent under the provisions of any Act for the
time being in force for the relief of insolvent debtors.

Modes of termination

The section 201 provides for the following modes of termination.

O Revocation
O Renunciation by agents
O Completion of business
O Death or insanity of the principal or agent
O Insolvency of principal
O Expiry of time

Rules of Revocation of authority

O It has been noted above that one of the modes of the termination of agency
is the revocation of agent’s authority by the principal subject to the
following rules:-
1 )Revocation may be express or implied
According to section 207,revocation of agency may be either expressed or
implied in the conduct of the principal. For example A empowers B to let A’s
house afterwards a let it himself. This is an implied revocation of B’s authority.

2) When principal may revoke agent’s authority-

The principal may save as in otherwise provided by the last preceding section
revoke the authority given to his agent at any time before the authority has been
exercised so as to bind the principal
For example- an agent was appointed by a shirt manufacture as a canvasser and
traveller for five year period to sell such goods as may be forwarded to him. But
the principal factory was burned down by a chance of fire while there were still
three year for the agency to go. The principal never resumed business and ended
the agency. He was held liable in damages as the agency seemed to have been
created for definite term.

3) Revocation when authority has been partly exercised

When the authority has been partly exercised by the agents, there can be no
revocation of agency as regards such acts already done. The provisions in this
regard in contained in Section 204, which is as under-
The principal cannot revoke the authority given his agents after the authority has
been partly exercised so far as regards such acts and obligations as arise from the
acts already done. For example- A authorizes B to buy 1000 bales of cotton on
account of A and to pay for it out of A’s money remaining in B’s hands. B buys
1000 bales of cotton in his own name, so as to make himself personally liable for
the price. A cannot revoke B’s authority so far as regards payment for the cotton.

4) Compensation for revocation

When the agency has been created for a fixed time by an express or implied
contract, its premature revocation by the principal will make him liable towards
the agent, unless the revocation has been made with any sufficient cause. Section
205 makes the following provisions in this regard-
Compensation for revocation by principal, or renunciation by agents- where there
is an express or implied contract that the agency should be continued for any
period of time, the principal must make compensation to the agent, or the agent to
the principal ,as the case may be for any previous revocation or renunciation of
the agency without sufficient cause.

5)Principal should give reasonable notice of revocation

According to section 206, when the principal having justification to do so
revokes the authority he must give reasonable notice of such revocation to the
agent, otherwise he can be made liable to make good any damages, which may be
caused to the agent.

Renunciation of agency by the agents

O As the principal can revoke the agent’s authority ,so also the agent can
renounce the agency. Section 206 requires that the agent must give
principle reasonable notice of renunciation otherwise he will be liable to
make good any damage caused to the principle for want of such notice.
Section 207 further mentions that like revocation, the renunciation may
also be express or may be implied in the conduct of agent. Where,
however there is a contract that is a contract that the agency should be
continued for any fixed period, and the agent makes renunciation ,without
any sufficient cause prior to the expiry of the stipulated cause, prior to the
expiry of the stipulated time, he must compensate the principal for any
loss caused to him by the premature renunciation.

Completion of Business (Section- 201)

An agency is automatically and by operation of law determined when its business

is completed. Thus, for example, the authority of an agent appointed to sell goods
ceases to be exercisable when the sale is completed. He cannot afterwards alter
the terms of the sale. But the Allahabad and Calcutta High courts have held the
agency is not terminated on the completion of the sale but continues until
payment of the sale proceeds to the principal.

Death or insanity of the principal or agent

O An agency is determined automatically on the death or insanity of the

principal or the agent. Winding up of company or dissolution of a
partnership has the same effect. Section 201 make it clears that on the
death of an agent his agency comes to an end but it does not obliterate acts
done by the agent on behalf of the principle during the tenure of his
 agency.
O Section 209 -Agent’s duty on termination of agency by principal’s
death insanity
when an agency is terminated by the principal dying or becoming of unsound
mind, the agent is bound to take, on behalf of the representatives of his late
principle, all reasonable steps for the protection and preservation of the interests
entrusted to him.

Expiry of time

Where an agent has been appointed for a fixed term, the expiration of the term
puts an end to the agency, whether the purpose of the agency has been
accomplished or not. An agency comes to an automatic end on the expiry of its
term. Where the agency was to run a petrol pump for a specified period, it was
held that the agent was bound to vacate the premises on expiry of the period.
There was no renewal clause nor in fact there was any renewal.

Effect of termination

O According to section 208, the termination of the authority of an agent does

not, so far as regards the agent, take effect before it becomes known to
him, so far as regards third persons before it becomes known to them.
O The termination of the agency does not become effective immediately. It
takes effect-
(i) Against the agent, when the fact of termination becomes known to him,
and
(ii) Against third persons ,when it becomes known to them
For example-A directs B, his agent, to pay certain money to C, A dies and D takes
out probate to his will. B, after A’s death, but before hearing of it, pays the money
to C. The payment is good as against D, the executor.

iBIBLIOGRAPHY
1.BOOKS: iThe iresearcher iconsulted ifollowing ibooks:

ia. iLaw iof icontracts i– iDR. iR.K iBangia i

2. iWEBSITES: iThe iresearcher iconsulted ifollowing iwebsites

ia. iwww.lawctopus.com
ib. iwww.lawman.net.in