An agency relationship has a tripartite structure. It involves the principal, the agent and a third party. The agent acts on behalf of the principal in relation to the third party. Consequently, an agent is said to be a conduit pipe between the principal and the third party. In the circumstance, the agent acts under the express or implied authority of the principal. However, there are occasions when the agent acts without the pre-knowledge of the principal. This places the principal in a position to legally ratify the agent’s acts. In this article, we shall consider the conditions under which a valid ratification of the acts of an agent may occur.
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The ratification of the acts of the agent by the principal by definition must be retrospective as it makes the principal bound by the contract entered into by the agent without authority, as though the agent had the authority of the principal in the first place. Thus, the ratification cures the agent’s initial lack of authority when the contract was entered into and creates rights between the principal and the third party. On the part of the agent, the ratification makes him entitled to some remuneration in respect of the transaction or to be indemnified for losses incurred in the course of the transaction. It is noteworthy that where the contract entered into by an agent is in the form of a deed, the ratification too must be by deed.
For a valid ratification to be consummated, certain basic essential elements must occur. These include the following:
- Existence of a principal: At the material time when the agent entered into the contract, the principal must be in existence and ascertainable as at the time when the agent purportedly acted on his behalf.
- Express contract of the agent: The agent must expressly state at the time he was entering into the contract that he was acting on behalf of his principal who will subsequently ratify the contract. The agent must not act for himself; otherwise, the principal cannot ratify the contract.
- Validity of the contract: The contract must not be void ab initio at the time the contract was entered into by the agent. Thus, for a principal to validly ratify the act of the agent, the contract entered into by the agent must be valid from inception. If the contract is an illegal contract, it will be null and void and incapable of ratification.
- Full knowledge of the act: The principal must at the time of the ratification have a full knowledge of all the material facts of the contract. Put differently, the agent is expected to disclose all the facts of the contract to the principal before the principal can ratify the acts of the agent in relation to the contract.
- Contractual capacity: The principal and the agent must possess requisite contractual capacity to enter into the contract at the time the contract was made. In addition, the principal must be capable of ratifying the acts of his agent. This is important because the law does not recognise certain persons as being capable of entering into contracts generally. Examples of such persons include infants, lunatics, drunkards, etc. However, there are some exceptions to the general rule that these persons are incapable of entering into contracts.
- Reasonable time: For the ratification of the acts of the agent by the principal to be valid, the ratification must occur within a reasonable time. Since reasonable time is not a definite prescription, what amounts to a reasonable time is dependent on the circumstances of each case.
Ratification of the acts of an agent who initially was lacking in authority is a valuable rule which promotes commercial transactions. It is noteworthy that when a principal ratifies the acts of an agent, the principal is treated as though he was part of the contract ab initio. He is therefore entitled to all the benefits arising from the contract. If losses emanate from the contract, the principal is equally entitled to them. In other words, the principal assumes both the benefits and burdens of the ratified contract.