Creation of Agency by Ratification PDF

Preview

Summary

Law of Agency...

Description

Business Law – Creation of Agency by Ratification Question: According to Sec.149 Contract Act 1950, “The principal has the option whether to reject or accept the contract. When he accepts, it is known as ‘Ratification’. Explain the NINE (9) conditions for the creation of Agency by Ratification.

1.

Agency by Ratification. Ratification is the process of making an agreement official. Which means that if an individual who has not been appointed as an agent by the principle, but the Principle ratify the transaction done by the individual who was not an official agent of the principle, that individual has now been appointed as an agent. Thus, the transaction conducted by that individual is valid and the principal is bound by the transactions done by that individual. This is an explanation for Agency by Ratification as defined in Sec.149 Contract Act 1950: “The principal has the option whether to reject or accept the contract. When he accepts, it is known as ‘Ratification”. Agency by Ratification will only happen when: a. Agent who has been appointed has exceeded his authority when he entered into a contract with a third party. b. A person who has no authority to act for the principal but he acted as if he has the authority to enter into a contract with a third party.

2. NINE (9) conditions for the creation of Agency by Ratification. There are NINE (9) conditions required for the creation of Agency by Ratification, namely: i. The act must be unauthorised; ii. The unauthorised act is lawful; iii. The agent must act as an agent not as principal; iv. The agent must have a principal who is in existence; v. The principal must have capacity to enter a contract; vi. The principal must ratify the whole contract; vii. The principal must have all the material facts regarding the contract; viii. Ratification must be made within a reasonable time; ix. Ratification must not injure a third party.

3. Explaining the NINE (9) conditions for the creation of Agency by Ratification. i. The act must be unauthorised; The transaction or contract done by the agent was committed without any authority given by the principal. If there was an authority given by the principal, the agent acted exceeding the authority given by the principal. ii. The unauthorised act is lawful; The principal can ratify the unauthorised transaction or contract done by the agent if it is lawful. But if the unauthorised transaction or contract is unlawful, the principal may not ratify a contract. Example: the signature of the principal had been forged by the unauthorised agent. Can refer to the case of Brook V Hook. iii. The agent must act as an agent not as principal; The agent must not allow third party to believe that he is the principal. Refer to the case of Keighley Maxted & Co V Durant (1901), where the agent exceeded his authority & bought the wheat at a higher price and contracted in his own name. The court held that the principal was not liable to the seller (third party) because the principal could not ratify the contract because the contract was made in the agent’s own name. iv. The agent must have a principal who is in existence; The agent cannot create a fictitious principal. The principal must be physically in existence. Refer to the case of Kelner V. Baxter, where the court held that a contract to buy a hotel made by an agent on behalf of a company which was not registered/formed could not be ratified by the company, because the company (principal) did not exist at that time. v. The principal must have capacity to enter a contract; The principle in Contract Act 1950 applies where the elements of contract must include CAPACITY. According to the law, the parties (in this case the Principals) entering into a contract should themselves be competent to contract and of sound mind. If the principal do not have the capacity, the contract itself is void and hence the contract cannot be ratified if it was done by an agent. vi. The principal must ratify the whole contract; The principal cannot accept the transactions which are of advantage to him only and reject the rest. Hence, the principal must ratify the whole transaction or contracts done by the agent on behalf of the principal. vii. The principal must have all the material facts regarding the contract; A principal cannot ratify a contract where he does not have the full knowledge of all material facts. Refer to case March V Joseph, where the court held that the principal was not bound to such contract.

viii. Ratification must be made within a reasonable time; The transaction or contract done by the agent must be ratified within a reasonable time frame. Refer to case Metropolitan Asylum Board V Kingham & Sons, where the agent contracted to buy eggs without the authority. The principal tried to ratify the contract 1 week after it was made. The court held that the ratification was too late. ix. Ratification must not injure a third party. According to S. 153 Contract Act 1950, ratification must not injure or affect the interest of a third person. In a simple explanation, an unauthorised transactions or contract done by an agent on behalf of the principal cannot be ratified by the principal if the transaction or contract would put a third party (the other person who was involved in the transaction or contract) into damages or will terminate any right or interest of the third party....