Effect of Ratification | The defendant made an offer to the Managing Director of a company that having no authority to do so, accepted it. That gave the company an option to ratify the contract. But the company ratified only after the defendant had withdrawn his offer.

Question: Effect of Ratification | The defendant made an offer to the Managing Director of a company that having no authority to do so, accepted it. That gave the company an option to ratify the contract. But the company ratified only after the defendant had withdrawn his offer. The company sued the defendant for specific performance. Decide. [DJS 1991]

Find the answer to the mains question only on Legal Bites. [Effect of ratification|The defendant made an offer to the Managing Director of a company that having no authority to do so, accepted it. That gave the company an option to ratify the contract. But the company ratified only after the defendant had withdrawn his offer. The company sued the defendant for specific performance.]

Answer

Section 196 of The Indian Contract Act, 1872 lays down provision for the right of a person as to acts done for him without his authority and in such case the effect of ratification. It states as under:

“Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they had been performed by his authority.”

Ratification of the unauthorized contract of an agent can only be effectual when the contract has been made by the agent avowedly for, or on account of the principal, and not when it has been made on account of the agent himself.

Ratification, if effective at all, relates back to the date of the act ratified. If an action is brought in a man’s name without his knowledge, he may adopt the proceedings and make them good at any time, The rule goes so far that if ‘A’ makes an offer to ‘B’ which ‘Z’ accepts in B’s name without authority and B afterwards ratifies the acceptance, an attempted revocation of the offer by A in the time between Z’s acceptance and B’s ratification is inoperative. However, if an offer is accepted by an agent subject to ratification no contractual relationship with the principal comes into existence until ratification, and therefore up to that moment, the offer can be withdrawn.

The facts of the case in hand have been borrowed from Bolton Partners v. Lambert, (1889) 41 Ch D 295. It was held in this case that the ratification by the company related back to the date on which the offer was accepted by its managing director, and revocation of the offer was ineffective. This judgment has been a matter of criticism but for the present remains authoritative; Fleming v. Bank of New Zealand, (1900) AC 577.

But in Watson v. Davies, (1931) 1 Ch 455, the defendant offered to sell his property to a charitable institution, The offer was accepted by a few members of the board, The day on which the board was to meet the defendant withdrew his offer. The board ratified it and bought an action for specific performance. The ratification was held to be too late, and the revocation was effective.

In the present case at hand, the offer was not subject to the approval of the company but was accepted by the managing director which was later on ratified by the company, and such ratification relates back to the date of the acceptance of the offer by the agent. The revocation of the offer is thus ineffective in the eyes of law.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X