Q.
When someone who is not an appointed agent, struck a deal with a 3rd person, he goes back to the principal, and get it ratified as a legal contract. Is there anyway that ratification cannot be carried out?
A.
Agency by ratification can arise in any one of the following situations:
- An agent who was duly appointed has exceeded his authority; or
- A person who has no authority to act for the principal has acted as if he has the authority.
When any one of the above mentioned situation arises, the principal can either reject the contract or accept the contract so made - s.149 CA50.
Ratification may be expressed or implied - s.150, CA50. The effect of ratification is to render the contract as binding on the principal as if the agent had been properly authorized beforehand - s.149.
Ratification is retrospective, i.e. it dates back to the time when the original contract was made by the agent and not from the date of the principal's ratification.
A contract can only be ratified under the following circumstances:
- The act or contract must be unauthorized.
- The agent must, at the time of the contract, expressly acted as agent for the principal, s.149. He must not allow the 3rd person to think that he is the principal.
The case below illustrates the 2nd point.
S.R.M Meyappa Chettiar v Lim Lian Koo (1954)
Palaniappan Chettiar, the attorney of Somasundaram Chettiar, entered into an agreement with the respondent under which Palaniappa Chettiar handed over to the respondent a piece of land belonging to his principal in consideration of the sum of RM7,000 and agreed that 'upon the return of normal conditions, the vendor shall obtain a special power of attorney from the said Somasundaram Chettiar now in India and execute a true and lawful transfer of the said land at the purchaser's own expenses'.
He further agreed that if he was unable to obtain the necessary power from his principal, the RM7,000 was to be returned to the respondent. At the trial, the learned judge held that the agreement had been ratified by Somasundaram Chettiar and he therefore dismissed a claim for recovery of possession of the land. Upon appeal, the Court of Appeal held that the terms of the agreement showed that Palaniappa Chettiar was acting in his personal capacity and therefore, the principle of ratification could not apply to the agreement.
The illustration of the above case is that when an agent never give the impression that he was indeed an agent, he risk his action being out of himself as a principal, thus cannot be ratified.
Further case scenario illustration here.
Ref:
Lee & Detta. 2013. Commercial Law, Chapter 4 - Agency. 2nd Ed. pg 146-147.