Ratification under Sections 196 to 200 of the Indian Contract Act, 1872: The Essentials, Knowledge of Material Facts, the Rule Against Partial Ratification, Retrospective Effect and Acts That Cannot Be Ratified

Ratification is the adoption, after the event, of an act done on one's behalf without authority. It is a remarkable doctrine, because it makes a contract binding between parties who had none at the moment it was made, and it does so retrospectively, as though the authority had existed all along. That retrospective operation is what gives ratification its practical importance and what creates its difficulties: an offer withdrawn before ratification may nonetheless become a binding contract on ratification, and Section 200 exists to prevent the doctrine from being used to damage third parties.

1. The Provisions

Sections 196 to 200, Indian Contract Act, 1872

196. Right of person as to acts done for him without his authority. 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 ratifies them, the same effects will follow as if they had been performed by his authority.

197. Ratification may be expressed or implied. Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.

198. Knowledge requisite for valid ratification. No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

199. Effect of ratifying unauthorised act forming part of a transaction. A person ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such act formed a part.

200. Ratification of unauthorised act cannot injure third person. An act done by one person on behalf of another, without such other person's authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have such effect.

2. Essentials of a Valid Ratification

The act must have been done on behalf of the person ratifying. The agent must have professed to act for a principal, and this is the condition on which Keighley Maxsted turns.
The principal must have been in existence at the time the act was done, and must have been competent to contract both then and at the time of ratification. This is why a company cannot ratify a pre-incorporation contract.
The principal must have full knowledge of the material facts, under Section 198.
The whole transaction must be ratified. Section 199 forbids ratifying the advantageous parts and disowning the rest.
The act must be lawful and capable of ratification. A void or illegal act cannot be ratified, since ratification cannot create validity where none was possible.
Ratification must take place within a reasonable time, and in any event before the time for performance has passed or the position has irrevocably altered.
It must not injure a third person, under Section 200.

3. The Act Must Profess to Be Done for a Principal

📖 Keighley, Maxsted & Co. v. Durant, [1901] AC 240 (HL)

Facts: A firm authorised an agent to buy wheat at a stated price on a joint account for himself and the firm. Unable to buy at that price, the agent bought at a higher price from the respondent, in his own name and without disclosing that he intended the purchase to be for the firm as well. The firm afterwards purported to ratify the contract. The wheat was not taken and the seller sued the firm.

Held: The firm was not liable. A contract made by a person in his own name, without disclosing or professing to act for any principal, cannot be ratified by a person for whom he privately intended to act. Ratification requires that the act was done on behalf of the person ratifying and that this appeared at the time; an undisclosed intention in the agent's own mind is not enough. Civil obligations are not to be created by, or founded upon, undisclosed intentions.

Ratio: Only an act professedly done on behalf of a principal can be ratified. A person who contracts in his own name, with a secret intention to benefit another, creates nothing that other can adopt.

4. Knowledge of Material Facts

Section 198 makes a ratification invalid where the ratifier's knowledge of the facts is materially defective. The rationale is that ratification is an election, and an election made in ignorance of the facts is no election at all. Three points follow.

The defect must be material, that is it must relate to a fact that would have affected the decision whether to adopt the act.
The burden lies on the party asserting a valid ratification to show that the principal knew what he was adopting, though knowledge may be inferred from the circumstances.
A principal who ratifies deliberately without inquiry, choosing to take the transaction as it stands whatever it may contain, is bound; the section protects the ignorant, not the indifferent.

5. The Whole Transaction: Section 199

⚠ There is no partial ratification

Section 199 is absolute: ratifying any unauthorised act ratifies the whole of the transaction of which it formed a part. A principal cannot accept the goods an unauthorised agent bought and reject the price he agreed, or adopt a sale and disown the warranty given with it. The practical consequence is that a principal faced with an unauthorised transaction has exactly two options: adopt it entirely, with all its burdens, or disown it entirely and leave the third party to his remedy against the agent for breach of warranty of authority under Section 235. Accepting any benefit under the transaction will usually be treated as an implied ratification of the whole under Section 197.

6. Retrospective Effect

📖 Bolton Partners v. Lambert, (1889) 41 Ch D 295 (CA)

Facts: The managing director of a company, without authority, accepted an offer made by the defendant to take a lease of the company's property. The defendant afterwards withdrew his offer. The company then ratified the acceptance and sued for specific performance.

Held: The ratification was effective and the contract binding. Ratification relates back to the date of the unauthorised act, so that the acceptance was treated as having been authorised when it was made. The defendant's attempted withdrawal, coming after that acceptance, was therefore too late, and he could not escape by revoking an offer that had already been accepted in law.

Ratio: Ratification operates retrospectively from the date of the unauthorised act. An intervening withdrawal by the third party is ineffective, because in law the contract was concluded when the unauthorised acceptance was given.

The decision has been criticised as harsh on the third party, who is bound from the moment of the unauthorised acceptance while the principal remains free to ratify or not. Two limits temper it. Ratification must occur within a reasonable time and before the time fixed for performance. And Section 200 prevents ratification from operating where it would subject a third person to damages or terminate his rights.

7. Section 200: Ratification Cannot Injure a Third Person

Section 200, Indian Contract Act, 1872, with its Illustrations

An act done by one person on behalf of another, without such other person's authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have such effect.

Illustration (a). A, not being authorised thereto by B, demands, on behalf of B, the delivery of a chattel, the property of B, from C, who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.

Illustration (b). A holds a lease from B, terminable on three months' notice. C, an unauthorised person, gives a notice of termination to A. The notice cannot be ratified by B, so as to be binding on A.

The two Illustrations show the two limbs. In (a) ratification would retrospectively make C a wrongdoer for a refusal that was perfectly proper when made. In (b) it would retrospectively destroy A's leasehold interest by validating a notice given by a stranger. In both, the third party would be prejudiced by an election made after the event and entirely outside his control, and the section forbids it.

Four essentials, a retrospective effect, and the limit in Section 200

8. Acts That Cannot Be Ratified

Acts done without professing to act for a principal, per Keighley Maxsted.
Void or illegal acts, since ratification cannot supply a validity the act could never have had.
Acts done on behalf of a principal who did not exist at the time, which is why a company cannot ratify a contract made before its incorporation; the promoters remain personally liable and the company must enter a fresh contract.
Acts done on behalf of a principal who was incompetent to contract at the time, or who is incompetent at the time of ratification.
Acts falling within Section 200, which would subject a third person to damages or terminate his rights.
Acts ratified after the time for performance has passed, or after the position has irrevocably changed.
Part of a transaction, under Section 199.

9. Ratification and Estoppel

Point of difference	Ratification	Agency by estoppel
Basis	The principal's election to adopt the act	The principal's representation that the person had authority, relied on by the third party
Timing	Operates after the act, retrospectively	Operates at the time of the act, by preventing the principal from denying the authority
Whose state of mind matters	The principal's, who must know the material facts	The third party's, who must have relied on the representation
Effect on authority	Authority is conferred, retrospectively	No authority is conferred; the principal is merely precluded from denying it
Requirement of professing to act for a principal	Essential, per Keighley Maxsted	Not in issue; the representation is the principal's own
Statutory basis	Sections 196 to 200	Section 237, and the general law of estoppel
Can it be partial?	No, under Section 199	It operates only so far as the representation extends

Section 237 is the statutory expression of the estoppel principle in agency: when an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts if he has by his words or conduct induced such third persons to believe that such acts were within the scope of the agent's authority. The two doctrines often supply alternative routes to the same result, and a third party will commonly plead both.

10. The Position Stated Shortly

Section 196 permits a person on whose behalf an unauthorised act was done to elect to ratify or disown it, with the same effects as if it had been authorised.
Section 197 allows ratification to be express or implied from conduct, and accepting a benefit is the commonest implied ratification.
Section 198 invalidates a ratification made by a person whose knowledge of the facts is materially defective.
Section 199 requires the whole transaction to be ratified; there is no partial ratification.
Keighley Maxsted: only an act professedly done on behalf of a principal can be ratified, and an undisclosed intention is not enough.
Bolton Partners v. Lambert: ratification relates back to the date of the act, so an intervening withdrawal by the third party is ineffective.
Section 200 prevents ratification where it would subject a third person to damages or terminate his rights or interests.
Acts that cannot be ratified include void and illegal acts, acts for a non-existent or incompetent principal, and part of a transaction.
Ratification confers authority retrospectively by election; estoppel under Section 237 merely precludes the principal from denying it.

11. Related Topics and Provisions

Topic or provision	Connection
Agency under Sections 182 to 238	Creation of agency, authority and delegation
Principal and Third Parties under Sections 226 to 238	Excess of authority, and the pretended agent's liability
Sections 196 to 200, Indian Contract Act	The provisions on ratification
Section 237, Indian Contract Act	Agency by estoppel and holding out
Section 235, Indian Contract Act	Liability of a person falsely contracting as agent
Sections 227 and 228, Indian Contract Act	Separable and inseparable excess of authority
Section 188, Indian Contract Act	The extent of an agent's authority
Companies Act, 2013	Pre-incorporation contracts and why they cannot be ratified