IIn this video, I explain the concept of ratification in the context of agency law.
Start your free trial: https://farhatlectures.com/

"Ratification" in agency law allows a principal to approve a previously unauthorized action by their agent. However, there are certain conditions under which an act can be ratified:

Legality: The act must be legal. If the action taken by the agent was illegal, it cannot be ratified.
Withdrawal of Third Party: The third party involved must not have withdrawn from the transaction before the principal ratifies it.
Fairness and Material Change: There should not be a significant change in circumstances that would make it unfair to hold the third party to the transaction.
Regarding who can ratify:

The Purported Principal Only: Ratification can only be done by the person who is represented as the principal. The agent cannot ratify their own actions.
Disclosed Principal: Ratification is only applicable if the principal was disclosed, meaning the third party knew they were dealing with an agent acting for a known principal. An undisclosed principal, where the third party is unaware of the principal's existence, cannot ratify the act.
Different Example:
Consider a scenario in a construction company. The company's manager, Jake, while the CEO, Emma, is away, decides to purchase a piece of expensive equipment from a vendor, believing it will benefit the company. However, he does not have the authority to make such high-value purchases. When Emma returns and finds out about the purchase, she evaluates the situation. The equipment is indeed beneficial and needed, and the vendor has not withdrawn from the sale. Emma decides to ratify Jake's purchase. By doing so, she accepts the equipment and agrees to pay for it, even though Jake initially did not have the authority for such a transaction. Since Emma is the known principal of the company, her ratification is valid. If Emma had been an undisclosed principal, unknown to the vendor, she would not have been able to ratify the transaction.

In agency law, ratification allows a principal to formally approve an action or decision made by an agent that was initially unauthorized. However, there are specific conditions and limitations to what can be ratified:

Legality: An act can be ratified only if it is legal. Any illegal actions taken by the agent cannot be ratified by the principal.
Third Party Withdrawal: If the third party involved in the transaction withdraws before the principal ratifies the action, then ratification is not possible.
Material Change in Circumstances: If there has been a significant change in circumstances that would make it unfair to hold the third party to the agreement, ratification cannot occur.
As for who can perform ratification:

Only the Purported Principal: Ratification can only be done by the individual or entity who was represented as the principal in the transaction. The agent themselves cannot ratify their own actions.
Disclosed Principal Only: Ratification is valid only when the principal's identity is known to the third party at the time of the original transaction. In situations where the principal was undisclosed (the third party was unaware of the principal's existence or identity), the principal cannot later ratify the action.
To clarify with an example: Suppose a manager of a company, without having authority, negotiates a deal with a supplier. The manager cannot ratify this deal themselves; only the company, as the principal, can choose to ratify it. Furthermore, if the supplier was unaware that they were dealing with an agent of the company (an undisclosed principal), the company cannot later ratify this deal. The ratification is only valid if the supplier knew they were dealing with a representative of the company at the time of the negotiation.




#cpaexaminindia #cpaexam #accountingmajor