What is agency agreement? What is ratification?
An agency agreement is a legal contract creating a fiduciary relationship whereby the first party (“the principal“) agrees that the actions of a second party (“the agent“) binds the principal to later agreements made by the agent as if the principal had himself personally made the later agreements. (Wikipedia)
When the principal is unable to agree with the mutated or altered of the agreement, the principal has the right to not come to terms. For example, when you ask your agent to sell your house at RM1mio, however he found you a buyer at RM950K, you have a right not to agree to the transaction.
However, in many situations, the principal gives in to the terms. In such manner, the agent who negotiated the deal comes back to the principal with a varied proposal, and the principal accepts that varied agreement. This process is called ratification. S.149 and S.152 of the Contracts Act, 1950 governs this ratification.
However, there is no ratification if it is to correct the wrong of the agent and harming the rights of the third party. This is stated in S.153 Ratification of unauthorized act cannot injure third person. Meaning, when this RM950K deals is done giving certain damage to the third party.
In the above example, let’s say the buyer agreed to buy when it is RM950K, and ‘as is where is” basis. However, the ratification was done on RM950K with an empty house – without the furniture and air-conditioners inside. This means there is certain amount of damage to the rights and agreed terms of the third party. This ratification thus cannot be valid.
Tomorrow we will see another scenario where ratification cannot be carried out.