(1) An act by an agent that acts without authority or exceeds its authority may be ratified by the principal. On ratification the act produces the same effects as if it had initially been carried out with authority.
(2) The third party may by notice to the principal specify a reasonable period of time for ratification. If the principal does not ratify within that period of time it can no longer do so.
(3) If, at the time of the agent's act, the third party neither knew nor ought to have known of the lack of authority, it may, at any time before ratification, by notice to the principal indicate its refusal to become bound by a ratification.
1. Notion of ratification
This Article lays down the generally accepted principle whereby acts which have no effect on the principal because they have been carried out by an agent holding itself out to have authority but actually without authority or exceeding its authority, may be authorised by the principal at a later stage. Such subsequent authorisation is known as “ratification”.
Like the original authorisation, ratification is not subject to any requirement as to form. As it is a unilateral manifestation of intent, it may be either express or implied from words or conduct and, though normally communicated to the agent, to the third party, or to both, it need not be communicated to anyone, provided that it is manifested in some way and can therefore be ascertained by probative material.
Agent A purchases on behalf of principal B goods from third party C at a price higher than that which A is authorised to pay. Upon receipt of C’s bill, B makes no objection and pays it by bank transfer. The payment amounts to ratification of A’s act even if B does not expressly declare its intention to ratify, fails to inform both A and C of the payment and C is only subsequently informed of the payment by its bank.
2. Effects of ratification
On ratification the agent’s acts produce the same effects as if they had been carried out with authority from the outset (paragraph (1)). It follows that the third party may refuse partial ratification of the agent’s acts by the principal as it would amount to a proposal by the principal to modify the contract that the third party has concluded with the agent. In turn, the principal may not revoke ratification after it has been brought to the attention of the third party. Otherwise the principal would be in a position to withdraw unilaterally from the contract with the third party.
3. Time of ratification
The principal may in principle ratify at any time. The reason for this is that normally the third party does not even know that it has contracted with an agent who did not have authority or who exceeded its authority. However, even if the third party knows from the outset, or subsequently becomes aware, that the agent was a false agent, it will have a legitimate interest not to be left in doubt indefinitely as to the ultimate fate of the contract concluded with the false agent. Accordingly, paragraph (2) grants the third party the right to set a reasonable time limit within which the principal must ratify if it intends to do so. It goes without saying that in such a case ratification must be notified to the third party.
4. Ratification excluded by third party
A third party, who when dealing with the agent neither knew nor ought to have known of that agent’s lack of authority, may exclude ratification by giving the principal notice to this effect any time before ratification by the latter. The reason for granting the innocent third party such a right is to avoid that the principal is the only one in a position to speculate and to decide whether or not to ratify depending on market developments.
5. Third persons’ rights not affected
This Article deals only with the effects of ratification on the three parties directly involved in the agency relationship, i.e. the principal, the agent and the third party. In accordance with the scope of this Section as defined in Article 2.2.1, the rights of other third persons are not affected. For instance, if the same goods have been sold first by the false agent to C, and subsequently by the principal to another person D, the conflict between C and D as a result of the principal’s subsequent ratification of the first sale will have to be solved by the applicable law.