3â Agency by ratification

as ‘problematic’,44 and in Rhodian River Shipping Co. SA and Rhodian Sailor Shipping Co. SA v. Halla Maritime Corp.,45 Bingham J expressed his dissatisfaction with the decision in Watteau and took the view that ‘I would myself be extremely wary of applying this doctrine, if it exists’.46 In Watteau, the defendants, who were a firm of brewers, appointed a manager of a public house and a licence was taken out in the manager’s name. The manager and the defendants reached an agreement that the manager was not permitted to purchase specific items for the purpose of the business, which were to be supplied by the defendants. In breach of this agreement, the manager purchased articles from the plaintiff, in this instance cigars, to utilise in the business. On discovering that the manager was not the owner of the premises, the plaintiff sued the defendants for the value of the goods. The court held that the plaintiff was successful and that the defendants were responsible for the actions of the manager as agent which were within the authority usually conferred upon an agent of this particular character. Wills J stated:

the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority. It is said that it is only so where there has been a holding out of authority– which cannot be said of a case where the person supplying the goods knew nothing of the existence of a principal. But I do not think so. Otherwise, in every case of undisclosed principal, or at least in every case where the fact of there being a principal was undisclosed, the secret limitation of authority would prevail and defeat the action of the person dealing with the agent and then discovering that he was an agent and had a principal.47

Stone noted that:

He [Wills J] thought that this could not be the case, because it was clearly established in partnership law that no limitation of authority as between dormant and active partner will protect the dormant partner as to things within the ordinary authority of a partner. Since the law of partnership is on this issue simply a branch of the general law of agency, the same approach should apply in situations other than partnership.48

It has been argued that Wills J was swayed by the fact that the principal in Watteau was undisclosed and that if the principal was disclosed ‘the principal would have been liable on contracts made by his agent’.49

3â Agency by ratification

In most circumstances, an agent’s level of authority will be granted by the principal before the agent acts. When this position is reversed, the agent’s

44 See Stone, above n. 7, at 327.â 45â [1984] 1 Lloyd’s Rep. 373.

46[1984] 1 Lloyd’s Rep. 373, 379.

47Watteau v. Fenwick [1893] 1 QB 146, 249–349.

48 See Stone, above n. 7, at 328.â 49â Dobson and Stokes, above n. 5, at 436.

authority is ratified. Ratification was defined by Tindal CJ in Wilson v. Tumman as follows:

That an act done, for another, by a person, not assuming to act for himself, but for such other person, though without any precedent authority whatever, becomes the act of the principal, if subsequently ratified by him, is the known and well established rule of law. In that case the principal is bound by the act, whether it be for his detriment or his advantage, and whether it be founded on a tort or a contract, to the same extent as by, and with all the consequences which follow from, the same act done by his previous authority.50

Munday took the view that:

the doctrine of ratification is concerned with acts performed without authority by an agent in the name of a principal. If someone acts without the authority of a principal, either (i) because he exceeds the bounds of his actual authority, his apparent authority or any authority conferred by operation of law or (ii) because he was never employed as the principal’s agent in the first place, the would-be principal may nevertheless be entitled to ratify a transaction effected in his name by the agent.51

In Keighly, Maxsted & Co. v. Durant, Lord Macnaghten stated:

And so by a wholesome and convenient fiction, a person ratifying the act of another, who, without authority, has made a contract openly and avowedly on his behalf, is deemed to be, though in fact he was not, a party to the contract.52

According to Dobson and Stokes, the ‘courts have imposed fairly restrictive requirements which must all be satisfied in order for ratification to be effective’.53 The courts have imposed four particular requirements.54

For the first requirement to be met, it is essential that at the time the agent undertook or performed the unofficial business deal he professed to have acted on behalf of the principal who then ratifies the unofficial transaction. Bradgate stated that the ‘principal can only ratify acts which were done in his name … an undisclosed principal can enforce a contract made with his authority, but an undisclosed principal can never ratify a contract’.55 In Keighley Maxsted & Co. v. Durant,56 Mr Roberts was authorised by the appellants to purchase wheat on a joint account for the appellants and himself at a particular price. Roberts entered into the contract using his own name, but intended it to be in respect of the joint account as agreed with the appellants, however the third party was not made aware of this. Subsequently, the appellants agreed with Roberts to accept the wheat on the joint account but failed to take delivery of the wheat. The third party resold the wheat at a loss and sued the appellants for the loss suffered. The House of Lords determined that the appellants were unable to

55â See Bradgate, above n. 1, at 155.â 56â [1901] AC 240.

ratify the contract because the agent Roberts had not acknowledged that he was acting on the appellants’ behalf when the contract was made. This can be viewed as a very restrictive decision, and Brown argued that it was ‘peremptory and short-sighted’.57 A change in approach was signalled by the decision in Spiro v. Lintern.58 In this case, a husband was leaving his wife and wanted to sell his house. He asked his wife to make the necessary arrangements for an estate agent to locate a buyer for the property – however, it is important to note that the husband did not provide the wife with the authority to sell the property. The wife made arrangements with an estate agent to find a buyer for the property (the plaintiff), who entered into a written agreement with the wife to buy the property. The husband at no point stated that the wife had acted without his authority or that he was unwilling for the sale to progress, and the plaintiff was allowed to employ an architect and a gardener to undertake work on the house. The husband also informed the plaintiff’s solicitor that he would not engage in any transactions with the house without informing the plaintiff. The husband granted his wife power of attorney to complete the sale of the property and signed a transfer of the property to the plaintiff before he left the country. The signed transfer of the property was never handed over to the plaintiff, and the wife subsequently sold the property to third party. The Court of Appeal found that the plaintiff had acted under a mistaken belief that the wife was under a duty to sell the house to him. Accordingly, the husband was under a duty to disclose to the plaintiff that the wife had acted without his authority and that ‘his failure to do so amounted to a representation by conduct that she had his authority’. It was therefore held that the plaintiff had acted on the husband’s representation and had suffered damage, and the husband was estopped from claiming that the contract had been entered into without his authority.59

The decision in Keighley Maxsted & Co. v. Durant has also been distinguished where an agent wrongly stated that he was acting on behalf of a principal. In such circumstances, the principal is permitted to ratify the contract entered into on their behalf by the agent.60

To satisfy the second requirement, the principal must be in existence at the time of the agent’s action. This applies to agents who are acting on behalf of a company. Busch and Macgregor took the view that:

A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the

57 Brown, above n. 30, at 394.â 58â [1973] 1 WLR 1002.

59Buckley LJ applied the principle of estoppel in this case and famously stated: ‘If A sees B acting in the mistaken belief that A is under some binding obligation to him and in a manner consistent only with such an obligation, which would be to B’s disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose the non-existence of the supposed obligation’ ([1973] 1 WLR 1002, 1011).

60See, e.g., In re Tiedermann and Ledermann v. Freres [1899] 2 QB 66.

contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.61

Legislation provides that if an agent for a company enters into a contract prior to its incorporation, the company is not permitted to ratify the agreement. Specifically, Companies Act 2006, section 51(1) stipulates:

A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.62

Mayson, French and Ryan noted that this section applies even where a company was never registered, to a contract that was made by or on behalf of a company that was registered outside the United Kingdom, and even where the company was never incorporated.63 The court was asked to consider the consequences of this section in Phonogram Ltd v. Lane.64 This case related to a series of discussions for the financing of a new music group. During the negotiations, the plaintiffs considered creating and registering a company that would manage the new pop group and enter into contracts on their behalf. An agreement was signed by the defendant ‘for and on behalf of’ the proposed company and an early payment was made by the plaintiffs. The payment was refundable if the recording contract was entered into within one month. The proposed company was never formed and no recording contract was ever entered into. At first instance, the plaintiffs claimed the return of the sum advanced and the court decided that the defendant was personally liable. This decision was confirmed by the Court of Appeal because the contract was made by a company that had not been formed.65 This case can be contrasted with the situation where an agent represents a company which has been bought ‘off the shelf’. In such a situation, the company already exists and the actions of its agent can be ratified provided the agent clearly states he was acting on behalf of the company.66

To satisfy the third requirement, it is essential that the principal was competent to perform the contract at the time the agent supposedly acted on their behalf. One of the best examples of the operation of this rule is Boston Deep Sea Fishing & Ice Co. Ltd v. Farnham (Inspector of Taxes).67 In this case the

61D. Busch and L. Macgregor, ‘Apparent authority in Scots law: some international perspectives’ (2007) 11(3) Edinburgh Law Review 349 at 354.

62Companies Act 2006, s.51(1). This provision was based on the earlier provisions contained in Companies Act 1985, s.36C and Companies Act 1989, s.130(4).

63D. French, S. Mayson and C. Ryan, Mayson, French and Ryan on Company Law (Oxford University Press, Oxford, 2010) 626.

64[1982] QB 938.

65For a more detailed discussion of this case see J. Savirimuthu, ‘Pre-incorporation contracts and the problem of corporate fundamentalism: are promoters proverbially profuse?’ (2003) 24(7)

Company Lawyer 196.

66N. Bourne, Bourne on Company Law (Routledge Cavendish, Abingdon, 2011) 46.

67[1957] 3 All ER 204.