Introduction
This essay critically examines the doctrine of ratification in agency law, as articulated by Peter Watts and F.M.B. Reynolds in *Bowstead and Reynolds on Agency* (22nd Edition), where an unauthorised act done on behalf of another may be made valid through ratification if the third party believed the act to be authorised (Watts and Reynolds, 2021). The discussion focuses on the application and implications of this doctrine, with particular reference to the landmark cases of *Kelner v Baxter* (1866) LR 2 CP 174 and *Newborne v Sensolid (Great Britain) Ltd* [1954] 1 QB 45. By analysing these cases, this essay explores the extent to which the doctrine reconciles apparent inconsistencies in the law surrounding pre-incorporation contracts and agency. The analysis will consider the legal principles, practical implications, and limitations of ratification within this context.
Understanding the Doctrine of Ratification
The doctrine of ratification, as outlined by Watts and Reynolds (2021), allows a principal to validate an act performed by an agent without prior authority, provided certain conditions are met. Notably, the third party must have believed the agent had authority at the time of the act, and the principal must exist and have the capacity to authorise the act initially. Ratification effectively creates a retrospective agency relationship, binding the principal to the act as if authority had been granted ex ante (Watts and Reynolds, 2021). This principle serves to protect third parties who act in good faith while ensuring fairness in commercial dealings. However, its application becomes complex in scenarios involving non-existent principals, such as companies not yet incorporated at the time of the contract.
Application in Kelner v Baxter (1866)
In *Kelner v Baxter* (1866) LR 2 CP 174, the court addressed a contract entered into by promoters on behalf of a company that had not yet been formed. The defendants, acting as agents, ordered goods for the unformed company, but the company later failed to pay. The court held that the promoters were personally liable, as a non-existent principal (the unformed company) could not ratify the contract. Erle CJ reasoned that ratification requires a principal capable of contracting at the time of the act, a condition unmet in this case (Munday, 2010). This decision highlights a significant limitation of the ratification doctrine: it cannot apply where the principal does not legally exist, leaving promoters exposed to personal liability.
Contrast with Newborne v Sensolid (1954)
Contrastingly, in *Newborne v Sensolid (Great Britain) Ltd* [1954] 1 QB 45, the court reached a different conclusion regarding a pre-incorporation contract. Here, a contract was signed in the name of a company before its incorporation, but the signature included a personal element (“Leopold Newborne (London) Ltd per Leopold Newborne”). The Court of Appeal held that the contract was not enforceable against the individual, as it purported to bind a non-existent entity, and there was no intention to create personal liability (Sealy and Worthington, 2021). Unlike *Kelner v Baxter*, no personal liability was imposed, reflecting a stricter interpretation of contractual form over substance. This divergence raises questions about the consistency of the ratification doctrine’s application.
Reconciling the Cases through Ratification
The doctrine of ratification, as described by Watts and Reynolds (2021), offers limited reconciliation between *Kelner v Baxter* and *Newborne v Sensolid*. In *Kelner*, the absence of a principal precluded ratification, aligning with the doctrine’s requirement of an existing principal. However, in *Newborne*, the court’s focus on contractual wording sidestepped personal liability, arguably undermining the protective intent of ratification for third parties. Indeed, the doctrine fails to fully address such discrepancies, as it cannot operate where no principal exists, a core issue in both cases. Furthermore, while statutory interventions like Section 51 of the Companies Act 2006 now impose personal liability on promoters for pre-incorporation contracts, this does not resolve historical inconsistencies between the cases (Griffiths, 2015). Generally, the doctrine’s rigid prerequisites limit its ability to harmonise outcomes in scenarios involving nascent companies.
Conclusion
In conclusion, the doctrine of ratification, as articulated by Watts and Reynolds (2021), provides a framework for validating unauthorised acts in agency law but struggles to reconcile the differing outcomes in *Kelner v Baxter* (1866) and *Newborne v Sensolid* (1954). While *Kelner* underscores the necessity of an existing principal for ratification, *Newborne* highlights judicial emphasis on contractual form, creating inconsistencies in liability attribution. The doctrine, therefore, offers only partial clarity, limited by its inability to address pre-incorporation contexts comprehensively. This analysis suggests a need for further legal or statutory clarification to ensure fairness and predictability in commercial law, particularly for third parties dealing with unformed entities.
References
- Griffiths, A. (2015) *Contracting with Companies*. Hart Publishing.
- Munday, R. (2010) *Agency: Law and Principles*. Oxford University Press.
- Sealy, L. and Worthington, S. (2021) *Sealy & Worthington’s Text, Cases, and Materials in Company Law*. Oxford University Press.
- Watts, P. and Reynolds, F.M.B. (2021) *Bowstead and Reynolds on Agency*. 22nd Edition. Sweet & Maxwell.
