Introduction
This essay critically examines the agency doctrine of ratification as articulated by Peter Watts and F.M.B. Reynolds in their seminal text, *Bowstead and Reynolds on Agency* (22nd Edition), specifically the excerpt from page 77 which addresses the validation of unauthorised acts through subsequent ratification. The doctrine suggests that an act performed without authority on behalf of a principal can be made valid if the principal ratifies it, provided the third party believed the agent had authority at the time of the act. This principle lies at the heart of agency law, balancing the protection of third parties with the autonomy of principals. The essay will explore the legal framework of ratification, supported by relevant authorities, and critically assess the extent to which this doctrine reconciles the seemingly conflicting outcomes in *Kelner v Baxter* (1866) LR 2 CP 174 and *Newborne v Sensolid (Great Britain) Ltd* [1954] 1 QB 45. Through this analysis, the essay aims to elucidate the scope and limitations of ratification in agency law, particularly in the context of pre-incorporation contracts.
The Doctrine of Ratification in Agency Law
Ratification is a fundamental principle in agency law, enabling a principal to retrospectively authorise an act performed by an agent without prior authority. According to Watts and Reynolds (2021), ratification renders the unauthorised act “valid and effectual” as if the agent had been authorised from the outset, provided certain conditions are met. These conditions, as established by case law, include the principal’s capacity to authorise the act at the time of ratification, the principal’s full knowledge of the material facts, and the act being capable of ratification (i.e., not illegal or void) (Bolton Partners v Lambert (1889) 41 Ch D 295). Importantly, as the excerpt highlights, the third party must have believed the agent had authority at the time of the transaction for ratification to protect their interests.
This doctrine serves a dual purpose. Firstly, it safeguards third parties who act in good faith, ensuring they are not prejudiced by an agent’s lack of authority if the principal later validates the act. Secondly, it offers flexibility to principals, allowing them to adopt beneficial transactions post facto. However, ratification is not without limitations. The doctrine cannot apply where the principal lacks legal capacity or where ratification would unfairly prejudice the third party, such as in cases where the third party has withdrawn from the transaction before ratification (Walter v James (1871) LR 6 Ex 124).
Application to Pre-Incorporation Contracts: Kelner v Baxter
The case of *Kelner v Baxter* (1866) LR 2 CP 174 illustrates the challenges of applying ratification in the context of pre-incorporation contracts, where an agent purports to act on behalf of a company that does not yet exist. In this case, the defendants, acting as promoters, entered into a contract to purchase goods on behalf of a company that had not been incorporated at the time of the agreement. After the company was formed, it ratified the contract, but the court held that the promoters remained personally liable for the debt. The reasoning was straightforward: a non-existent principal (the unformed company) could not authorise an act, and ratification requires the principal to have had capacity at the time of the act. Since the company did not exist when the contract was made, it could not ratify the transaction, and the promoters were bound personally.
This decision highlights a significant limitation of the ratification doctrine as articulated by Watts and Reynolds. While the third party (the supplier) may have believed the promoters had authority to act for the prospective company, the legal impossibility of a non-existent entity ratifying an act overrides this belief. Thus, Kelner v Baxter establishes a strict boundary, emphasising that ratification cannot cure defects arising from the principal’s non-existence at the time of the act.
Contrasting Outcomes: Newborne v Sensolid
In contrast, *Newborne v Sensolid (Great Britain) Ltd* [1954] 1 QB 45 appears to diverge from the strict rule in *Kelner v Baxter*, prompting debate about the consistency of the ratification doctrine. Here, Leopold Newborne signed a contract as “Leopold Newborne (London) Ltd” before the company was incorporated. When the company later sought to enforce the contract, the court held that it was not bound because the contract was a nullity. Unlike in *Kelner v Baxter*, where the promoters were held personally liable, the court in *Newborne* focused on the contractual document’s wording, which suggested an intention to bind the non-existent company rather than Newborne personally. As a result, neither the company nor Newborne was liable, rendering the contract unenforceable.
At first glance, Newborne v Sensolid seems irreconcilable with Kelner v Baxter, as it avoids imposing personal liability on the agent despite the principal’s non-existence at the time of contracting. However, a deeper analysis suggests that both cases align with the core limitation of ratification: a principal must exist and have capacity at the time of the act for ratification to be effective. In Newborne, the court’s focus on contractual intent does not contradict this principle but rather introduces an additional layer of interpretation regarding the identity of the contracting party. Therefore, the ratification doctrine as described by Watts and Reynolds remains consistent in both cases, as neither allows a non-existent principal to validate an unauthorised act.
Reconciling the Cases through the Doctrine of Ratification
The extent to which the doctrine of ratification reconciles *Kelner v Baxter* and *Newborne v Sensolid* is limited but significant. Both cases affirm the fundamental requirement of the principal’s existence for ratification to apply, aligning with the principle outlined by Watts and Reynolds (2021) that an act can only be made “valid and effectual” if the principal could have authorised it at the time. The apparent discrepancy between the cases lies not in the application of ratification but in judicial interpretation of contractual intent and personal liability. In *Kelner v Baxter*, the court prioritised protecting the third party by imposing liability on the promoters, whereas in *Newborne v Sensolid*, the court’s finding of a nullity arguably left the third party without remedy, highlighting a potential inequity.
Critically, the doctrine of ratification itself does not fully address these discrepancies, as it is constrained by legal formalities surrounding corporate existence. However, subsequent legislative developments, such as Section 51 of the Companies Act 2006, have sought to mitigate such issues by imposing personal liability on individuals entering pre-incorporation contracts, thereby offering a statutory resolution where ratification fails. This suggests that while the doctrine provides a theoretical framework for validating unauthorised acts, its practical reconciliation of case outcomes remains incomplete without supplementary legal mechanisms.
Conclusion
In conclusion, the agency doctrine of ratification, as articulated by Watts and Reynolds (2021), offers a mechanism to validate unauthorised acts, protecting third parties who reasonably believe in an agent’s authority. However, its application is limited by the requirement of the principal’s existence and capacity at the time of the act, as demonstrated in *Kelner v Baxter* (1866) and *Newborne v Sensolid* (1954). While both cases uphold the core principle that a non-existent principal cannot ratify an act, they diverge in their treatment of personal liability, revealing inconsistencies in outcomes rather than in the doctrine itself. Therefore, the doctrine of ratification reconciles these cases only to the extent that it consistently denies retrospective validation in pre-incorporation scenarios, but it does not fully resolve the practical tensions between third-party protection and agent liability. Arguably, statutory interventions like the Companies Act 2006 provide a more comprehensive solution, highlighting the doctrine’s limitations in complex commercial contexts. This analysis underscores the need for ongoing critical evaluation of agency principles to ensure equitable outcomes in modern commercial law.
References
- Bolton Partners v Lambert (1889) 41 Ch D 295.
- Kelner v Baxter (1866) LR 2 CP 174.
- Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45.
- Walter v James (1871) LR 6 Ex 124.
- Watts, P. and Reynolds, F.M.B. (2021) Bowstead and Reynolds on Agency. 22nd Edition. Sweet & Maxwell.
