A contract of agency can be created in several ways. The most common method is a express agreement in writing. Sometimes, it arises by implication. But, there are two other methods that are often discussed, estoppel and ratification.
Here are two commonly accepted definitions:
· Estoppel means that if the principal causes third persons to believe that someone is his agent and that third party deals with the agent, then the principal cannot deny the agency relationship even though it did not exist in fact.
· Ratification means that if a person having no authority whatsoever, purports to act as an agent and the purported principal later adopts the acts of that agent, an agency relationship has retroactively been created.
The two concepts are somewhat similar, but they are different in the sense of the confirmation.
In both cases, the agency relationship was not clear and defined, and it took a subsequent act to make the antecedent agreement, a valid and enforceable contract.
In the case, of estoppel, it is the Principal who acts. The agent had no authority, but, the Principal does something that allows a third party to say that the Principal is prevented (or estopped) from denying that the agent was truly acting for the Principal. Here, it is the contract of agency which is confirmed or acknowledged.
When considering ratification, again it is the Principal who acts. The agent had no authority, but the Principal does something to confirm the agreement between the Principal and the third party. This cannot be the case, unless the agency agreement is found to be in place. So, when the Principal adopts the benefit of the contract, this ratifies and confirms the contract of agency.
Let’s look at the following example. Bill and Ron are both vintage car enthusiasts. Bill is a doctor and would like to buy a nice car as an investment, finally one that goes up in value rather than simply depreciates. Ron is a mechanic.
Bob asks Ron to visit a vintage car auction one weekend. Bob sees a 1960 Corvette and registers his name as a bidder so that he can participate in the auction. The vehicle sells for $30,000, which was $5,000 more than Bob was prepared to offer. That was Saturday and Bob leaves, but, Ron goes back the next day.
As it turns out, the Corvette is still available. The successful bidder couldn’t close.
Now, here’s where the story changes a bit.
Estoppel: “Ron can sign the papers”
Ron says he has a friend who will take the Corvette for $25,000. The owner agrees. Ron knows that Bill will take it. He calls Bill and Bill then speaks directly to the owner. He says Ron is my agent and he can sign the papers on my behalf. The deal between Ron and the owner is confirmed by Bill. The legal agreement is drawn up between the owner as the seller and Bill as the buyer. Ron is Bill’s agent, although, he wasn’t Bill’s agent when he made the offer.
Ratification: “I’ll buy the Corvette”
This time the scenario is slightly different.
Ron says he will take the Corvette for $25,000. The owner agrees. Ron knows that Bill will take it. He calls Bill and Bill then ratifies the deal between Ron and the owner. The legal agreement is drawn up between the owner as the seller and Bill as the buyer. Ron is Bill’s agent, although, he wasn’t Bill’s agent when he made the offer.
So, to summarize:
Estoppel: Principal confirms the agency contract
Ratification: Principal confirms the third party agreement
The result in both cases is the same. The agent is deemed to be the agent of the principal right from the beginning.
The two legal doctrines are sufficiently similar that in most cases a plaintiff will allege either estoppel or ratification and let the Court decide.
B.R. Madigan LL.B., Broker