Agency relationships are built on trust. A principal empowers an agent to act on their behalf, expecting loyalty and good faith. But what happens when an agent oversteps their authority, or acts in a way that benefits themselves rather than the principal? Can such unauthorized acts later become binding? In Ethiopian agency law, the concept of ratification provides a crucial mechanism, but it’s one with important nuances and limitations, as illustrated by recent Federal Supreme Court Cassation Bench decisions.
The Agent’s Core Duty: Loyalty and Avoiding Conflict of Interest
At the heart of every agency relationship lies the agent’s strict duty of fiduciary loyalty. This means an agent must act diligently and in good faith, prioritizing the principal’s interests above all else. This fundamental principle is enshrined in the Ethiopian Civil Code, particularly in Articles 2208 and 2209(1).
A critical aspect of this duty is the avoidance of conflicts of interest. As highlighted in Cassation File No. 14974, when an agent performs an act where their own interest conflicts with the principal’s, it’s presumed that the agent might not put the principal’s interest first. Therefore, an agent is generally prohibited from performing such acts without first informing the principal and obtaining their express consent.
If an agent proceeds with an act in a conflict of interest situation without the principal’s knowledge and consent, the principal has the right to challenge that act. Such an act is not automatically considered as if the principal himself performed it unless the principal subsequently ratifies it. This brings us to the core of our discussion.
Understanding Ratification: Giving Life to Unauthorized Acts
Ratification is the principal’s act of approving an act performed by an agent (or a purported agent) who, at the time of the act, lacked the necessary authority. Essentially, it’s a retroactive validation. If a principal ratifies an unauthorized act, it becomes as binding as if the agent had full authority from the beginning.
However, the power of ratification is not limitless, particularly when dealing with acts performed entirely without any existing power of attorney.
The Limits of Ratification: A Crucial Distinction
Cassation File No. 74538 (Vol. 13) sheds light on a vital distinction regarding what can, and cannot, be ratified in Ethiopian law. This case explicitly states that:
“A power of attorney given after the fact does not have the effect of ratifying acts performed before the power of attorney was granted.”
This means that if an individual acts completely without any power of attorney whatsoever on behalf of another, a subsequent grant of power of attorney by the purported principal does not retroactively validate those initial, unauthorized acts.
The Cassation Bench clarifies that Civil Code Article 2190 and subsequent provisions, which deal with an agent acting beyond their existing authority, are applicable when there was some power of attorney in place, and the agent merely exceeded its scope. These are the types of unauthorized acts that can be ratified. However, where there was no power of attorney at all for the specific act, subsequent authorization does not suffice for ratification in this context.
In essence:
- Acts performed beyond existing authority: These can generally be ratified by the principal (e.g., an agent authorized to sell a car, but sells it for less than the minimum price specified, might have their act ratified by the principal).
- Acts performed without any authority at all (by a mere stranger or someone falsely claiming authority): These cannot be ratified by a subsequent grant of power of attorney for that specific past act. The principal would have to enter into a new, fresh agreement to validate the transaction.