Which concept occurs when the principal later approves an unauthorized act, making it binding?

• A. Agency
• B. Ratification
• C. Apparent authority
• D. Estoppel

Answer: (B)

Ratification is the concept at work here: when a principal later approves an unauthorized act by their agent, the act becomes binding on the principal as if the agent had authority from the start. The retroactive effect happens because the principal, by ratifying, adopts the act and accepts the resulting obligations toward the third party. For ratification to occur, the principal must know the material facts of what was done and intend to adopt it; ratification can be explicit or inferred from conduct, such as accepting the benefits or acting in a way that treats the act as approved. Once ratified, the principal bears the contract, and the agent is generally shielded from liability to the third party for lack of authority, though the agent could face other consequences if there was a separate breach of duty. This differs from apparent authority, which depends on the third party’s reasonable belief based on the principal’s representations, and from estoppel or the broader agency relationship, which cover different doctrines.