Key Takeaways

  • A ratified contract becomes legally enforceable once all parties formally agree to its terms.
  • It is different from an executed contract, which has already been fully performed.
  • Ratification can occur explicitly (through signature) or implicitly (by conduct).
  • In real estate, ratified contracts are vital for finalizing purchase and lease agreements.
  • Ratified contracts can validate prior unauthorized acts or agreements by an agent or minor.
  • Legal implications include binding liability and potential for enforcement or challenge in court.

A ratified contract is a term used with real estate transactions. It refers to a contract in which the terms have been agreed upon by all parties but has not yet been fully executed, signed, and delivered. The typical steps in the contract process include the offer, acceptance, consideration, and ratification. In the consideration stage, something of value is exchanged, such as earnest money in the case of a home purchase. If a mistake is made during the creation of the contract, it may be considered void.

What Is a Ratified Contract?

Contracts must describe the rights and obligations associated with an agreement. They are legally binding, which means that either party may see legal action if the other party does not abide by the contract terms. If an agreement changes, both parties must sign an amendment to reflect that a change has occurred and provide details about the change.

Contract ratification is required when parties want to execute a voidable contract. For example, if an underage person signs a contract to buy a car, that contract is voidable because he or she does not have the legal authority to sign it. However, the contract can still be carried out if it is ratified.

Small business owners must sometimes ratify contracts on behalf of individuals who do not have signature authority. For example, if an employee hires another employee, he or she does not necessarily have the authority to act on behalf of the company. If you begin paying this new employee, however, you have ratified the contract. If you do not agree to this arrangement and refuse to pay, the contract can be voided since the first employee did not have the authority to enter into a binding agreement.

A ratified contract is one in which all parties involved have agreed to the terms and conditions set out within the document, often solidified through signatures. The ratification process transforms an offer into a legally binding agreement, making it crucial for formalizing business dealings, real estate transactions, and employment contracts. While contracts can exist in many forms, ratified contracts offer clarity and enforceability since all parties have formally consented.

Key Features of a Ratified Contract:

  • Mutual Consent: Both parties must agree to all terms before ratification occurs.
  • Definitive Terms: The contract must outline specific terms, such as the obligations of each party, payment details, and the duration of the agreement.
  • Legal Binding: Once ratified, the contract is legally binding, meaning parties can be held accountable for non-compliance.

Explicit vs. Implied Ratification

Ratification can be explicit, where parties sign the contract to show formal acceptance, or implied, where actions indicate agreement even without a signature. For example, if a company benefits from a contract initiated without authority and continues to use the services or products from that contract, it may be deemed to have implicitly ratified the agreement.

How to Ratify a Contract

Ratifying a contract involves several key steps that ensure the agreement is valid and enforceable. Here’s how a contract can typically be ratified:

  1. Offer and Acceptance: One party makes an offer, and the other party accepts it. This process forms the initial basis of the contract.
  2. Review and Negotiation: Both parties review the terms and negotiate any necessary changes. During this phase, all clauses should be clarified to avoid misunderstandings.
  3. Signing the Contract: Once both parties agree on the terms, they sign the contract, indicating their intention to be bound by its terms.
  4. Delivery: A signed copy of the contract is delivered to all involved parties. In some cases, delivery is a key element of contract ratification.
  5. Consideration: A ratified contract must include consideration – a legal term for something of value exchanged between the parties, such as money, goods, or services.

Legal Requirements for Effective Ratification

To be legally valid, ratification must meet the following conditions:

  • Full Knowledge: The ratifying party must be fully aware of all material facts of the agreement.
  • Voluntary Intent: Ratification must be intentional and without coercion.
  • Legal Capacity: The party must have had the capacity to enter into the contract at the time of ratification.
  • Timeliness: Delayed ratification may be contested, especially if circumstances have materially changed.

What Is the Difference Between Void and Voidable Contracts?

Void contracts may not be legally executed. The following are some examples:

  • Contracts governing actions that are not legal.
  • Contracts governing actions that are impossible.
  • Contracts that attempt to govern a person's choice of spouse.

Contracts that are voidable, but not void, can be performed in good faith if they are ratified.  These formal agreements may not be legally enforceable for various reasons. Examples include the following:

  • Contracts signed by a person under the influence of alcohol or drugs.
  • Contracts signed under duress.
  • Contracts in which one or both parties did not disclose a material fact.
  • Contracts that include errors, fraud, or misrepresentation of facts.
  • Contracts that have been breached.
  • Contracts with at least one unconscionable term.
  • Contracts in which at least one party would not have agreed if all elements were properly detailed.
  • Contracts in which at least one party is a minor.

In any of these cases, if the person who has the power to reject the contract chooses to honor it, it remains valid even though it is voidable.

Can a Minor Ratify a Contract?

Minors can enter into contracts, but these agreements are typically voidable at the minor’s discretion. Upon reaching the age of majority, a minor can ratify the contract—either explicitly by affirming it in writing or implicitly by continuing to perform under its terms. This post-majority ratification transforms a previously voidable contract into a binding one.

Ratified Contracts vs. Executed Contracts

It's essential to differentiate between ratified and executed contracts:

  • Ratified Contract: An agreement that has been formally agreed upon but may still be in the process of fulfillment. For example, a real estate purchase agreement becomes ratified when both buyer and seller sign the document, but the deal is not executed until the property is transferred.
  • Executed Contract: This contract has been fully completed, with all terms and obligations met by the involved parties.

Understanding this distinction helps clarify the contract's current status and future obligations. A ratified contract is still actionable, while an executed one marks the completion of all contractual duties.

Importance in Commercial and Corporate Settings

Ratified contracts are pivotal in business for validating actions taken by employees, agents, or third parties without prior authority. Companies often face situations where someone oversteps their authority, and ratification serves as a tool to legally bind the company to the agreement if it benefits from or accepts the outcome. Failure to ratify can lead to legal disputes or contract rescission.

What Is Vicarious Liability?

Vicarious liability occurs when ratification is not needed to hold either party responsible. For example, businesses are responsible for employee actions within the scope of his or her job duties. For example, if a delivery driver gets in an accident, the business he or she works for can be held liable.

When Does a Home Purchase Become Official?

The official contract date for a home purchase is important to note because it is used to calculate deadlines and contingencies for the sale. Many homeowners wonder if their home is under contract once they have accepted the buyer's offer, agreed on the contract terms, and signed the paperwork. However, real estate contracts are not legally binding until they are ratified: signed by all parties and returned to the offerer. Although this is a technicality, it can sometimes lead to issues since the parties may think a binding contract exists when it does not.

In this situation, you can avoid confusion by ensuring the contract is as clear as possible. Vague or confusing contracts, those with open or misleading terms, and those made verbally are not considered legally binding. If you need to add language to a standard contract, use simple terms rather than legal jargon. Most real estate contracts can be delivered and accepted by the agent on behalf of the buyer and seller.

Common Scenarios for Contract Ratification in Real Estate

In real estate, ratified contracts are a cornerstone of the transaction process. Here are common scenarios where contract ratification plays a crucial role:

  1. Home Purchase Agreements: Once the buyer and seller agree on the offer's terms, the contract is ratified. This action legally binds both parties to the agreement, outlining responsibilities like inspections, financing, and closing timelines.
  2. Lease Agreements: Landlords and tenants ratify lease agreements by signing the document, thereby formalizing the tenant's rights to occupy the property.
  3. Contingency Removals: In some real estate contracts, contingencies (e.g., financing, inspections) must be satisfied before ratification. Once these contingencies are removed, the contract can proceed to a ratified state.

Risks of Misunderstanding Ratification Status

Misinterpreting whether a contract is ratified can result in legal complications. For example:

  • Breach Claims: A party may be held liable for breaching a contract they didn’t realize was legally enforceable.
  • Contract Rescission: If a contract is prematurely acted upon before formal ratification, the other party may cancel or dispute its validity.
  • Litigation Exposure: Parties relying on an unratified contract may face lawsuits if essential terms (like contingencies or payment schedules) were never formally agreed upon.

Frequently Asked Questions

1. What is the difference between a ratified and unratified contract? A ratified contract has been formally agreed to by all parties and is legally binding. An unratified contract has not yet met this threshold and may not be enforceable.

2. Can a ratified contract be revoked? Once ratified, a contract is legally binding. Revocation typically requires mutual consent or proof of a legal defect such as fraud, duress, or illegality.

3. Is a verbal ratification valid? While verbal ratification can be valid, especially if conduct supports it, written ratification is preferable for clarity and legal proof.

4. Does a contract need to be ratified to be enforceable? Only certain contracts—such as those involving unauthorized agents or voidable agreements—require ratification. Many contracts are enforceable upon execution.

5. What happens if one party acts on a contract before it is ratified? Premature actions can create legal risks. If the other party does not ratify the agreement, the acting party may have limited legal recourse or expose themselves to liability.

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