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.

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.

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.

If you need help with contract ratification, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.