Understanding Ratified Contracts: When and How to Use Them

As your time becomes more precious or your organization grows, you won’t be able to do everything yourself

Instead, you’ll need to use agents to work on your behalf. These agents come in many shapes and forms and often have a lot of autonomy to do things like sign contracts.

These agreements that agents enter into on your behalf may need to be confirmed later in what’s known as a ratified contract.

In this guide, you’ll get a deeper understanding of what a ratified contract is, when it should be used, and how to ratify a contract.

What is a Ratified Contract?

A ratified contract is an agreement that has been further validated or confirmed after creation. It occurs with agreements entered into by an agent on behalf of a principal.

This is done to show that the original agreement was accepted by the principal even though it was undertaken on their behalf by the agent without being authorized beforehand.

That’s the main point to understand with a ratified contract. Initially, the agreement was entered into without the explicit permission of the principal. The principal later confirms that they accept and adopt the terms of the agreement.

Despite the initial lack of authority, once ratified, the contract becomes legally binding between the parties involved. Of course, the agreement still needs to uphold the standards of a valid contract.

Elements required for a contract to be ratified:

Certain requirements or elements need to be present before a contract can be ratified. Without them, ratification can be an uphill battle or impossible to do.

1. Agency relationship: There should be an established agency relationship where an agent acts on behalf of the principal in good faith but without specific authorization to do so. The key here is that the actions are taken on behalf of the principal.
2. Knowledge and acceptance: After the action has been taken, the principal must be informed of what action was taken and then accept it. Ratification cannot occur if the principal does not know of the agent’s actions or if the principal doesn’t agree to the terms of the contract.
3. Intent to ratify: The principal must demonstrate a clear intent to ratify the contract, either explicitly through words or actions or implicitly through conduct consistent with acceptance of the contract’s terms.
4. Legal capacity: Of course, everyone involved should be able to enter into a contract from a legal standpoint – known as legal capacity. They should be old enough, not under duress, not mentally impaired due to controlled substances, mentally sound, etc. for ratification to proceed.

Key differences between ratified and non-ratified contracts:

The primary distinctions between ratified and non-ratified contracts lie in their formation, validation, and timing:

First, non-ratified contracts are formed through mutual consent and agreement between the parties at the time of contract formation.

In contrast, ratified contracts involve actions taken by one party (the agent) on behalf of another party (the principal) without prior authorization, followed by the principal’s acceptance or confirmation of those actions.

Next non-ratified contracts are valid from the moment of formation, provided all essential elements of a contract are present.

Ratified contracts, however, are initially voidable or unenforceable until the principal ratifies the contract by accepting or confirming the actions taken by the agent.

Lastly, non-ratified contracts are effective immediately upon formation, while ratified contracts become effective retroactively, from the time the agent took the actions, once the principal ratifies them.

A ratified contract represents an agreement that was initially unauthorized but later confirmed or adopted by the principal.

It requires an agency relationship, knowledge, and acceptance by the principal, intent to ratify, and legal capacity of the parties. The key differences between ratified and non-ratified contracts lie in their formation, validation, and timing of effectiveness.

When to Use a Ratified Contract

There aren’t hard and fast rules about when to use a ratified contract or not. With that being said, there are situations in which they’re more common which are listed below.

1. Real estate transactions: Ratified contracts are frequently used in real estate transactions, particularly when agents or brokers act on behalf of buyers or sellers without explicit authorization.

In such cases, the actions taken by the agent, such as presenting offers or negotiating terms, may require subsequent ratification by the principal.

Ratified contracts provide a mechanism for confirming and formalizing the agreements reached during the negotiation process, ensuring clarity and certainty in the transaction.

2. Employment agreements: Ratified contracts are also prevalent in employment agreements, especially in situations where hiring managers or human resources personnel extend offers or negotiate terms on behalf of employers.

If these representatives exceed their authority or make commitments that require approval from higher management, the agreements may need to be ratified by authorized decision-makers within the organization.

Ratified contracts help formalize the employment relationship, establish terms and conditions, and provide legal protection for both employers and employees.

3. Business partnerships and collaborations: In the context of business partnerships and collaborations, ratified contracts are often used to formalize agreements reached during negotiations or discussions between parties.

For example, when representatives of two companies negotiate terms for a joint venture or collaboration, the resulting agreement may need to be ratified by the respective boards of directors, final contract manager, or authorized representatives before becoming legally binding.

Ratified contracts help ensure that all parties are in agreement and committed to the terms of the partnership or collaboration, minimizing the risk of misunderstandings or disputes.

Advantages of using ratified contracts in specific contexts:

Clarity and certainty: Since an agent undertakes a contract on behalf of the principal, parties may feel uncertain. Ratification provides the certainty needed and formalizes the agreement for all parties.

When a contract is ratified, it’s an acknowledgment by the principal of the action taken on their behalf by the agent. This reduces the risk of any misunderstandings and removes a reason for rendering the contract void.

Legal validity: Of course, once the principal has ratified the contract, it becomes legally binding to the full extent of the law. That means the terms, conditions, and obligations of the contracts are enforceable by all relevant parties.

If there’s a breach of contract or a dispute arises during the execution of the contract, those involved will have multiple legal channels to address the issues that arise.

Flexibility: A little-known benefit of ratified contracts is that they provide more flexibility in negotiating agreements. That’s because you can use agents to speak on your behalf without getting directly involved. Once the terms are agreed, the final decision-makers can step in and offer final approval.

This flexibility facilitates efficient decision-making and contract execution, particularly in complex or time-sensitive transactions.

Potential drawbacks and limitations of ratified contracts

• Delay: One potential drawback of using ratified contracts is the delay in the contract negotiation and approval process. Ratification requires additional steps beyond the initial agreement, such as obtaining approval from principals or decision-makers, which can prolong the timeline for finalizing the contract.
• Complexity: Ratified contracts may introduce complexity, particularly in situations involving multiple parties or hierarchical decision-making structures. Coordinating the ratification process and obtaining approvals from all necessary stakeholders can be challenging, especially in large organizations or complex transactions.
• Risk of non-ratification: There is a risk that contracts may not be ratified by the principal, particularly if there are disagreements or changes in circumstances after the initial agreement. In such cases, the contract may be voidable or unenforceable, potentially leading to disputes or legal challenges.

Ratified contracts are commonly used in real estate transactions, employment agreements, and business partnerships to formalize agreements reached through agents or representatives.

They offer advantages such as clarity, legal validity, and flexibility, but may also present drawbacks such as delay, complexity, and the risk of non-ratification.

It’s essential to consider the specific circumstances and objectives of each transaction when deciding whether to use a ratified contract.

How to Create and Ratify a Contract

There are three overarching steps involved in the contract creation and ratification process that must be followed. They’re listed below.

The first step in drafting a ratified contract is to identify the parties involved and their respective roles and responsibilities. This includes specifying who will act as the principal and who will act as the agent, if applicable.

Additionally, it’s essential to define the scope of authority granted to the agent and any limitations on their ability to bind the principal.

Once the parties have been identified, the next step is to specify the terms and conditions of the contract.

This includes outlining the rights, obligations, and responsibilities of each party, as well as any specific actions or commitments that may require ratification by the principal.

The terms and conditions should be clear, unambiguous, and comprehensive, covering all relevant aspects of the agreement.

Consideration is a fundamental element of any contract, representing something of value exchanged between the parties.

In a ratified contract, consideration may take the form of promises, payments, services, or other benefits exchanged between the parties.

It’s essential to establish consideration that is sufficient, legal, and mutually agreed upon by the parties involved.

Ensuring legal enforceability:

To ensure the legal enforceability of a ratified contract, it’s crucial to comply with all applicable laws and regulations governing contract formation and execution.

This includes ensuring that the contract complies with relevant statutory requirements, such as those related to capacity, legality, and formalities.

Additionally, you should consider any industry-specific regulations or standards that may impact the contract’s validity or enforceability.

Another key aspect of ensuring the legal enforceability of a ratified contract is to consider potential disputes and contingencies that may arise during the contract’s term. This includes identifying and addressing potential areas of disagreement, ambiguity, or uncertainty in the contract language.

You should also include provisions for resolving disputes and addressing contingencies, such as force majeure clauses, dispute resolution mechanisms, or termination provisions.

Creating and ratifying a contract involves several key steps, including identifying parties and their roles, specifying terms and conditions, and establishing consideration.

To ensure the legal enforceability of the contract, strive to comply with applicable laws and regulations and consider potential disputes and contingencies.

By following these steps and considerations, you can create ratified contracts that are legally valid, enforceable, and provide a solid foundation for their business relationships.

Ratification process and formalities

1. Signing and execution:

The ratification process of a contract typically involves signing and executing the agreement by the principal after actions have been taken on their behalf by an agent.

Once the agent has negotiated terms or entered into agreements on behalf of the principal, the principal must formally approve or ratify those actions for the contract to become legally binding.

This approval is usually indicated by the principal signing the contract or providing explicit consent to the terms agreed upon by the agent.

In some cases, the ratification process may involve additional formalities, such as obtaining signatures from witnesses or notarization to authenticate the document.

The manner of execution and formalities required may vary depending on the jurisdiction and the nature of the contract.

However, the key aspect is that the principal’s approval or ratification is documented in writing and made evident through signatures or other formal means.

2. Documentation and record-keeping:

Documentation and record-keeping are important aspects of the ratification process to ensure clarity, transparency, and legal validity.

Once the contract has been ratified, it should be documented and recorded in writing to provide evidence of the parties’ intentions and commitments.

This documentation typically includes a copy of the ratified contract signed by the principal, along with any supporting documentation or correspondence related to the ratification process.

Proper record-keeping is crucial for maintaining a clear and accurate record of the contract’s formation and ratification. This includes retaining copies of all relevant documents, such as correspondence, meeting minutes, and authorization forms, as well as any changes or amendments made to the contract during the ratification process. These records serve as a reference point for the parties involved and may be necessary to resolve disputes or enforce the contract in the future.

In addition to internal record-keeping, you may also need to comply with regulatory or statutory requirements regarding the retention and storage of contract documents.

This may include maintaining records for a specified period or ensuring that documents are stored securely to prevent loss, tampering, or unauthorized access.

Overall, the ratification process and formalities involve signing and executing the contract by the principal, along with proper documentation and record-keeping to ensure legal validity and enforceability. By following these steps and maintaining accurate records, parties can create ratified contracts that provide a solid foundation for their business relationships and transactions.

Conclusion

Ratified contracts are useful tools to take advantage of multiple opportunities but stay in charge of the final say.

It allows you to work hand in hand with agents to ensure your interests are protected. While there are many benefits, there are a few downsides such as the contract being voidable and it taking longer to complete a deal.

Make sure you take the time to understand what ratified contracts are, how they can be used, and the various requirements as outlined in this guide.

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