What is a ratified contract?
What exactly constitutes “ratification”?
Is a ratified contract legally binding?
In this article, we will break down the concept of a ratified contract so you know all there is to know about it.
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Let’s get started!
Table of Contents
Ratification definition
According to Duhaime’s Law Dictionary, the legal definition of ratification is:
“The act by a principal, after the agent has acted, confirming that what the agent may have done without authority, is binding on the principal.”
In other words, it’s the process of confirming a contract.
What is a ratified contract?
A ratified contract is a term often used in real estate transactions.
A ratified contract is a contract where the parties have agreed to its terms and conditions but have not yet signed the final contract.
For example, when you are buying a property or a home, here are the steps you will see to reach get to a ratified contract:
- The buyer places an offer on the property with some conditions
- The seller accepts the conditional offer
- Once the conditions are lifted by the buyer, the contract is ratified
- Then the final contract is signed before a lawyer or notary
The ratified contract literally represents the contract, in its final form, intended to be signed by the parties.
The only thing missing is for the parties to actually sign a final purchase or sale contract.
Another way to consider a ratified contract is that it is no longer a voidable contract.
When a contract is voidable, the parties need to ratify it to validate that they are intending to be bound by its terms.
The ratification process regularizes an otherwise voidable contract.
Can a void contract be ratified?
A void contract cannot be ratified even if the parties wanted to.
A void contract is a type of contract that violates the law and is illegal to start with.
As a result, even if a person wanted to ratify a void contract and commit to its terms, the contract will never be enforceable and legally binding in law.
Examples of void contracts are:
- Contract to sell illegal drugs
- A contract for actions that are impossible to achieve
- Contract to commit a crime
Can a voidable contract be ratified?
A voidable contract can be ratified.
When a voidable contract is ratified, the parties agree to be legally bound by its terms.
When the voidable contract is ratified, it will then produce all the legal effects as a valid and enforceable contract.
Examples of voidable contracts are:
- Contract signed with a person gravely ill
- Contract signed under duress
- Contract signed based on misrepresentation
- Contracts with at least one unconscionable term
- Contract signed by a person who did not have the legal capacity
These contracts are voidable as they did not follow the proper rules of formation.
However, when ratified, they will produce full legal effects.
What is the process from contract ratification to closing?
As mentioned previously, we often hear about contract ratification in real estate transactions.
We hear things like we need to “close the deal” or “close the contract”.
To close the deal is to officialize the transaction by transferring the title and exchanging cash.
In a real estate transaction, when a buyer and seller agree to the terms of an offer to purchase, they will generally agree on a date prior to which they must “close” the transaction.
In other words, they agree to sign the purchase agreement for the actual transfer of title by a certain date to close the process.
What are the steps in the process to close a transaction?
Since contract ratification is often related to real estate transactions, let’s use that as an example to understand the process.
Conditional offer to purchase
The first step in the process is when a potential buyer makes a conditional offer to purchase someone’s property.
For the sake of an example, let’s consider that a buyer is looking to buy a house to live in.
Typically, buyers will put a condition in their offer that they need to:
- Inspect the property
- Obtain financing approval from the bank
- Verify the property title
- Verify the property documents
- Show up before a lawyer to officialize the transaction
Acceptance of offer
If the seller considers that the conditional offer is acceptable, he or she will accept the terms of the conditional offer.
At this point, you formally have a legally binding contract to perform the obligations in the promise to purchase or conditional offer to purchase.
The promise to purchase commits the buyer and seller to do what they’ve agreed to do in their agreement.
For example, the buyer is legally bound to inspect the property or waive the right to do so.
The buyer must do what’s necessary to get bank financing, consult a professional to verify the property title and inspect the property documents.
The buyer and the seller are legally committed to showing up at the close to transfer the title of the property and get paid if the promise to purchase is ratified.
Property inspection
After the acceptance of the promise to purchase, the buyer will need to perform an inspection of the property.
If the inspection goes well, the buyer continues the ratification process.
However, if the inspection does not go well, the buyer has the ability to cancel the promise to purchase.
This ability to void the contract demonstrates that the contract has not yet been ratified.
When a contract is voidable, we do not yet have a ratified contract.
Mortgage and financing
Another condition to satisfy is bank financing.
The buyer must make sure he goes to a financial institution of his choice and get the financing needed to buy the property.
If the financing is approved, we move closer to the close date.
If the financing is not approved, the buyer can void the promise to purchase.
Verification of property title
The same process applies to the verification of the title.
The verification of the title is to ensure that the seller is legally authorized to sell the property and there are no problems with the title.
If the buyer is satisfied, this condition will get lifted.
Verification of property documents
Again, the same process here as well with regards to the verification of property documents.
The buyer will generally look at the utility bills, homeowner association documents, water, cable, gas, warranty certificates or any other relevant documentation concerning the property.
If the buyer is satisfied, this condition will get lifted.
Ratification of contract
When the inspection is done to the satisfaction of the buyer, bank financing is approved, the company documents are good and the title is clear, the buyer will ratify the promise to purchase.
When the promise to purchase is ratified, it means that the parties are now legally committed to buying and selling the property.
The only step left is the formality of closing the deal by signing the purchase agreement before an attorney or notary depending on your jurisdiction.
Closing of real estate transaction
The final step is the actual closing of the real estate contract.
At the close, the buyer and the seller will sign the formal contracts required to legally transfer the title of the property from the seller to the buyer.
Generally, the purchase contract must be in writing and follow certain legal conditions to be valid and they are done by lawyers or notaries.
When does a contract become a binding contract?
A contract becomes binding when you have the “meeting of the minds”.
Meeting of the minds
In other words, when the parties have clearly defined the consideration of their contract and express their intention to be bound to the contract, you have a binding contract.
When looking at the notions of contract law, a contract is binding when at the moment it is formed.
When a contract is formed and a party does not respect its terms, the non-breaching party can file a lawsuit and obtain legal remedies.
Offer and acceptance
So when is a contract formed?
A contract is formed when an offer is accepted.
In the case of a real estate transaction, you typically have a prospective buyer who wishes to buy a property.
He or she will submit a conditional offer to purchase a property.
The offer to purchase will have some basic conditions such as property inspection by the buyer and the approval of bank financing.
When the property owner accepts the conditional offer, the buyer is now committed to working in lifting the conditions such as doing the inspection and getting the mortgage approval.
When that is done, the contract is ratified by the buyer.
In other words, the buyer is now firmly committed to buying the property.
Real estate contract formation
From a legal perspective, in a real estate transaction, let’s see when a contract is formed:
- When a conditional offer is accepted, we have a formed contract where the parties commit to do certain things to ultimately sign a purchase or sale of property agreement
- When the conditional offer is ratified, you legally have a contract the only step missing is the actual signing of the contract
What is the difference between a ratified contract and an executed contract?
A ratified contract is when a party commits to be bound by the terms of a contract.
For example, if a contract was signed with a minor, the contract is voidable as it did not respect proper contract formation rules.
However, the parent of the minor can ratify the contract and agree to be bound to its terms.
Ratification is is the process of confirming the contract and agreeing to be bound by its terms.
The executed contract is when a contract is actually signed.
In our example, when a minor signs the contract, we can say that the contract is executed.
The execution of a contract does not automatically mean that the contract is enforceable or legally binding.
In fact, a contract with a minor will not be legally binding even though it’s executed or signed.
It can only become legally binding if it’s ratified by the minor’s guardian or tutor.
What is the purpose of ratification?
The purpose of ratification is to legally commit to the terms of a contract that was otherwise voidable or unenforceable.
When a contract is illegally formed, there is no obligation to ratify it.
However, if the person wants to validate or agree to the terms of a voidable contract, the ratification demonstrates the person’s willingness to be bound by the contract.
So the purpose of ratification is to confirm the contract.
For example, if a person was asked to sign a contract when he or she was gravely ill and did not have mental capacity, that contract is voidable as it does not respect proper formation rules.
However, the person, after recovering from the illness, may ratify the agreement.
This means that he or she will accept to be bound by the terms of the contract signed when gravely ill.
Frequently asked questions
Can you back out of a ratified contract?
When a contract is ratified, you cannot back out unless the other contracting party agrees.
The contract is legally binding on both parties.
In the context of a real estate transaction, if the conditions of a promise to purchase are lifted or contingencies cleared, the contract is ratified and legally binding even though the actual purchase agreement may not have been signed already.
If a party backs out, the other party may exercise legal recourses for breach of contract.
When does a home purchase become official?
Technically, the home purchase becomes official at the closing of the transaction when the seller transfers the title to the buyer.
However, the parties are legally bound to officialize the home purchase even before the actual closing.
When a potential buyer and seller agree to the terms of a conditional promise to purchase and the conditions are lifted, the parties are legally bound to officially the home purchase by transferring title and exchanging money.
So, in a sense, the home purchase becomes official when the promise to purchase conditions are lifted and the contract ratified.
The actual closing is a final formality.
What is a ratified real estate contract?
A ratified real estate contract is when the parties have agreed to all the essential elements, have done their inspection, verified property documents, title and all that is left is the actual signatures on a purchase agreement and exchange of money.
How is a contract ratified?
Generally, a contract is ratified in writing.
A party makes a clear statement to the other to say that he or she agrees with the terms of the contract and intends to be bound to it.
A person does not have to use the term “ratify” or “ratification” to ratify a contract.
The intention to be bound by the contract is sufficient.
In some cases, ratification can be implied through the actions of a person.
If a person performs the obligation so of contract continually, repeatedly and in a clear manner, the actions of the person can lead a court to conclude that the contract was ratified.
Takeaways
A ratified contract is a contract where the parties have agreed to its terms and conditions.
In a real estate transaction, a contract is ratified when there are no conditions preventing the closing of the deal and all contingencies have been lifted.
When you are buying a property or a home, here are the steps you will see to reach get to a ratified contract:
- The buyer places an offer on the property with some conditions
- The seller accepts the conditional offer
- Once the conditions are lifted by the buyer, the contract is ratified
- You close the deal at the lawyer’s office
Here, the ratified contract literally represents the contract, in its final form, intended to be signed by the parties.
The only thing missing is the transfer of title in exchange for money.
Ratification is also important under contract law when dealing with void or voidable contracts.
A void contract cannot be ratified while a voidable contract can be.
Ratifying a voidable contract means that you confirm the contract rendering it legally binding and enforceable.
