What is Ratification of Contract?
In general, for a contract to be binding and enforceable, a person or San Diego business must consent to the contract. In other words, a person or business must agree to be bound. However, it is possible for a person or business to agree-after-the-fact. This is called “ratification” of a contract. Under California law, ratification has the same effect as valid contract formation. An experienced San Diego corporate attorney can help if there are questions about valid contract formation and/or ratification.
The California Civil Code has at least two provisions which codify the concept of ratification. Section 1588, for example, provides that “[a] contract which is voidable solely for want of due consent, may be ratified by a subsequent consent.” Further, section 1589 provides that “voluntary acceptance of the benefit of a transaction is equivalent to a consent of all the obligations arising from it … by the person accepting.” Ratification under §1588 may be as simple as a statement by the party to be bound that “I did not sign the contract then, but I now ratify the contract and agree to be bound.” Under some circumstances, silence may be enough for a court to find ratification. When it is brought to the attention of a person or business that a contract exists, the law imposes a duty to disavow the purported contract immediately, or within a reasonable time after learning of it. Otherwise, the person or business might be bound by the contract. This is the lesson we discussed in the “Fiji Water Model” example.
Ratification under §1589 can take many forms including the acceptance of payments, performing actions required, delivering products, and more. A famous early California case is Houk v. Williams Bros., Ltd., 58 Cal. App. 2d 573 (Cal. App. 3rd Dist. 1943). That case involved the purchase of an asparagus crop grown in 1939 pursuant to the terms of a written contract. The contract was between three parties: the owner of the land (the Houk brothers) entitled to a certain portion of the purchase price, the farmer (Thomas Gill) entitled to the remainder of the purchase and Williams Bros., Ltd. (the buyer of the crop). However, the original contract listed the former owners of the land. After the contract was signed by Gill and Williams Bros., Ltd., it was presented to one of the Houk brothers for signature. At that time, but he noticed that the previous owners were listed on the contract. He then scratched out the names of the previous owners, inserted “Houk Bros.” as the correct owners and then signed the contract as the representative of the partnership.
The altered contract was then delivered by Gill to the offices of the buyer. Then, about a week later, Gill went to the office of the buyer to make sure that there was no problem with the alteration of the contract. After some discussion and a call to the buyer’s attorney, an agent of the corporation said to Gill: “Well, … everything looked all right.” Thereafter, all three parties took actions to complete the contract. The buyer, for example, sent wood and other materials for constructing crates in which to pack and ship the asparagus and made certain payments.
A dispute arose and Williams Bros. refused to accept the crop for various reasons and, eventually, the Houk Bros. sued for their share of the purchase price. In the lawsuit, Williams Bros. Ltd. argued that the Houk Brothers partnership had no valid claim because the contract had been altered and was not binding.
The trial court rejected the argument and the Court of Appeals affirmed. The courts held that Williams Bros., Ltd. had ratified the altered contract by its actions described above.
Contact San Diego Corporate Law
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.