Each action taken by a business must come from someone who has authority to make a decision on behalf of the business. Typically, this is the owner, a board of directors or someone with authority, such as a president or chief executive officer. Ratification is the act of confirming or agreeing to a particular course of action. It can occur in various situations and can be determined from the facts and circumstances surrounding the events.
A written contract signed by individuals who have the authority to bind the corporation to the agreement is one example of ratification. Contracts describe the specific obligations and rights of an arrangement and allow a party to seek legal action if the other party breaches the agreement. Sometimes an agreement may change. The parties may amend the agreement to reflect the change. In the amendment, the following language often precedes the signature line: “Except for the changes in this amendment, the agreement is ratified and affirmed and remains in effect.” The ratification language signifies further agreement to the changes and notes that, aside from those changes, the original agreement is not affected.
Not every action is evidenced by a written contract. For example, assume John Doe is a stock boy for XYZ Corporation. John “hires” his good friend to make deliveries for the XYZ Corporation. John does not have the authority to enter into this type of agreement. However, if the president of XYZ Corporation starts paying John’s friend, the president has ratified John’s conduct and bound the corporation to the agreement. If instead the president refuses to pay John’s friend and refuses to allow John’s friend to make deliveries, John’s friend may not have a cause of action against XYZ Corporation for breach because the conduct was not ratified and John had no authority to make the decision.
Vicarious liability is a situation in which ratification isn’t explicitly needed to hold the business responsible for some course of conduct. In general, businesses are responsible for the acts of their employees unless the employee does something outside of the scope of her employment. For example, assume a business hires a delivery driver and the delivery driver gets into an accident. The injured person in the accident could hold the business liable for the driver’s conduct because the business is responsible for the acts of its employees.
In some instances, more than one person is required to ratify conduct. A corporation operates through a board of directors; each director is chosen by the shareholders. For a particular act to be valid, a majority of the board of directors must vote to ratify the course of action. For example, if a few members of ABC Corporation decide to buy some real estate on behalf of the corporation, they need the board's approval, or ratification. If the board does not authorize a certain course of action, ABC Corporation may avoid certain liabilities, depending on the facts and circumstances.