According to a study by the International Association for Contract & Commercial Management (IACCM), unclear contract terms were found to be at the root of 70% of organizational disputes. Ratified contracts clearly outline terms and minimize, to a very great extent, the potential for miscommunication that may cause conflict.
Contracts form the skeleton of most transactions, partnerships, or legal agreements made in today's fast-moving business world.
However, the real power in a contract comes into play only when it is ratified.
This is what makes a contract legally binding, culminating in the safety of business interests and the creation of trust among stakeholders.
If not ratified, even the most perfectly written agreements can be devoid of legal standing and thus a cause of dispute.
Grasping the fine lines in ratified contracts can make a world of difference in business operations, mitigation of risk, and building trust between stakeholders.
Any party entering into a legal agreement, be it business, real estate, or labor relations, must be aware of contract ratification.
The blog delves into the nuances associated with the ratification of contracts, how this differs from simple signing, and how unratified contracts impact businesses from a legal point of view.
We'll also take a closer look at how Dock 365 simplifies contract ratification and offers an overview of this most critical aspect of contract management.
Understanding Contract Ratification
A ratified contract is one that has formally been agreed to by all parties of interest, hence binding them legally. While a contract might be signed, it is not considered fully legally binding until it undergoes ratification.
This makes all the difference because, without ratification, the contract may not be held in a court of law, therefore exposing businesses to risks and miscommunication.
Distinguishing Between Signing and Ratifying a Contract
Most people have the misguided idea that when a contract is signed, it becomes binding. However, ratification takes it one step further to include formal approval of the contract by the parties to the contract, usually through its duly authorized representatives.
Ratification is, in essence, a way of ensuring a contract has been duly understood and approved, giving one an extra layer of assurance and confidence in whatever agreement is being entered.
Key differences
Signing: This is the first step in the parties' indication in entering into a contracting process. Nevertheless, a signed contract might still be subject to some conditions which when met will hold the said agreement binding.
Ratification: It is the formal acceptance of the terms of the contract whereby it is confirmed that all parties are willing to proceed based on those terms. Very often, it is subject to certain conditions, such as in the case of real estate transactions, whereby specified contingencies, like inspections or approval of financing, must first be met before the contract becomes legally binding and enforceable.
Understanding these differences is important.
For example, in labor negotiations, an agreement in principle by the union representatives is not binding until it is ratified by a vote of the members.
Legal Implications of an Unratified Contract
An unratified contract can create serious legal consequences. A contract fronted by a signature, yet not ratified, may turn out to be unenforceable in a court of law. Such a situation may occur under the following circumstances:
Real Estate Transactions: Buyers who sign purchase agreements but cannot ratify the same due to contingencies may legally avoid such an agreement. This can be particularly frustrating for the seller and may even lead to financial losses.
Labor Agreements: In the instance of nonacceptance of a contract by union negotiation members, the contract immediately goes into effect from the previous one, where parties may return to the bargaining table. This could potentially extend dispute time and add uncertainty.
This is also where the legal doctrine of ratification plays a part. It is said to be the process by which parties can ratify actions taken for them without prior authority. Note, though, that if a contract is void, which is usually the case in any contract with illegality as the subject matter, ratification is not effective, and any act of ratification will still be null and void.
The Role of Ratified Contracts in Business Success
🔍 Clarity and mutual agreement
It is by formally ratifying a contract that a business will dispel any misconception and confirm whether both parties are on the same page or not. This clarity is important in maintaining healthy business relationships and avoiding disputes.
Consider a startup that contracts in a partnership agreement without being ratified; much later, one party claims that the interpretation was not done right on a key term and a dispute ensues, which perhaps could have been avoided had it been ratified.
🎯 Building Confidence and Trust
Ratified contracts show the amount of confidence and trust that the parties have in each other.
At the time when a contract gets ratified, both parties confirm their commitment to discharge the respective obligations.
This trust forms the base for sound business relationships which, if all goes well, will give way to a long-term association.
🚧 Risk Mitigation
Business is full of risks, and these can only be controlled.
Ratification of contracts is another way to minimize risks by making sure all the stipulations are to be legally bound.
These bring low chances of disputes and a clear legal framework in which to resolve any emerging issues.
🤝 Reducing Disputes
Since a ratified agreement is a well-checked and agreed-upon document, the chances of disputes from a ratified contract are nil.
This eliminates the room for ambiguity and misinterpretation and the potential for conflict related to these areas.
Challenges in Contract Ratification
Time Delays in the Ratification Process: The time delay is by far one of the most common challenges. This is due to the very complex approval chains that might exist, especially in large organizations where contracts may pass various levels of approval.
Miscommunication and Misunderstanding: The ratification process needs clear communication, which is not always the case. Unclear definitions of the terms regarding a contract might then cause misunderstandings that may delay or totally eliminate the ratification process.
Financial Constraints: If the ratification involves high spending, one would be very cautious about contracting for such services if the budget is conservative or if there is a question about getting value for money.
Technological: Technological obstacles would lower the efficiency of the ratification process. Organizations that still rely on manual processes will find the ratification process cumbersome, slow, and prone to errors.
The Importance of Technology
Electronic Signatures: Electronic signatures are the new way of signing contracts. In this age of digital transactions, e-signatures offer a quick and secure way to ratify contracts without the use of paper and, therefore, much more efficient.
Streamlined Processes: Contract management software allows for total automation of the ratification process so that everything is taken through in making a contract, thus minimizing delays and errors.
Improved Collaboration: Technology makes it easier for the communicating parties in the ratification process to stay in touch. Shared document tools enable real-time collaboration and feedback.
Data security: Technology securely stores sensitive contract information, making it less vulnerable to unauthorized access or data breaches.
Better Monitoring: The process of ratifying the contract can be digitally tracked to see which parties have signed and which contingencies are still open.
Analyze and Report: The visibility into contract performances and compliance with advanced contract management systems can help in making fact-based decisions on future agreements.
How Dock 365 Simplifies Contract Ratification
Features and Tools
The platform includes features that make contract ratification less of a hassle for organizations. From e-signatures to automated workflows, the platform provides much-needed assistance to a business for a number of its contracts that need to be properly ratified securely.
Integration with Existing Processes
This becomes one of the strong points of Dock 365: it integrates well with existing processes and tools. Its spotless integration with Microsoft 365 and other software runs smoothly, making it very easy to fit in with any sort of contract ratification within the business's pre-existing workflows.
Benefits to Businesses
Any business that works on Dock 365 is assured of the fact that this saves time, reduces errors, and in doing so, enhances compliance. The platform automates a range of features that would help ratify contracts quickly while making sure the process is safe and compliant.
It is always in the best interest of any contracting party to know the difference between signing and ratifying a contract to avoid confusion or potential legal problems.
The fact that unratified contracts cannot be legally applied explains the great importance of effective communication and the implementation of the rule of law.
With technology and best practices, businesses can ratify their contracts in an efficient and effective manner.
With Dock 365, there are a number of tools and features at one's disposal in the process of ratification, allowing businesses to manage their contracts with much ease while keeping the potential risks at bay.
Get a demo today to understand how Dock 365 can simplify your contract ratification process and improve your overall contract management strategy.
