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Ariz. Land Advisors, Ltd. Liab. Co. v. Studio City Lofts, Ltd. Liab. Co. - No. 1 CA-CV 15-0402, 2016 Ariz. App. Unpub. LEXIS 898 (Ct. App. July 14, 2016)

Rule:

The principal is not bound by a ratification made without knowledge of material facts about the agent's act unless the principal chose to ratify with awareness that such knowledge was lacking.

Facts:

Some months after an employee had been removed as Studio City's manager, the employee signed an agreement with Land Advisors, purportedly on behalf of Studio City, granting Land Advisors a one-year exclusive right to sell a parcel of real property owned by Studio City. Pursuant to the agreement, if the property were sold during the one-year term, Land Advisors would receive a six-percent commission. 

Two days after the listing agreement was signed, Studio City entered an involuntary bankruptcy, which resolved by a settlement agreement to which Land Advisors was not a party. The settlement agreement, inter alia, provided that  the employee had  the authority, subject only to bankruptcy court approval, to sell or refinance the Real Property. Without Land Advisors' involvement but still within the one year term of the listing agreement, Studio City sold the property. Land Advisors then sued Studio City, alleging breach of contract and seeking its commission. On cross motions for summary judgment, the superior court entered judgment in favor of Studio City and against Land Advisors. The court also granted Studio City's request for attorney's fees and costs, awarding it $10,000 of its requested $23,559 in fees. Land Advisors timely appealed, arguing that Studio City ratified the execution of the listing agreement when it authorized the former employee to act for it in a bankruptcy settlement agreement.

Issue:

Is there an implied ratification of a previous agreement when Studio City allows its former employee to represent it in a bankruptcy settlement agreement?

Answer:

No.

Conclusion:

Land Advisors failed to offer evidence sufficient to create a genuine issue of fact that by assenting to the language in the bankruptcy settlement agreement, Studio City chose to ratify everything that its former employee might have done in attempting to refinance or sell the property. The principal is not bound by a ratification made without knowledge of material facts about the agent's act unless the principal chose to ratify with awareness that such knowledge was lacking. The focal point of ratification is an observable indication that the principal has exercised choice and has consented. The appellate court affirmed the superior court's entry of summary judgment in favor of Studio City as well as the court's award of attorney's fees and costs. 

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