Opinion ID: 889153
Heading Depth: 1
Heading Rank: 10

Heading: Prejudice to Third Parties

Text: ¶ 48 Sherick's third argument against ratification is that application of the doctrine prejudices him as a third party. Erler replies that Sherick has failed to demonstrate that ratification of the Osburn-Erler deed prejudiced any existent right Sherick had in the property. ¶ 49 As explained above, where ratification occurs, the ratification relates back to the act ratified and takes effect as if the act was originally authorized. However, as noted, § 28-10-213, MCA, provides that [n]o unauthorized act can be made valid retroactively to the prejudice of third persons without their consent. Thus, retroactive ratification is ineffective if it lessens the rights or interests of persons who acquired their interest before ratification of the initial act. See Schnepel, 3 Mont. at 128 (if between the time of performance of the unauthorized act by the agent, and its ratification by the principal, the rights of third parties intervene, such rights are not defeated by the ratification.); U.S. v. Heinszen, 206 U.S. 370, 27 S.Ct. 742, 51 L.Ed. 1098 (1907) (when an agent has exercised a power in the name of the principal, without precedent authority, the principal may ratify and affirm the unauthorized act, and thus retroactively give it validity when rights of third persons have not intervened). ¶ 50 We have noted that prejudice is a term which connotes harm or loss of legal rights or privileges belonging to a party. Schmitz v. Engstrom, 2000 MT 275, ¶ 11, 302 Mont. 121, 13 P.3d 38. Here, Sherick asserts that subsequent ratification of the Osburn-Erler deed prejudices him by nullifying the interest he acquired in the property in June of 1999 by way of the Hill-Sherick quitclaim deed. However, this argument is unavailing. Sherick was not prejudiced by ratification of the Osburn-Erler deed because his interest in the property was invalid even prior to the ratification. ¶ 51 As the District Court correctly reasoned, Sherick was on constructive notice of the recorded assignment to the McClains[.] See § 70-21-302(1), MCA. Had Sherick conducted a title search he would have discovered McClains' record interest, which purported to purchase the same vendor interest Sherick intended to purchase from Donald Hill, and for which he paid. Accordingly, Sherick is not a BFP because he was on notice of a previously assigned interest in the same property, which he failed to investigate prior to purchase. The District Court properly concluded that Sherick's only remedy lies against his defrauder. Accordingly, ratification of the Osburn-Erler deed does not prejudice Sherick because his interest in the property prior to and after ratification is exactly the same: it is invalid.