When Will a Promise or Statement Be Considered a Binding Contract?
People make all kinds of promises and statements in their daily lives, sometimes without realizing how others may interpret them. In fact, even a verbal statement that sounds like an offer can be legally construed as one, saddling you with contractual obligations you may never have intened.
If you're a business manager or sole proprietor, you should be especially aware of the difference between an empty statement and a legally actionable one. The following information will help you better understand how your statements -- if accepted, even silently -- can become legally binding contracts.
Have You Made an Offer?
When meeting with business partners, employees, or even prospective employees in an interview setting, always be careful before making what could be considered an offer.
For example, telling a business partner that you can sell your widgets for $50 a piece after learning that the competition sells a similar product for $60 could be considered an offer, especially if he or she responded in the affirmative (i.e. "That sounds great."). Let's assume that partner decided to cancel a meeting with the other distributor (your competition) only to discover that you can't sell them for less than $65. He or she may be able to make the case that you had offered to sell the widgets for $50.
When a Statement or Promise Becomes a Contract: Overview
If one party makes a statement or a promise that causes another party to rely on that statement in such a way that he or she is financially injured by that reliance, then a court will enforce the statement or promise as if it was a completed contract. The court does not need to find an agreement or consideration in order to enforce the promise like a contract, but it is difficult to prove a statement was made without a record of it.
The idea of giving a remedy against a person who has broken his or her promise appeals to most people. However, the "detrimental reliance" of the promisee (the person to whom the promise is made) on the promise must be reasonable and foreseeable by the promisor (the person who made the promise) at the time of his or her statement. If the promisee took action that the promisor could not have anticipated, the promisor is not required to live up to the promise.
Simple Statement or Contractual Offer? An Illustration
Let's say John tells Doris he will pay her $3,000 to take care of his children for the summer. Doris cancels her less lucrative summer employment in favor of John's offer, but at the last minute John takes in a foreign exchange student who will do the work for free. Doris may be able to receive damages from John for the lost earnings she suffered by relying on his promise.
But, if John tells Doris he will pay her $3,000 to take care of his children for the summer and Doris drops her health insurance coverage because she assumes John will cover her, her assumption is not based on a promise made by John. Therefore, Doris can not get damages from John for her increased medical expenses.
Was Your Statement a Contractual Offer? Ask an Attorney
Sometimes the line between casual promise and contractual offer is much finer than we realize. But businesses need to be careful what they propose to employees, partners, and others, since even an innocent statement can be construed as a contract. Ask a business and commercial law attorney about the existence of a contract if you're unsure or have any other contract-related questions.