Can a verbal promise create a binding contract?

In many industries, including construction, people take pride in the strength of their word. Often, business arrangements come down to an understanding and a handshake.

These agreements are never written down, which causes them to fall into a gray area, legally speaking. So the question, then, is whether a verbal promise without more is enough to be deemed legally enforceable.

Generally speaking, for a business agreement to be legally valid, it must be reduced to writing, as most contracts are. Yet, depending on the circumstances, a verbal promise may become legally binding.

When parties to these verbal agreements can settle the matter on their own, a court will consider several factors to determine whether or not the verbal promise should be enforced.

  • Was an actual offer made? Context means a lot here. If an individual technically made an offer, but the terms were so outlandish that a reasonable person wouldn’t think it was real, then a court probably won’t deem it enforceable. However, if the language used seemed legitimate and realistic, then the court might consider other factors.
  • Was there detrimental reliance? This is an analysis of the harm caused to the party that “accepted” the offer. If, for example, a city foregoes a favorable contract with one construction company based on a verbal offer from another company that was far cheaper, then the city will be financially hurt if that second company pulls back on its verbal offer. This is especially true if the offer from the first company is no longer available or is only available at an increased price. To carry weight with the court, the reliance has to be reasonable and foreseeable to the person who made the verbal promise.
  • What was the context? Not just of the verbal statement itself, but the business relationship between the parties. If they operated on verbal arrangements in the past with both sides carrying out its obligations, then a subsequent verbal offer that is in line with that history is more likely to be deemed legally enforceable.

The best way to avoid these issues is to commemorate business arrangements in writing through sound contract drafting that is clear and unambiguous.

We recognize, however, that this is sometimes easier said than done. Sometimes things move so quickly that offers are made and accepted without the opportunity to draft a contract. When things go sideways in these instances, the parties involved need to carefully consider their legal options so that they can protect their interests as fully as possible under the circumstances.

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