When is a Statement or Promise Considered a Binding Contract?

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When is a Statement or Promise Considered a Binding Contract?

People make statements and promises every day that they have no idea may, under certain circumstances, obligate them legally to follow through. If another person interprets your statement or promise as an offer, this could create a contract obligation that you may never have intended.

Of course, there is a vast difference between an empty statement and one that is legally actionable. This is why it is important when meeting with customers, partners, potential employees, or suppliers that you are careful about making statements or promises that could be construed as an offer. For example, if you tell a customer that you can supply a product for less than a competitor, this could be considered an offer if the customer responds affirmatively — even a casual reply from the customer like “Sounds good” could be viewed as an acceptance.

Making a promise or statement that causes another party to rely on that promise in a way that may injure that party financially could constitute a breach of oral contract. While it may be difficult to prove to a court that a contract existed absent any written agreement, if the statement or promise was made in the presence of other people or subsequent communication alludes to an oral agreement, this could constitute proof.

What if you made an oral agreement that was not witnessed by anyone else? If you immediately took action on your half of the deal, it can be convincing evidence of the contract. Additional proof is if the other party began acting in compliance with its obligations under the agreement.

There are some transactions that fall within Arizona’s Statute of Frauds, which means that they must be in writing to be legally valid and enforceable. The party against whom enforcement of the contract is sought also must sign them. For these types of contracts, oral agreements are insufficient. For instance, transactions that deal with real estate, whether it is a lease agreement for more than one year or a purchase agreement, must be in writing. Likewise, contracts that will necessarily take more than one year for a party to complete must be written, as well as transactions involving the sale of goods in excess of $500.

Williams Mestaz, L.L.P., is a law firm with decades of experience in commercial litigation, including IP infringement, employee lawsuits, business divorce, aviation, and high stakes litigation. Contact us at (602) 256-9400 and schedule a time to meet with us today.

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