Just about any experienced business professional will prefer to do their important deals with clients, vendors and other parties in writing. Having a written contract is the best way to ensure that all parties understand their rights and responsibilities — and to enforce those obligations in court.
However, a contract need not be in writing to be legally valid. In fact, if a business is not careful, it may find that statements by its owners to other parties could constitute an offer or acceptance. Thus, the business could inadvertently become party to a contract.
One way a party can prove a contract exists is through reliance. If Party A can show that Party B made a statement or promise that A relied upon in a way that caused him or her financial injury, the court will enforce the statement or promise as if it were a completed contract. This is known as “detrimental reliance.”
Normally, the promise must be in exchange for some form of consideration to be a binding contract, but there need not be any consideration in a detrimental reliance case. However, Party A’s reliance on Party B’s promise must be reasonable and foreseeable by Party B. Any action taken by Party A that was not reasonably foreseeable by Party B cannot result in damages or other remedies.
This shows that a business should not be careless about what it tells other businesses and individuals. When a party sues to enforce an alleged oral contract, your business may need the help of an attorney to fend it off.
