When a Contract Doesn’t Require a Formal Offer  

Judge Gerald A. Williams
North Valley Justice of the Peace

Nearly every contract requires an offer and an acceptance. An offer is simply a proposal to enter into a contract on the terms contained within that offer. It creates an ability for the receiving party to accept it and a liability on the part of the person making the offer. So how could you have a contract without one?

There is a legal doctrine called promissory estoppel. It states that if one side relied to their detriment on the other side’s promise, then a contract has been formed. 

It has four requirements: (1) someone has to have made a promise, (2) the promise was of such a type that it was reasonably foreseeable that the other person would rely on it, (3) the receiving party justifiably relied on the promise, and (4) the person who relied on the promise incurred a loss. 

So how does this work? Say you are walking down the street with your rich friend and you pass a jewelry store. You stare into the store and admire a new $900 watch. Your friend announces that since he has more money than he needs, he will give you $1,000 next week. He sees you rush into the store and buy the watch.

But a funny thing happens the following week. He says that he has changed his mind and is no longer willing to give you the $1,000 as promised. As anger grows toward your former friend, you now wonder how you are going to pay your rent. 

Can you file a lawsuit even though there was no contract? Yes. If there is a promise, some type of reasonable expectation of reliance on that promise, and some type of unfair result, a court can award damages based on a promissory estoppel theory. 

Most of us don’t have a rich friend making false promises outside of jewelry stores, but promissory estoppel can also be raised in business transactions.

For example, if a general contractor depends on a subcontractor’s promise, and then the subcontractor backs out of the job, the general contractor (who based his bid on that promise) can recover damages for any additional costs associated with a replacement subcontractor. 

The bottom line is that this is a tricky area. If you want to have a contractual agreement with another, your best bet is for the two of you to sign a written contract. Sometimes a small argument up front can avoid a year of litigation later.                               

Judge Williams is the Justice of the Peace for the North Valley Justice Court.  His column appears monthly in The Foothills Focus.