Are Verbal Agreements Legally Binding in New York? Understanding Contract Law and Promissory Estoppel 

A contract is a legally binding agreement between two or more parties, creating mutual obligations enforceable by law. In business, relationships often evolve organically over time, built on trust and a history of collaboration. Agreements may develop through the years in a series of emails, phone calls, and handshake deals, forming a complex web of understandings that goes beyond the confines of the original contract that once reflected the foundation of the business relationship.

But what happens when those informal agreements within business relationships are breached, leaving one party to suffer financial loss or a loss of business opportunities they relied upon? New York contract law provides avenues for recourse when a party suffers losses due to a broken promise, even in the absence of a traditional, fully executed contract.

One such avenue is the legal principle of promissory estoppel. In New York, promissory estoppel serves as a legal remedy that allows parties to enforce promises made without a formal contract when they have reasonably relied on those promises to their detriment. 

This doctrine recognizes that business dealings are not always confined to the four corners of a written document, and that the reliance on promises can have significant legal and financial consequences. At its heart, promissory estoppel is concerned with preventing unjust enrichment, ensuring that one party does not unfairly benefit when another has suffered a loss due to relying on a promise.

Promissory estoppel acts as an exception to the rule that valid consideration requires economic value and an exchange of benefit or detriment between parties.

When an oral agreement or promise outside of a signed contract is broken in a long-term business relationship, the resulting disputes can be complex and challenging to navigate. With over 30 years of experience, Woods Lonergan PLLC’s trial attorneys have a proven track record in New York’s state and federal trial and appellate courts. We represent businesses of all sizes across various sectors, industries and jurisdictions in high-stakes breach of contract disputes, ensuring your rights are protected and your interests are vigorously pursued. Book A Call or Call our New York Business Attorneys today.

What is the Doctrine of Promissory Estoppel in New York?

Unlike a formal contract, promissory estoppel does not require all the traditional elements of a legally binding contract agreement. While contract law in New York necessitates certain key components, courts recognize that contracts aren’t always explicitly written out. In fact, New York courts can determine that a valid contract exists even when not formally documented, recognizing a contract can be “implied in fact.” 

“Implied in fact” means that based on the facts, circumstances, and conduct of the parties, a court may infer the existence of an enforceable agreement. Even for contracts “implied in fact,” New York law still looks for the core contractual elements:

• Offer and Acceptance: Clear offer by one party and unequivocal acceptance by the other.
• Consideration: Both sides must exchange something of value.
• Mutual Assent and Intent to be Bound: A “meeting of the minds” demonstrating intent to be bound, often found in communication and conduct.
• Capacity and Authority: Parties must have the legal ability to enter the contract.

However, there are situations where even a written contract may not be considered binding, for example, if only one party signed it. You can learn more about this in our blog post, “Can You Have a Binding “Written” Contract If Only One Party Signed?“.

Promissory estoppel, on the other hand, is different. In New York, Promissory estoppel can enforce a promise even when consideration is missing, and when the traditional elements of even a contract “implied in fact” are not fully present. The doctrine of “promissory estoppel” is a powerful exception to the general rule that promises are not enforceable without the exchange of adequate consideration.

The doctrine  of promissory estoppel in New York can be defined  as follows:

• Exception to Consideration Requirement: It acts as a significant exception to the typical contract rule requiring “consideration” (exchange of value) for a promise to be enforceable.
• Triggers of Promissory Estoppel: Promissory estoppel becomes relevant when:
  • A clear promise is made.
  • That promise leads a business to reasonably depend on it.
  • The business then suffers a loss because the promise is broken.
• Detrimental Reliance: The loss suffered due to reliance is specifically termed “detrimental reliance,” and is a core element of a promissory estoppel claim.
• Enforcement of Oral Agreements: Promissory estoppel is frequently used to provide legal recourse for oral agreements when a party has demonstrably relied on the verbal promise, even without a formal written contract.

In New York, the equitable doctrine of promissory estoppel enables injured parties to recover damages when they reasonably rely on a broken promise to their detriment—even in the absence of consideration for that promise, and without necessarily meeting all criteria for a contract “implied in fact”.

Promissory estoppel is a broad legal principle that applies to business and commercial practices, contract law, corporate law, employment law, real estate and property law. Beyond the business arena, promissory estoppel also finds expression in family and interpersonal contexts as well. It is a foundational legal doctrine with vast applicability; understanding this doctrine can help leverage a variety of situations.

The Statute of Frauds in New York: When Written Contracts are Mandatory

While New York law sometimes recognizes contracts “implied in fact,” the Statute of Frauds (New York General Obligations Law § 5-701) mandates that certain agreements must be in writing to be enforceable. If an agreement falls under the Statute of Frauds and is not written, New York courts may refuse to enforce it. These agreements include:  

• Agreements lasting over one year
• Real estate contracts
• Guarantees of another’s debt
• Prenuptial agreements
• Promises in a will
• Sale of goods over $500
• Promises to pay discharged bankruptcy debts

Exceptions to the Statute of Frauds exist, such as admission in court, partial performance, and the merchant’s exception. Crucially, promissory estoppel also serves as a narrow exception, potentially allowing enforcement of certain verbal promises even when the Statute of Frauds applies, but only in cases of unconscionable injury.

Promissory estoppel, however, offers a limited exception to the Statute of Frauds. In situations where the Statute of Frauds would normally prevent enforcement of a verbal agreement, promissory estoppel may still provide a remedy. This exception is applied narrowly, and requires demonstrating not just injustice, but unconscionable injury – harm far beyond what’s normally expected from breaking a promise.It’s important to be aware of the statute of limitations for breach of contract claims in New York, as these deadlines can significantly impact your ability to seek legal recourse. For a comprehensive guide on this topic, you can read our guide, “Breach of Contract Statute of Limitations in New York: A Comprehensive Guide.“

Understanding Remedies in New York Promissory Estoppel Cases: Reliance vs. Expectation Damages

New York courts, when addressing promissory estoppel claims, typically aim to limit a plaintiff’s recovery to what is necessary to avoid injustice. The remedies awarded are primarily focused on fairness and restoring equity.

The court may consider two main types of damages:

• Reliance Damages: This is the primary form of recovery in promissory estoppel cases.
  
  • Purpose: To compensate the promisee for actual losses and expenses they incurred.
  • Basis: These losses must be a direct result of the promisee’s reasonable reliance on the broken promise.
  • Goal: To restore the injured party to their economic position prior to relying on the promise.

• Expectation Damages: In some cases, though less common, a court may award expectation damages.
  
  • Purpose: To award the promisee the amount of money they would have made if the promise had been fulfilled.
  • Basis: Granted in situations where reliance damages are insufficient to prevent a clear injustice.
  • Goal: To place the injured party in the economic position they would have been in had the promise been performed.

Practical Difference: The key distinction between these remedies is their objective:

• Reliance Damages: Focus on reversing the harm caused by relying on the promise. They look backward, aiming to undo the negative impact of the broken promise.
• Expectation Damages: Focus on giving the benefit of the bargain (even though there was no formal bargain). They look forward, aiming to fulfill the promise’s intended outcome.

Examples of When Promissory Estoppel May Apply in NY Business

New York courts may apply promissory estoppel to enforce certain oral promises in business contexts. Here are a few examples:

• Handshake Agreements: A verbal agreement for an exclusive supply deal where a business owner relies on the promise of supply, may be enforced if the supplier later reneges.
• Broken Promises of Promotion: An employee who declines other job offers based on a company’s promise of a promotion may have a promissory estoppel claim if the promotion is then rescinded.
• Failed Contract Negotiations: When negotiations collapse after one party has made significant investments based on a clear oral agreement during those negotiations, promissory estoppel might provide recourse.

Analyzing Successful Promissory Estoppel Claims in New York Courts: Case Studies

To truly grasp how promissory estoppel works in New York, let’s look at some compelling case studies where plaintiffs successfully utilized the promissory estoppel doctrine. These cases, decided by the New York Appellate Division, illustrate key elements of a successful promissory estoppel claim and how New York courts apply this principle in practice.

• The Real Estate Broker’s Exclusive Deal Gone Wrong: 

In Elhanani v. Kuzinez (2019),(New York Appellate Division, 1^st Department, May 2019) a real estate broker found himself in a dispute with a real estate developer. The broker claimed they had a verbal agreement granting him exclusive rights to sell luxury apartments in a new building. Based on this promise of exclusivity, the broker agreed to significantly lower commission rates than usual. However, the developer later fired the broker and refused to pay him any commissions. The New York court sided with the broker, recognizing his promissory estoppel claim. The broker’s detrimental reliance – agreeing to reduced commissions based on the developer’s promise of exclusivity – was key to his success.

• A Daughter’s Promise of Property: 

In Salatino v. Salatino (New York Appellate Division, 2^nd Department, December 2004) The court upheld a daughter’s claim of promissory estoppel arising out of her father’s alleged promise to convey one-half interest in two parcels of real property to her. In this family-owned business dispute, the daughter reasonably relied on this promise by investing time and money into managing and maintaining the properties. The father’s subsequent reneging of conveyances supported the daughter’s claim of promissory estoppel on both properties. 

• The Modeling Scout’s Relocation Based on an Email: 

Lord v. Marilyn Model Management Inc. (New York Appellate Division, 1^st Department, June 2019)  demonstrates that even in the absence of a fully signed contract, a clear promise can be binding. A modeling scout, an experienced professional, was offered a job. While the formal written contract wasn’t fully signed by the employer, a board member sent an email stating, “Welcome aboard. We’ll countersign over the next few days.” Based on this welcoming promise, the scout relocated from New York to Paris to start the job. When he was later terminated, the scout sued for promissory estoppel, and the New York court agreed he had a valid claim. His detrimental reliance was evident in his significant life change – moving to Paris – based on the employer’s clear promise of employment.

These cases illustrate that  New York Courts will enforce a promissory estoppel claim when a plaintiff can clearly demonstrate:

• A clear and unambiguous promise was made by the defendant.
• The plaintiff reasonably relied on that promise.
• The plaintiff suffered detriment (injury or loss) due to that reliance.

Promissory estoppel serves as a vital protection against broken promises in New York business dealings, especially when those promises induce significant reliance and harm.

When Promissory Estoppel Claims Fall Short: Analyzing NY Case Dismissals

While promissory estoppel offers a crucial legal safety net, it’s not a guaranteed win for every broken promise. Promissory estoppel claims are often described as “delicate” because failing to prove even one of the essential elements can lead to the entire claim being dismissed by the courts. 

To understand why these claims were unsuccessful, let’s briefly reexamine the key elements of promissory estoppel in New York in relation to the following legal claims:

• Clear and Unambiguous Promise: Was the promise sufficiently specific and definite?
• Reasonable and Foreseeable Reliance: Was the plaintiff justified in relying on the promise, and should the promisor have anticipated that reliance?
• Detrimental Reliance (Injury): Did the plaintiff actually suffer a demonstrable loss directly because of their reliance?

Now, let’s examine cases where plaintiffs stumbled on these elements, leading to the dismissal of their promissory estoppel claims.

1. Lack of a Clear and Unambiguous Promise

The Fordham Housing Project:

In 4720 Third Avenue Housing LLC v. CA Ventures LLC (New York Appellate Division, 1^st Department, December 2022) , a developer, attempted to sue partner developers over a broken oral agreement to jointly fund a student housing project near Fordham University. The developer argued promissory estoppel, but the court disagreed. The New York Appellate Division pointed to the fact that the developer repeatedly tried – and failed – to get a written agreement. They also noted the existence of a non-binding Term Sheet. These facts, the court reasoned, undermined the claim that there was ever a clear promise from the partner developers to share losses. Essentially, the developer couldn’t prove the first essential element: a clear and unambiguous promise. The takeaway? Ambiguous discussions and failed attempts to formalize an agreement in writing often signal the absence of the clear promise needed for promissory estoppel.

2. Unreasonable or Unforeseeable Reliance 

The Real Estate Sale and the Dubious Partnership: 

Two high-profile New York cases which highlight situations where reliance was deemed unreasonable:

• EXRP 14 Holdings LLC v LS-14 Ave LLC (New York Appellate Division, 1^st Department, June 2024) involved a real property sale. Here, the seller tried to claim promissory estoppel based on unsigned assurances from the buyer before the official Purchase and Sale Agreement (PSA) was finalized. The court quickly rejected this claim. The PSA itself contained a “merger clause,” explicitly stating that the written agreement was the entire agreement. Relying on prior unsigned assurances, when a formal contract clearly stated otherwise, was deemed unreasonable reliance. This case emphasizes the importance of formal written contracts, especially when they explicitly supersede prior discussions.
  
• Stein v. Gelfand (Southern District of New York, March 2007)  involved a claimed oral partnership agreement. The plaintiff alleged a verbal promise of 20% equity and equal profit/loss sharing in a brief conversation. The court dismissed the promissory estoppel claim, finding the reliance unreasonable. The alleged promise was too vague, lacking key details, and it was simply improbable that the defendant would seriously intend to give away such a significant stake in his business based on such an informal exchange. This case highlights that reliance on vague or improbable promises, especially in complex business deals, is unlikely to be considered “reasonable” by New York courts.
  

3. Failure to Demonstrate Detrimental Reliance (Injury) 

The Iraq Security Services:

In Sabre Intern. Sec., Ltd. V. Vulcan Capital Mgt (New York Appellate Division, 1^st Department, May 2012)  , a security services provider sought payment for services rendered in Iraq, claiming promissory estoppel against power companies. While the security firm did suffer a loss (unpaid invoices), their claim failed because they couldn’t even identify which of the multiple defendants had made the alleged oral promise. The court ruled that without a clear link between a specific promise from a specific defendant and the plaintiff’s reliance, detrimental reliance could not be established. This case underscores the need to prove a direct causal link between the promise, the reliance, and the resulting harm, and to clearly identify who made the promise.

Key Takeaway: Promissory Estoppel is Not a Guarantee

These unsuccessful cases teach a critical lesson: New York Courts will rigorously examine promissory estoppel claims. Failing to convincingly demonstrate each of the required elements – clear promise, reasonable reliance, and detrimental reliance – will result in the claim’s dismissal. Promissory estoppel is a valuable legal tool, but it demands careful attention to detail and strong evidence to succeed.

Final Thoughts: Promises, Reliance, and Navigating the Nuances of Promissory Estoppel in NY

The doctrine of promissory estoppel stands as a powerful, yet nuanced, exception to the typical rules of contract law. It reminds New York business owners that even in the absence of formal agreements and explicit consideration, promises can carry significant legal weight. Whether you are a business owner seeking legal recourse for detrimental reliance on a broken promise, or a business seeking to avoid potential liability from informal promises, understanding promissory estoppel is not just a matter of legal theory – it’s a practical necessity.

Fully grasping the complexities of promissory estoppel and understanding how New York courts approach these often intricate disputes is crucial to protect your business and build trustworthy business relationships. Knowing when a promise, even if verbal, might be enforced, and what constitutes reasonable reliance and detrimental harm, can be the difference between protecting your business interests and facing unexpected legal challenges.

Navigating Promissory Estoppel Challenges

For business owners, board members, or officers struggling with issues of broken business agreements, potential promissory estoppel claims, or any aspect of contract law and corporate litigation in New York, always seek legal counsel when entering agreements—whether formal or informal.

Woods Lonergan’s team of trial attorneys with over 30 years of experience have a proven track record of success in New York’s state and federal courts, as well as in multi-jurisdictional matters.  Woods Lonergan is highly selective, focusing on complex disputes and high-stakes litigation where our strategic approach and courtroom expertise can deliver exceptional results for individuals, closely held businesses, and mid-sized companies across Manhattan, Brooklyn, Queens, Bronx, Staten Island, Nassau, Suffolk, and Westchester Counties.

To discuss your specific situation and explore your legal options, Contact Woods Lonergan PLLC today at (332) 286-4887 or Book A Call to schedule a consultation. Let our experienced team help you navigate the complexities of New York contract law and ensure your business is protected.

Promissory Estoppel: Frequently Asked Questions in New York Law

1. What do you need to prove a promissory estoppel claim In New York?

To strengthen your claim, gather documentation such as emails, letters, and contracts that demonstrate the promise. In addition, keep contemporaneous records of any actions taken or expenses incurred in reliance on the promise, such as financial statements, receipts, or other relevant records. Make sure to memorialize any changes to existing business agreements via email.

2. How can you protect your business from legal claims of broken promises, Promissory Estoppel in New York?

To protect your business from legal claims of broken promises, be cautious about the promises you make, especially in business dealings. Ensure that any promises are clear, unambiguous, and ideally documented in writing. If you need to change or withdraw a promise, communicate this clearly and promptly in writing to the other party.

3. What is a moral obligation vs. a business obligation?

A moral obligation is based on ethical considerations and personal values, while a business obligation is based on legal and contractual duties. Promissory estoppel can sometimes blur the lines between these two by enforcing promises that may not be legally binding but have been relied upon to a party’s detriment.

4. How is promissory estoppel different from a breach of contract in New York?

Promissory estoppel does not require a formal contract to exist. It focuses on enforcing promises that were relied upon, even if they don’t meet all the requirements of a contract. A breach of contract claim, on the other hand, requires a valid and enforceable contract that was breached.

5. What is the statute of limitations for a promissory estoppel claim in New York?

The statute of limitations for promissory estoppel claims in New York is generally six years from the date of the breach of promise. However, it’s important to consult with an attorney to determine the specific deadline for your case, as there can be exceptions and nuances.

6. What if I relied on a promise and lost money, but there is no contract?

You may still have a claim under promissory estoppel. If you can prove the elements of a claim—a clear promise, reasonable reliance, and detriment—you may be able to recover damages even without a formal written contract.