Question: My father has been saying for years that our family business would be mine when he retires. He’s been less involved with the day-to-day in recent years, and informed me this week he’ll be closing up shop in July when our lease is up, and moving to the shore with his new girlfriend. I have family members, customers, and suppliers who can attest to this, but can an unwritten promise like this be enforced in Montgomery County?

Answer provided by: Jeffrey S. Feldman, Esq. from The Feldman Firm, LLC

Depending upon the circumstances, yes.  Unwritten promises can be enforced under Pennsylvania law under several different legal theories, each of which has its own rules and exceptions.

First, unwritten promises can be legal contracts.  A verbal agreement is generally enforceable as a contract if there is a specific offer made, that offer is accepted, and some sort of consideration is exchanged between the parties based on the offer.  Here, it appears that your father offered to transfer the family business to you in exchange for your commitment to work for the business until he retires, so there was an offer and an acceptance.  The question of consideration is a closer one, however, as you would have to be able to claim that, in reliance on your father’s promise, you agreed to provide him with something more than simply continuing to work for the business in exchange for the pay that you received.  For example, you might have agreed to forego a higher salary in exchange for his promise of allowing you to eventually earn the business from him, or you may have agreed to turn down other employment opportunities that were available to you along the way that would have been more lucrative.

Second, an unwritten promise that lacks any legal consideration can still be enforced under a theory known as promissory estoppel.  Promissory estoppel is an equitable doctrine that is based on fairness.  Under that doctrine, a promise is made legally enforceable when another party reasonably relies on it to his or her detriment.  Here, you might be able to claim that: (1) your father made the promise to you with the reasonable expectation that you would act on it; (2) you actually relied on his promise by continuing to work for the business under terms that were favorable to your father (such as receiving lower pay, taking on extra work, or working for more years than you would have otherwise); and (3) the only way to avoid an injustice to you would be to enforce his promise to give you the business.  Once again, you would have to show that you suffered some particular loss or missed some specific opportunity because of your reliance on your father’s promise.

Third, parties with cases involving a broken unwritten promise can be successful by making a claim for the equitable doctrine of unjust enrichment.  Unjust enrichment claims do not require proof of a promise.  Instead, they focus on whether someone conferred a benefit on another party that the other party accepted, and whether there are circumstances that would make it unfair for the other party to retain that benefit without paying for it. The focus of the court in an unjust enrichment case is not on the intention of the parties, but rather whether, as an objective matter, the defendant has been unjustly enriched by the person making the claim.  In your case, you might argue that your family’s business received the benefit of your work under terms that you otherwise would not have provided if the broken promise had not been made, and that the business made that broken promise to you through your father in his capacity as an officer or owner of the business. In that type of claim, you would try to prove that, as a result of the unfair broken promise, you provided the business with significant value in excess of the salary and benefits that you received from the business.

Each of these theories may be subject to various substantive and procedural defenses, including defenses based on the statute of limitations and similar equitable arguments that you may have waited too long to bring a legal claim to court.  You and your lawyer would also have to be careful to review the ownership structure of the family business and confirm whether you are making the correct claims against the proper parties.  In addition, if you eventually succeed on the merits of your claim in court, you may face a significant dispute with your father over the proper measurement of your damages, the value of the family business, and whether any emergency steps need to be taken by the court to prevent the business from being shut down while you litigate your claims.  As a result, it is important to seek legal advice promptly and retain a lawyer who is familiar with litigation issues involving contracts, the relevant equitable doctrines, and business disputes in general.

Finally, when you are considering any type of litigation, it’s important to talk with your lawyer about your ultimate goals and what you can expect to occur during the course of the proceedings.  Here, you are dealing with the particularly sensitive issue of bringing a claim against your father and your family’s business.  While your father may be the one who has broken his promise, it is reasonable to anticipate that filing a lawsuit against him and his business (as well as possibly subpoenaing other family members to testify against him) will cause significant damage your family’s relationships.  Filing a lawsuit will also bring your previously private family dispute into the public eye.  As such, it might be wise to consider having your lawyer request that your father and the business agree to have your dispute decided in a private mediation or arbitration proceeding rather than in a lawsuit. In Montgomery County, we are fortunate to be able to make use of the Montgomery Bar Association’s Center for Mediation and Arbitration, which provides mediation and arbitration services by experienced local mediators and arbitrators.

To arrange a free half-hour consultation with attorney Jeffrey S. Feldman, Esq., click here to email a Montgomery Bar Association LRS advisor (LRS@montgomerybar.org), or call 610-994-3656 during regular business hours (Monday-Friday, 9 AM-4PM). If contacting us by phone, please be sure to mention this attorney’s name and how you heard about us. Automated referrals to other Montgomery Bar Association member-attorneys in your area offering free or deeply discounted consultations through our service are available online anytime at RealLawyers.org.

More about this Montgomery Bar Association member-panelist (bio provided by this attorney prior to publication):

Jeffrey S. Feldman, the founder and Managing Member of The Feldman Firm, LLC, grew up in Montgomery County, Pennsylvania. He is a graduate of Cornell University and the University of Pennsylvania Law School, and he has been admitted to practice law in Pennsylvania and New Jersey since 1997.  Since then, he has worked in private practice at several law firms representing individuals and organizations in civil matters.  He currently concentrates his practice on the litigation, arbitration and trial of business and civil disputes in the state and federal courts.  His office is located in his home town of Plymouth Meeting.

Jeff has been repeatedly recognized by his peers in the legal community for his commitment to excellence.  He has been AV® Preeminent™ Rated (the highest rating available for legal ability and professional ethics) by Martindale-Hubbell since 2007.  In 2011 and 2012, he was selected for inclusion in Super Lawyers-Pennsylvania Rising Stars in the practice area of Business Litigation.  Thereafter, he has been selected for inclusion in Super Lawyers-Pennsylvania for Business Litigation in 2013, 2014, 2015, 2016, 2017 and 2018. He also maintains a 10.0 (Superb) Rating from Avvo.com.

Jeff successfully represented the plaintiffs in Gutteridge v. J3 Energy Group, a 2017 decision of the Pennsylvania Superior Court that reviewed and refined Pennsylvania’s laws regarding promissory estoppel and unjust enrichment.

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