Legal Question in Business Law in California

Re: Legal binding obligation on an ''application'' vs. ''contract''

You should also know, that contracts can generally be either written or oral. Certain contracts, however, must be in writing to be enforceable (such as the sale of real property, a lease for a term longer than one year, or obligations to be performed beyond one year). Because contracts can be oral, even if your "application" does not satisfy the requirements to be considered a contract, you may still have a "contract" concerning your transaction. As Mr. Wipple said, a court would look to the reasonable expectations of the parties, and the parties' objective manifestation of their intent to determine whether a contract exists.

Re: Legal binding obligation on an ''application'' vs. ''contract''

Contracts are formed by one party making an offer and the other party accepting the offer.

The label put on a document, such as "application," may be of some value in determining whether contractual obligation arises from the document, but the contents of the document are much more important.

A document captioned 'Application' may be an offer which, when signed by the applicant and returned to the party to whom the application is being made, ripens into a contract. Examples are an application for a driver's license or for a credit card. Upon acceptance, the application becomes a contract, as is usual with offers.

However, such an interpretation clearly does not apply to ALL documents styled as Application. For example, an application for a mortgage is not an offer by the applicant to take that mortgage, but rather leads to further formal rounds of documentation, closing, etc. before contractual liability arises (at least usually, although there may be a broker fee).

An application to purchase real estate would have to be read very carefully. At some point there should be a disclosure that signing has contractual significance, if it is to be enforced as a purchase contract. Time-share sales organizations usually know what they can get away with in each state and often skirt the edges of the law.

I have noticed some older cases indicating that an insurance policy becomes effective when the proposed insured's application is accepted by the company. There are also cases in which the furnishing of the application to the client was considered an offer, and the insurance contract was formed upon the signing and mailing of the application by the client. The difference in the outcomes was entirely due to the language contained in the particular insurance applications.

So, all in all, it's the way the thing reads as a whole that's controlling, as well as the parties' reasonable expectations in the circumstances, and only to a slight extent the label on the document.