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What is a non-binding contract?

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Quick Answer

According to the United States Department of State, a non-binding contract lays out the terms of an agreement without obligating either party to fulfill the terms. It is used to create an understanding of an agreement before a formal agreement is written out or finalized. It can also be used to create a moral or political obligation without creating a formal agreement.

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The United States Department of State notes that when creating a non-binding contract, it is imperative that both parties understand and use language that reinforces the notion that the instrument is non-binding. Words such as "agreement," "parties," "shall," "agree" and "undertake" should be avoided because they could potentially change the implications of the contract. The source recommends that negotiators instead use hypothetical language such as "should," "expect to" and "intend." Utilizing a disclaimer in the document that marks it as unofficial and non-binding may prove useful in the event that either party attempts to enforce any part of a non-binding agreement.

About.com notes that other documents, such as quotes from a vendor, can also be considered as non-binding contracts. A quote from a vendor, such as a moving company, gives the client an idea of the services and charges that would be incurred to complete a job. However, these charges may not be all-inclusive. If the vendor provided the client with a binding estimate, the vendor would not be able to charge more than the estimated cost.

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