Are Handshakes Legally Binding? Understanding The Enforceability Of Verbal Contracts

What Is A Handshake Agreement?

A handshake agreement is an "informal" agreement that consists of a person saying that they will do something in the future, typically followed by a handshake and the parties going their separate ways. These agreements were quite common in the past when the world was less complex and there were less opportunities for persons to take advantage of one another. Handshake deals go hand in hand with the past concept of a "gentlemen’s agreement" or a "quasi-contract" which were all informal agreements based on an honor system with no focus on a provision by provision review of terms. Handshake agreements were deemed just as legally binding as written contracts without a need for written communications exchanged between the parties. These handshake deals were also easily formed as they often did not require any third parties to witness the handshake or sign the deal. Lastly , if a handshake deal was ever broken, it was considered bad form to break such a deal and there was more social shaming for such individuals. Although some of these factors remain today, most now view a handshake agreement in a negative connotation as it requires courts to use inference and guesswork to determine the terms of the contract. Additionally, businesses today are more heavily regulated with statutory and regulatory requirements, making handshake agreements much more and more rare.

Are Handshake Agreements Legally Binding?

Handshakes alone can be legally binding in some narrow circumstances even without a written contract. A handshake could be sufficient, for example, to establish liability for breach of contract or even grounds for determining damages if a party were to sue you. Laws vary by state and context, and each situation is in many ways unique, but contract law basics like offer and acceptance, and consideration are relevant to every scenario.
For a handshake to serve as the basis of a contract, there has to be an offer from one party that the other accepts. The acceptance has to mirror the offer in terms of the scope of the proposed agreement though. If the parties agreed to something by handshake but the terms of the contract have been altered after the fact, the current scope of the agreement may not be reflected in what a court would view as the intended agreement, meaning there could be a dispute about what the contract requires of each party. When parties shake hands over an agreement, acceptance of or assent to the proposed agreement does not have to come in the form of words, but the fact of the handshake does imply that acceptance of the proposal was communicated. That is the need for an offer and acceptance in order for parties to establish a legal agreement.
The other primary requirement for a legally binding contract is consideration. Consideration is typically a tangible exchange of cash for a service or some other item of value in exchange for a promise. That promise is the actual offer from one party to provide something in exchange for something else. So, handshakes or agreements to do something at a later date also don’t have to be explicit, but consideration is needed.

Advantages Of Handshake Contracts

Despite the normative question mark hanging over the legal status of handshake deals, they are still a common occurrence in today’s modern business world. The reasons? Well, they’re numerous, but generally speaking, the advantages of an informal verbal agreement are clear: first and foremost, they offer a level of simplicity and flexibility that a formal, written agreement simply can’t. They’re often the product of lengthy negotiations and planning sessions, perhaps over the course of weeks or months, so once an agreement is verbalised between you and the connected party, it just feels easier to sign off on it there and then, rather than sift through a formal document, then go over to your lawyers to have it scrutinised and properly analysed. Because if the deal suits both parties and no one really sees any reason to raise an objection at that point, then what other option is there?
Another advantage of handshake deals is the trust factor they carry with them. If you’re meeting face to face with the party with whom you’re about to enter into an agreement, you’re naturally going to build up a level of trust with them, so much so that that trust could well be stronger than the strength of the written agreement that you’re both signing with typical colourful strokes.
Many successful business deals in the modern world won’t even bother documenting the details of what’s going to occur, and a classic example of this is the typical homeowner/small construction project. Up until 15 years ago, a homeowner would paint their house or get their roof tiled by a small contractor and they wouldn’t bother to have either a written or even verbal crawl through the plan for the work to be done. They’d just go ahead, the tradesman would do the job the way it’s always done and once the work was complete, the homeowner would shake the tradesman’s hand and make the payment. Done and dusted. The benefits of a handshake deal were felt by both parties; the homeowner got the work done and paid exactly what it was worth, knowing that if anything went wrong, they’d have the natural (non-legal) right on their side. And the tradesman spent next to no time billing and crooning over a contract, not worrying about whether a poorly worded clause would leave them more open to the unexpected.
If a problem did arise, they played it by ear, as you’d expect. A roof that leaked after the tiles weren’t properly sealed due to wet weather over the weekend, for instance, would be fixed by the tradesman in good gesture and with no monetary extra cost involved (although it may incur a physical cost or liability problem down the line). But the point is that they still had the trust between them to fix what was broken, because for both parties, it was more like a beef between two friends than it was between two escapees from a business meeting in a stuffy boardroom.
Handshake deals are more prevalent in some industries than others. For instance, a musician wouldn’t typically sign a written agreement for a feature on a track from their upcoming mixtape. In film or television? Probably not so much. That said, both parties are going to shake on it and rest assured, in that swift moment, the two are more than likely going to have each other’s backs.

What Are The Disadvantages Of Using A Handshake

Yet, despite the prevalence of handshake deals, relying on them exclusively can be rife with challenges. In the absence of a written contract, it is always possible that the parties may not be able to enforce an agreement. For example, courts have discretion to force parties to follow the terms of a deal. Handshake agreements have created liabilities when a court has ruled that the deal was unconscionable or excessively vague for any court to order specific performance. Even if the essential terms of the agreement are clear, another challenge is proving those terms. If a party in a verbal handshake agreement initiates a suit for breach of contract, the burden is on the party claiming to have an agreement to show that the agreement existed and that the other side busted the deal. This can be tricky if an alleged contractual deal was reached over the phone, by email or even in-person if there were no witnesses to the alleged exchange. Having witnesses to a verbal handshake deal has proven invaluable time and time again for the winning party.

Examples Of Handshake Agreements And Case Law

Several instances have crossed the lawyer blogosphere over the years where handshakes have become the subject of litigation to various degrees and over a range of circumstances. In its very basics, it’s unlikely that a handshake is all an impressionable young lawyer-in-training will learn about contract law in the classroom. And while these examples don’t set the standard for the entire nation, they help shine a light on how courts view handshake agreements.
Grennan v. Union Hill Inn
The Handbook of Civil Litigation summarizes a case from the New Jersey Superior court involving a handshake agreement to split the proceeds from a $250,000 insurance policy received from a decedent’s death. Suits were brought by two brothers as to the disbursement of the proceeds. The Court held that the brothers had made an enforceable oral agreement to split the proceeds of the policy in half, following the decedent’s death. Specifically, the Court found that even though the agreement had not been reduced to writing, there had been enough "meeting of the minds" in the handshake agreement. The Court also ruled that it was enforceable under the Statute of Frauds.
Tektronix, Inc. v. Daktronics, Inc.
Law360 reports that in California, Tektronix Inc. had filed a breach of contract suit against Daktronics Inc., in which Tektronix won a favorable jury verdict of over $3 million. A series of meetings had led to a handshake agreement on the terms of the deal, which were later presented to the company and rejected. Not content to give up easily, Tektronix claimed that Daktronics violated the handshake agreement by taking confidential information and later using it in Tektronix’s marketplace. The jury found that the handshake was enforceable , but Tektronix won because the confidential information was indeed taken inappropriately.
Savannah Foods & Indus., Inc. v. SouthTrust Bank, N.A.
This case, described in Lawyer101.com, involved the plaintiffs buying a peanut processing plant. The seller and buyer entered into a handshake agreement before having a formal contract drawn up. A dispute arose and the plaintiff sued for breach of contract. In finding in favor of the buyer, the court held that the evidence showed that a contract existed and was supported by the sale of the peanut plant. There was an offer, acceptance, and consideration. Because the parties were aware that the contract was incomplete, the court held that it could be considered to have been formed upon the subsequent agreement of the parties.
Kass v. Kass
In a decision rendered in September 2007, the New York State Court of Appeals reviewed a case involving parents of a severely disabled child who divorced and disagreed whether to use sperm that had been frozen and donated by a new father. The Ruling held the insemination had not been done pursuant to proper procedures that were intended to protect the sperm donor from claims such as paternity or inheritance. The mother had argued that the father agreed, during a meeting that she claims was oral, but which he denies took place, that if she were to become pregnant and they should then divorce, the custody of the child would automatically belong to her. The Court held that as of June 14, 2001, artificial insemination of the plaintiff without the defendant’s consent must be done with a proxy in writing, and because the wife had conceded that the husband did not consent the artificial insemination, the condition that the husband had agreed to be the father of the child in the event of divorce failed, and the father was indeed the legal father of the child.

How To Enforce A Handshake Agreement

While it is possible for a handshake agreement to be legally enforceable, businesses can strengthen the validity of verbal contracts by following certain best practices. For example, follow up with a summary of the handshake agreement in writing soon after the handshake occurs. This acknowledgment can even be sent via email, although a letter or a Memorandum of Understanding can be more convincing if a previously agreed-upon contract provision requires it. If an informal agreement does not have an express writing requirement, however, a letter or MOU may not necessarily provide additional benefits.
Whenever feasible, parties should also have at least two neutral witnesses present at the time the handshake agreement is finalized. Keep in mind that if one of the witnesses has a stake in the outcome of a dispute (e.g., an employee or family member of one of the parties), the involvement of that witness will most likely be challenged in court.

What Are The Alternatives To Handshake Agreements

If shaking hands isn’t enough, or you’re looking for an agreement with more certainty, there are a number of alternatives you can consider. Written contracts: These are the pillar of business law and can be used to lock in your agreement when meetings face-to-face don’t provide the level of comfort you’re seeking. Even if you’re doing business with someone you’ve known for years, having a comprehensive legal contract that describes the terms of your deal in detail will help to minimize risk down the road. A multi-page written contract that clearly lays out all the responsibilities of both parties is typically harder for the other side to back out on than a verbal agreement. Written contracts also help to cover those "what if" scenarios that are sometimes difficult to predict at the outset. Email agreements: In some cases, an email may even suffice as a binding written contract . Sending your agreement in writing and getting a reply acknowledging that you have a deal may be all you need, but note that this is often less secure than a formal written contract. In any case, it’s always advisable to follow up on a handshake agreement via email so that you have a written record of the deal you struck. Phone contracts: Whether you’re negotiating a deal over the phone or discussing the details of a contract that’s being sent over, immediately follow up with an email confirming your conversation. Again, this helps to create a binding record. With many phone apps now recording conversations, you may also want to check with the other party to see if they’re agreeable to this. You might find a recording more useful than an email when it comes to proving the existence of a verbal contract. If you’re still unclear on whether your handshake agreement is legally binding, get in touch with a lawyer to get up to speed on the requirements in your province for a verbal or written contract and what you need to do.