Do handshake deals hold up in court? Protecting your rights

What is a handshake deal?

Handshake deals are business agreements that are made and ratified through the words and actions of involved parties. The term handshake deal comes from the traditional practice of a hand shake that closes a deal. Although handshake deals are not formalized through a contract, the parties have a tacit and mutual agreement to the terms of the deal. A handshake deal is just as legally binding as a written contract.
Handshake deals create a legally binding contract that a party can produce in court if the other party does not uphold their end of the contract, as long as the elements of a contract are satisfied. These elements are the following:

• Agreement: An agreement exists when both parties accept the other’s offer to enter into a deal.
• Consideration: Each side of the handshake deal must receive something of value from the terms of the contract .
• Competence: The parties who make the handshake deal must be mentally competent to enter into a contract. They cannot be under duress, intoxicated, incapacitated or in some way incapable of understanding the agreement.
• Mutuality: Both parties must understand the terms of the agreement, and they must both agree to them. If both parties agree to the terms but one of the parties does not uphold it, this becomes a breach of contract.

Handshake deals are different from informal agreements. Simply agreeing to something off-the-cuff is an informal agreement. Handshake deals are much more serious. A handshake deal could be a nod of the head and a thumbs up to lend a car for the day. Whereas an informal agreement could be a vague suggestion. A handshake deal is much more binding than an informal agreement.

How handshake deals work in law

A cornerstone of contract law is the "meeting of the minds." For this to occur, there must be mutual agreement on essential terms so that each party knows what they are getting into. However, the actual formation of a contract does not necessarily require a signed writing. The common law recognizes that for an agreement to bind the parties it will generally need to contain the following elements:
The general approach in most jurisdictions in the U.S. is that if parties intend to make a contract, the agreement may be enforceable even if there is no written contract provided that it contains all the essential elements of a contract.
Handshake deals may be legally binding agreements if they contain all the essential elements of a contract. Here are some examples of when handshake deals can be legally binding: if there is an oral agreement with respect to the subject matter of the agreement; if there is an agreement with respect to price and terms of sale; or if there is other equally clear evidence of an agreement. In the commercial context, handshake deals often occur in a business setting where the parties have agreed to the essential elements of a contract including the price and terms of sale that will generally meet the requirements of a legally binding agreement under common law.

Pros and cons of handshake deals

Some businesses still use handshake deals to get things done. Probably there are a number of reasons for this. A handshake deal is simple and fast. Making a formal deal could put everything on hold.
Some parties still use a handshake deal because they think that if they have "large paper deal" with lawyers, their hands are tied. Their flexibility is gone. "I am a big believer in getting it done now," one client said to me.
The downsides of a handshake deal are pretty obvious. If a handshake deal was made and the other party does not perform as promised, all the flexibility in the world may be of no help.
A handshake deal’s enforceability may be questionable. A handshake deal could mean different things to different parties. When I recently asked a senior executive what part of a handshake deal she relied on in a dispute with a former employee, she said "the handshake."
If my client had a less than favorable outcome in the lawsuit with the former salesman, maybe the reason was that his handshake deal had the least effect on the lawsuit. I told her that the handshake should always be good for handshakes. Good intentions do not make a handshake legally binding. About twenty years ago, a jury in Alabama found that a proposed contract, and a later discussion to settle the dispute between two parties, both could be subject to a handshake deal.
After the handshake deal about the contract, I promise that I’ll have a real contract ready to sign in a couple of days. So don’t worry. We’ll be fine.

Enforceable handshake deal cases

Real-life examples of handshake deals that were carried out on the agreement being made Although it is common to see the terms of a deal spelt out in a letter or email, there are exceptions when agreements are concluded verbally. The landmark case of Bock v Duburoro (Pty) Ltd (2003) 2 All SA 370 (SCA) shows just how easy those deals can be enforced. In this matter, the parties were engaged in business activities involving a liquor licensing application for a new restaurant. Duburoro only owned a fraction of the shares in the joint venture while Bock owned 50% of the shares and had a controlling interest over day-to-day activities. Nevertheless, the court found that together they had agreed to create the joint venture and ordered Bock to transfer his shares to Duburoro under the same terms as laid out in the relevant application forms. The three judges were quick to note that while their agreement was non-rigid and imprecise, none of the parties ever contradicted its existence or the terms they had agreed upon . This was a verbal agreement as verbal agreements are equally as binding as those which are in writing. It merely depends on the proof which would be required to enforce it. Some agreements such as a guarantee must be in writing. Others can be verbal and still be enforceable. Another case which shows how easy it is for a handshake deal to be enforceable involved Munyaka v Telecom Namibia (2002) 23 ILJ 348 (LC). Re-emphasising that there is no strict law which forbids the conclusion of an agreement from being done orally, the employee in this case alleged that a binding agreement was entered into with a senior manager in the company. The court found that the employee was entitled to a benefit of the balance of his claim and was therefore ordered to be reinstated on the same terms and conditions. As seen above, it appears that the terms of the agreement do not constitute the crucial failing element for creating a legally binding agreement.

How to make sure your handshake deal is binding

While verbal agreements can be legally enforceable, handshake deals can be harder to enforce in the absence of any written agreement or documentation. Even when you do not have a formal written contract, however, there are certain things parties can do to make a handshake deal as binding and enforceable as possible. You may want to document the agreement in writing during a handshake deal. You can either write out the agreement explicitly, although that is not a substitute for a formal written contract, or you can write an email outlining the agreement to the other party. If you write an email to the other party confirming the handshake deal and the other party does not respond negating the agreement, you may be able to hold the other party to the handshake deal unless he claims that the agreement was made under duress or that the other party does not have the legal capacity to enter into the handshake deal.
At a minimum, the parties could have witnessed the handshake deal by using a mutual friend or relative or a neutral person to observe the handshake deal. After the handshake deal, consider sending an email to other person -even if you are not documenting the details of the handshake deal in writing- to confirm that the two of you came to an agreement at that meeting. The email confirmation could be construed to be evidence that the handshake deal occurred.

Getting legal advice and formalising handshake deal

Generally speaking, some parties may be able to have agreements with each other based on handshake, or verbal, agreements. In some cases, those agreements end up working out between the parties and no further action is necessary on their part. But other times, circumstances change, or the terms of the deal were not as clear as they thought, and verbal agreements break down . This is where formalizing an agreement with an enforceable written contract is needed, and the legal professional handling the agreement will likely be able to help you make this determination. If you do not follow through and create a written agreement where action is necessary, a disagreement can arise. A legal professional will be able to provide guidance on when an oral contract is necessary and when you need to create a valid written document.