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A Few Thoughts about Informal Business Agreements...

The "Handshake Deal"

I've recently read a case where the court found a "gentlemen's agreement" to be binding and enforceable ( Kilpatrick v. White Hall on MS River, LLC: ).

If you do not already know - a "gentlemen's agreement" is defined as an informal and legally non-binding agreement between two or more parties that is usually oral (i.e.; a handshake agreement).

As a business owner or decision making principle there might be instances where you find yourself in need of making an agreement with another business or associate that is memorialized by only a handshake and a promise. You probably feel it is okay to do this because of your friendship, comfort with the business associate, or feeling on the hook to make a quick decision or lose the deal. But making this type of deal could be a...


I use "potential" because the mistake would only be revealed if things go wrong with the deal since a written contract would not be needed if things go well. However; the problem is, no one is perfectly able to gauge how well things will continue to go with a relationship or deal. The Kilpatrick case shows us that depending upon the circumstances, some courts are willing to uphold informal agreements that are not in the form of a written contract. This means you could find yourself and your business liable for an action you did or did not do as part of an informal agreement if that deal or relationship goes bad.

Since there seems to be no shortage of case law that illustrates the risks of skipping the written formalities of a business agreement, be very cautious of such informal agreements or "handshake deals" and try to avoid them if at all possible otherwise, if the agreement goes sour, it could be very costly to your business.

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