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Gentleman’s Agreement: How to Avoid Getting Screwed

By July 25, 2016August 29th, 2017Business Lawyer

gentleman's agreementWhether by handshake or an email that says “It’s a deal,” business owners often get into legal trouble because of a gentleman’s agreement (a.k.a. gentlemen’s agreement).

What is a Gentleman’s Agreement?

A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.” – Sir Harry Vaisey

Despite Judge Vaisey’s cynical description of such an agreement, most informal deals are entered into in good faith between small business owners who want to get things done without the time and cost of retaining a qualified business lawyer to paper the deal as a legally binding contract.

Related Article: Can A Job Interview Form A Verbal Employment Agreement?

Donald Trump and the Art of the Handshake Deal

If you’ve read “The Art of the Deal” by Donald Trump or “Trump-Style Negotiation” by The Trump Organization’s senior legal counsel, George H. Ross, you’ll know that Trump will often shake hands on a verbal gentlemen’s agreement with another party.

However, Trump will then turn the deal over to Ross or another business lawyer to draft the contract that reflected the terms agreed to between the parties.

Words Have Different Meanings

So what’s wrong with just getting things done without a written contract in place?

Spoken words often have a different meaning to the listener than to the speaker. For example, if you’re buying a shipment of smart phones and tell the supplier that you need them a.s.a.p., you might mean delivery next week. However, the seller could interpret “as soon as possible” to be three months from now when he gets his next shipment from China.

Memories Fade

As pointed out by successful entrepreneur and author Harvey Mackay, “[p]ale ink is better than the most retentive memory.”

Unless the verbal agreement is performed within the space of a few hours, memories of what was agreed to will fade. That leads to misunderstandings and frequently lawsuits alleging breach of contract, bad faith, fraud, etc.

Honesty and the Verbal Agreement

Some contend that if both parties are honest, then there’s really no need for a written agreement because they’ll each endeavor to do what’s right.

Yet how can you tell? When it comes to deciding whether to enter into an oral B2B contract, there’s no acid test for honesty.

Better to get it in writing so there are remedies in place if the other party turns out to be a crook and a liar.

Preventing Misunderstanding of Your Gentlemen’s Agreement

Benjamin Franklin was right when he said that an ounce of prevention was worth a pound of cure. This is particularly true when preventing an expensive lawsuit or a bad business deal by taking a little time to get an oral gentleman’s agreement converted to a writing signed by the parties.

Related Article: How To Pick The Right Internet Lawyer For Your Business

According to Internet Lawyer Mike Young, you can protect yourself by having a qualified attorney prepare a written contract that accurately reflects the gentleman’s agreement both parties verbally agreed to with regard to price, quantity, time, location of performance, and dispute resolution.

Related Resource: Business Contract Legal Protection Package

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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