Handshake Deals In Business

Handshake Deals and Gentlemen’s Agreements are essentially oral contracts, verbal agreements between parties to perform transactions.  While generally not considered to be in the best interests of parties who enter into such agreements, Handshake Deals and/or oral contracts can be enforceable if they are supported by adequate evidence.  Gentlemen’s Agreements are generally viewed as being more informal and non-binding, with the parties relying on honor and trust, understanding that the agreements may be unenforceable.   Nevertheless, both kinds of deals are present in the business world.

However, under the Statute of Frauds, there are a number of transactions where oral agreements are not valid and the contracts must be in writing.  Some examples include: the sale or transfer of an interest in real property, contracts that cannot be completed within one year, the sale of goods for $500.00 or more, marriage contracts (including prenuptial agreements), contracts where a party acts as a guarantor for another party’s debt, and the sale of certain goods under the Uniform Commercial Code (“UCC”).

That said, there are a number of parties who knowingly enter into both kinds of oral agreements, regardless of their risky nature and the Statute of Frauds.  Some famous Gentlemen’s Agreements in business that have never been officially verified include rock manager extraordinaire Peter Grant’s management contract with Led Zeppelin between 1968-1982 and a 1990’s era agreement between Boeing and American Airlines and Delta Airlines where the parties agreed the carriers would only buy Boeing aircraft (an agreement no longer in effect due to the changes with ownership and management of the carriers and their air-fleets).  

In recent news, Johnny Depp won a legal victory over his former attorneys at Bloom Hergott Diemer Rosenthal LaViolette Feldman Schenkman & Goodman LLP when he argued the firm wrongfully collected $30 million in fees from an unenforceable Handshake Deal. Specifically, Depp argued his former attorneys operated under an oral agreement that was in fact a contingency fee agreement, as such, the agreement was voidable under California’s Business and Professions Code because under the Code, contingency fee agreements must be in writing.  The defendants from the law firm argued that Handshake deals are common in the entertainment industry, and while the court noted Hollywood deals are indeed unique and part of the business, it ruled such deals still must comply with state law. The court granted Depp’s motion to dismiss the defendants’ claim that the actor breached the firm’s oral fee agreement. 

While Handshake Deals and Gentlemen’s Agreements will continue to play a role in business, it is important for the parties to recognize the risk, complications and enforceability of such agreements.

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