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For many, “handshake deals” are the best kind of deals. They are based on the good people involved, the right kind of people who honor their promises without the need for writing, and such deals are quick and easy in the sense there is no long-drawn-out process of drafting a written contract. In truth, these kinds of oral handshake agreements are enforceable in California. Oral contracts, and even course of dealing contracts, are valid in California and California courts will enforce them.
However, even with the best and most honorable of people, handshake agreements have inherent risks with respect to enforceability, including:
- Proof of terms — since there is no writing, oral testimony is needed
- Since there may be only two witnesses, a she-said-he-said situation might result
- Oral statements are more prone to misunderstanding and misinterpretation
- Passage of time leads to memory loss or divergence of memory
- Changed circumstances do not get reflected in a new handshake agreement
We here at San Diego Corporate Law do not endorse handshake agreements. Written agreements are better from a legal standpoint and should always be used in lieu of a verbal agreement. However, if you are going to ignore our advice and enter into a verbal agreement, there are many strategies that can be used to make a handshake agreement more precise and more legally enforceable. Here are some of those strategies.
San Diego Corporate Law: Written Confirmations and Notes
The best, easiest, and least intrusive method of solidifying a handshake agreement is with written confirmations. Assume we are dealing with “Joe.” A quick text or email is all it takes. “Hey, Joe. As we agreed, I am …” Under California legal principles, in general, your statement of what you are obligated to do will be admissible to prove what was agreed. If “Joe” does not respond by challenging what you said in your text or email, then that too is admissible and can be solid proof of the agreement.
If there is a concern that “Joe” will be annoyed with such confirmations, this tactic can be made more subtle via later invoicing and payment memoranda. When an invoice is sent or payment made to “Joe,” a notation on the invoice/payment stub can say something like: “Per agreement on March 3rd, 2018, …”
A sufficient number of email, letters, texts, invoice/payment notations, and other written communications will create, in effect, a written contract. Or, at minimum, it will create written documentary evidence that will help supplement oral testimony if the case goes to court. In addition — and very importantly — the written communications help eliminate the she-said-he-said problem and will help with lost or foggy memories.
Another important strategy is to sit down and write out a set of notes and put them in your company files. Doing this creates a business record that is admissible in court. Nothing fancy is required, and it does not need to be typed. Simply write out by hand the date, where the meeting took place, who was involved in the conversation, and what was agreed upon. This will also help with lost or foggy memory later if the handshake agreement ends up in court.
San Diego Corporate Law: Calendar the Agreement and Regularly Audit the Agreement
One other problem with handshake agreement is that, as time passes, everyone tends to forget that the agreement is oral. This is particularly true if the handshake agreement is successful and lucrative.
Thus, in addition to strategies with respect documenting the original handshake agreement, it is important to make it clear in your business records that the deal is an oral contract and that the oral agreement is calendared for regular auditing. That is, as time and circumstances change, it is potentially important to revisit the handshake agreement. If the agreement needs modifying, you have to talk to “Joe” and say something like: “We agreed last summer to […], but we need to modify it so that ….” Again, documentation is important with respect to any agreed changes. When changes are needed, it might also be a good time to see if “Joe” will agree to get the contract written up.
Contact San Diego Corporate Law Today
If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has many years of experience in drafting, reviewing, and negotiating all kinds of business contracts. Mr. Leonard can be reached at (858) 483-9200 or via email.