Associate solicitor, Mike Ward of Swinburne Maddison LLP, explains what is meant by a “gentleman’s agreement” and considers whether it is naive to expect to be able to rely on a person’s word or if there are any situations where such an agreement could in fact be legally binding.
A hot topic within the world of football this summer has been the speculation that Harry Kane may be sold by Tottenham Hotspur to Manchester City. Rumour has it that, despite being under contract with Spurs until Summer 2024, England captain, Harry Kane, spent much of last month locked in a wrangle with club chairman, Daniel Levy, following reported assertions by Kane that he and Levy made a “gentleman’s agreement” amending his written contract which would allow him to leave this summer.
What is a “gentleman’s agreement”?
From a legal standpoint, a “gentleman’s agreement” is essentially a verbal agreement between two parties, based heavily on trust and goodwill, which may or may not be coupled with a handshake and some notes scribbled on the back of an envelope.
Can a verbal agreement be legally binding?
In theory, yes.
Subject to certain statutory exceptions (including the assignment of ownership in copyright, settlement agreements between employers and employees or agreements for the sale and purchase of land) a contract does not have to be in writing to be legally binding. A legal contract (whether verbal or written) will be formed whenever the following elements are present:-
- an offer has been made by one party, which is accepted by the other;
- there is intention to create legal relations between the parties; and
- there is “consideration” (i.e. the parties each exchange something of value, such as the payment of money in exchange for services).
So, provided that all of these elements have been satisfied, a legal contract has been formed and this will be enforceable in law. Of course, in the case of verbal agreements, the difficulty is proving it. If the “gentleman’s agreement” was nothing more than a conversation and a handshake, and there were no independent witnesses, there is nothing to stop one party from having a complete change of heart and denying that the conversation ever took place.
How can you prove that an enforceable contract has been created?
In the event of a dispute over whether or not an enforceable contract has been created following a verbal agreement, a Court will pay close attention to how the parties conducted themselves after the alleged agreement had been reached. For example:-
- Were emails exchanged at a later date referring to the agreement reached?
- Did any sum of money (or other consideration) change hands?
- Did either party perform any act upon reliance of the conversation?
It is worth noting that a Court will be much more likely to uphold a verbal agreement between parties in a commercial context where there is a greater likelihood of there being an intention to create legal relations. If a party does not wish to be bound by any terms discussed during negotiations then it should make it clear that the negotiations are “subject to contract”.
The best way of proving the existence of an enforceable contract would of course be through the preparation of clearly written terms. If a verbal agreement is reached which you intend to rely upon, especially one which carries significant risk to you or your business, don’t rely on a handshake alone. Take appropriate legal advice and ensure that the key terms of the agreement are recorded in writing and signed by both parties at the soonest opportunity. This is particularly important to remember in cases such as Harry Kane’s where there is an existing written contract sitting behind the alleged “gentleman’s agreement”.
Written contracts will often include a raft of standard contractual provisions such as an “entire agreement” and “variation and waiver” clause, designed to ensure that any variations to the contract must be made in writing and possibly even signed. Put simply, don’t ever take someone at their word if there is a written contract in place which says something different.
For further information and advice on how you can protect your business interests, please contact Associate Solicitor in Swinburne Maddison’s Corporate team, Mike Ward, by phone on 0191 384 2441 or by email at email@example.com.