Have you ever verbally agreed on something and shook hands to affirm the deal? Many of us have. But does this handshake make the deal legally enforceable? It is a common assumption that this agreement would not be binding as it was not transferred to a written contract. However, contrary to popular belief, a handshake can legally seal the deal. Here is our guide on the circumstances in which an oral handshake deal can be enforceable under law.
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When is a Handshake Deal Enforceable?
Both written and oral contracts can be legally enforceable. Often, many oral contracts are transferred to a written form as a way of solidifying the agreement. This is recommended particularly in agreements involving significant work, time or money. Having a written contract reduces the risk of ambiguity or confusion on the agreed terms. It also helps to avoid disputes and ‘he said, she said’ situations.
For example, we would recommend using an Employment Agreement when hiring new employees’. This ensures employees’ understand and formally agree to their contractual obligations and expectations, rather than merely orally shake on it.
However, this does not mean oral contracts are unenforceable. Rather, the elements of a contractual agreement must be present to form an enforceable contract.
Requirements of a Contractual Agreement
So how do we know if the deal is legally enforceable? In Australia, every contract must contain three central elements:
- Offer and Acceptance: this means that the offer must be clear and definite, and the acceptance must be unequivocal. The offeree (acceptor) must communicate their acceptance to the offeror (person who made the offer).
- Consideration: this is the exchange of something of value for the promise made. This is usually in the form of money paid by the offeree to the offeror.
- Intention: there must be an intention on behalf of both parties to create legally binding relations.
If all three of these elements are present, you will usually have a contractual agreement. There is also a requirement of certainty, meaning that the parties must be certain on what they agreed on. Further, the requirement of completeness states the contract must set out the essential terms of the contract.
As a general rule, persons under the age of 18 are not deemed to have the capacity to enter into contracts. To help determine whether you have a contract, or simply a mere agreement, you can read our guide ‘What Is the Difference Between a Contract and an Agreement?‘.
When is a Handshake Deal Not Legally Binding?
So you have met the above requirements of a contract, is your handshake deal legally binding? Generally yes. However, there are some circumstances where a handshake deal is not enough. These will instead require a contract to be in written form. For example, this includes:
- Contracts for the sale of land: the Conveyancing Act 1919 (NSW) requires these agreements to be in writing in order to be enforceable.
- Cheques and payment orders
- Assignments of copyright: the Copyright Act 1968 (Cth) requires the assignment to be in writing and signed by the copyright owner.
For more information, read our guide ‘Do Contracts Have to Be In Writing?‘.
Final Thoughts
To conclude, a handshake deal can be legally enforceable. This will be the case where the requirements of a contractual agreement are met. However, it is generally better not to rely on a verbal deal. We always recommend translating these agreements into written contracts, especially if there are high stakes or they involve a substantial amount of time or money. We recommend consulting a contract lawyer if you are unsure whether your handshake deal is legally binding.
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