What is a ‘Handshake Agreement’?

A Handshake Agreement is an oral contract where the parties agree to the contract via oral communication. Think of two people making a deal and shaking hands, rather than signing a piece of paper. Although this type of agreement may not seem legitimate, oral contracts can be legally binding.

A legally binding contract must not be for an illegal purpose and must contain the following elements:

1. An offer and acceptance of the offer;
2. Consideration (an exchange of something of value between the parties); and
3. Clear and complete terms.

The parties to a contract must have capacity to contract, for example, they must have the mental capacity to enter into contracts or must not be intoxicated. The parties must also agree to the contract without being influenced or coerced into agreeing. Oral contracts can meet all these requirements.

When is it better to have a written contract?

The short answer is almost always. Having a written contract in place is important to protect yourself. Written contracts contain the information and terms you agreed to, which can prevent future disputes. For example, let’s say you agreed to lend a friend $10,000 to help start their business via a handshake agreement. Your friend can later deny that you loaned them the money and claim it was a gift. If you had a written contract, it would be clear that the $10,000 was a loan and your friend would be obligated to pay you back.

Verbal contracts can be sufficient for simple agreements such as lending someone a book. But, if you’re entering a business or employment agreement, it’s always best to have a written contract.

When is it necessary to have a written contract?

The following types of contracts must be in writing to be enforceable:

1. Contracts where one party agrees to pay another party’s debt;
2. Contracts for the purchase and sale of property;
3. Contracts not to be performed within a year; and
4. Some agreements under Ontario’s Consumer Protection Act, such as future performance agreements and personal development services contracts.

If you’re not sure whether you need a written contract, it’s best to contact a lawyer. Hiring a lawyer to draft your contract is a great way to ensure a contract is enforceable and to protect yourself from loss or liability.