Gentlemen's Agreement

What is Gentlemen's Agreement?

A gentlemen’s agreement is an informal agreement that is not legally binding. It is typically formed verbally but can also be put into writing for memory’s sake. A gentlemen’s agreement is an agreement or a number of resolutions entered into by the parties knowing that rights and obligations can not be legally enforced. Thus, you waive your rights and cut the legal system out of the agreement in the event of a breach of contract. Therefore, these kinds of agreement are not covered by contract law.

For instance, it is possible to form a verbal gentlemen’s agreement about a loan. A normal loan agreement includes provisions and legal consequences determining what will happen, should the loan not be repaid or compensated for. A gentlemen’s agreement instead depends on the parties’ honor, which means that it is not a legally binding agreement. The parties trust each other that the loan will be paid back.

The advantages and disadvantages of a gentlemen’s agreement

A gentlemen’s agreement is easily formed and costs nothing. If you are forming an agreement that does not include anything of significant value, a gentlemen’s agreement is preferable, since there is no reason to invest time and money in forming a contract. Gentlemen’s agreements are often used in situations where it is deemed shady or cowardly to hide behind contract clauses.

However, if an agreement contains certain risks and complex legal positions, it is beneficial to put the agreement in writing and have an expert read it. A good contract can instead strengthen trust, since every party knows their legal position. You can also risk losing money if the counterpart turns out to not be a gentleman after all.

Some kinds of agreements, like employment contracts for example, have to be put into writing and can therefore not be informal.