Gentleman’s or oral agreement. Worth it?

The legal force and risks of oral agreements

The illusion of the “gentleman’s agreement”

In today’s post, we will talk about when it is worth entering into a gentleman’s agreement. I have intentionally kept the English terminology, as I believe there is no truly good translation for it in Hungarian. We are talking about the case where an agreement is based on mutual trust and the oral agreement of the parties. A “proper” written contract is not created, or at least not with the content it should have had. For the sake of lazy readers, I will even answer the question: when is it worth entering into a gentleman’s agreement? In Hungary, never. I cannot comment on other geographical locations.

Why is a friendly handshake not enough?

Perhaps there is no such great risk among family members. But I have already seen countless legal disputes between close relatives and friends of decades, even over ridiculous amounts (or rather due to the “Ugocsa non coronat” national spirit). Therefore, even in this case, it is not recommended to rely on good faith.

Kázmér and Teofil: From plush pigs to legal disputes

In the following, a small fable based on a true story. The main characters of our story are Felméri Kázmér and Tátralomnici Teofil. Kázmér is a well-meaning, somewhat bohemian gentleman; his hobby is sculpting. Teofil, on the other hand, is a crafty character who frequently appears in the nightlife scene. Kázmér and Teofil are business partners. The business is basically run by Kázmér, who manufactures pink headless plush pigs. The pigs grunt cutely when their bellies are pressed. Both are fans of Tim Burton and “Üvegtigris”, which is where the great business idea came from. The business is booming; the demand is huge.

The trap of the lease agreement and the missing right to purchase

Since the plush pigs are delivered to homes upon request, the idea arises that another car should be purchased due to the increasing traffic. Kázmér is a cautious spender; a cheaper used one would be suitable for him. The point is that it should roll, and he could buy it on his own. Teofil persuades him to buy a more expensive one for the sake of representation, saying he will finance it. Kázmér will lease it and eventually get it at the end. The gentleman’s agreement was thus established, and a lease agreement was also created. This is a lease of movable property; naturally, there is no mention of leasing in it.

Besides, Teofil would not even be entitled to lease the car, as—for the sake of simplicity—only banks are entitled to provide leasing. Regardless of this, for example, a right to purchase could have been stipulated in the lease agreement if Kázmér had asked Doktor Utriusque beforehand. The right to purchase briefly means that Kázmér can unilaterally buy the car in the future at an agreed purchase price.

Time passed, and the relationship between Kázmér and Teofil deteriorated. Kázmér wanted to terminate the cooperation and also claimed the car according to the previous agreement. In the meantime, however, Teofil forgot the gentleman’s agreement. He informed Kázmér that they had agreed on a lease, see the contract, so the car remains in Teofil’s ownership.

When the ink is stronger than the word

Kázmér went to Doktor Utriusque to ask for advice on how this would result in a car for him. Doktor Utriusque sadly informed Kázmér that this would in no way result in a car for him. There is a valid lease agreement without a right to purchase, plus a few stray emails from before the conclusion of the contract. Based on this, the Honorable Court will certainly—and legally correctly—not award the ownership of the car to Kázmér. For the sake of completeness, it must be added that Kázmér and Teofil previously had a good relationship. Kázmér is not well-versed in law and had no reason to question Teofil’s good faith. Times and morals change, however, and unfortunately, Kázmér was deceived. It is not known if this was the original goal, but this became the final result. Unfortunately, Kázmér will not be able to acquire the car in any way.

Conclusion: The lawyer’s fee is a fraction of the loss

Lesson: Kázmér lost a significant amount. Doktor Utriusque could have written a contract for a fraction of the damage, with which Kázmér would not have lost. Consulting Doktor Utriusque is strongly recommended in the case of significant amounts. Utterly often, there is nothing that can be done afterward; beforehand, the advantage can still be secured, and being one step ahead is much more profitable.