The Gentleman’s Agreement, or the Illusion of a Deal Between Gentlemen

Today’s post is about when it is worth entering into a gentleman’s agreement. I am talking about the situation where an agreement rests on mutual trust and the verbal understanding of the parties, and no proper written contract is ever made.

For the impatient readers, let me answer the question right away. When is it worth making a gentleman’s agreement? In Hungary, never. I cannot speak for other parts of the world.

Perhaps between very close family members the risk is somewhat smaller. But I have seen countless disputes even between close relatives and friends of decades, over laughably small sums. So even in such cases I do not recommend relying on good faith.

Casey and Theo. From Plush Piggies to a Gentleman’s Agreement

What follows is a little fable based on a true story. Our main characters are Casey and Theo. Casey is a good-natured, slightly eccentric fellow whose hobby is sculpting. Theo, on the other hand, is a slick operator, a regular fixture of the nightlife. Casey and Theo are business partners.

The business is basically run by Casey, who manufactures pink, headless plush piggies. Press their bellies and they let out an adorable oink. Both partners are fans of quirky films, which is where the brilliant business idea came from. Business is booming, demand is huge.

Since the plush piggies are sold with home delivery, the question arises that they need another car because of the growing traffic. Casey is the cautious type, a cheaper used car would suit him just fine. The main thing is that it rolls, and that he can afford it out of his own pocket.

Theo talks him into buying a more expensive one for the sake of image, saying he will finance it. Casey will lease it, and in the end he will get the car. The gentleman’s agreement was in place, and a rental contract was drawn up instead of a lease.

The Trap of the Gentleman’s Agreement and the Missing Purchase Option

The rental contract, however, was a rental of a movable asset, and there was no mention of leasing in it at all. Theo would not have been entitled to lease the car anyway, because, to keep things simple, only a bank may provide a lease.

That aside, a purchase option could have been stipulated in the rental contract, had Casey asked his lawyer in advance. A purchase option, in short, means that Casey could in the future unilaterally buy the car at a price agreed upon beforehand.

Time passed, and the relationship between Casey and Theo soured. Casey wanted to end the cooperation, and he also laid claim to the car in line with their earlier agreement. Theo, however, had by then forgotten the gentleman’s agreement. He told Casey that they had agreed on a rental, see the contract, and the car stays in Theo’s ownership.

When Ink Is Stronger Than Word. The Gentleman’s Agreement Before the Court

Casey went to his lawyer to ask for advice on how to get the car out of this. The lawyer, my humble self, had to sadly inform Casey that he would get no car out of this at all. There is a valid rental contract without a purchase option, plus a few stray emails from before the contract was signed. On this basis, the honorable court will certainly not award Casey ownership of the car. And legally speaking, rightly so. Imagine what would happen if rental contracts could be reclassified as leases on someone’s mere say-so.

For the sake of completeness, it should be added that the relationship between Casey and Theo had earlier been good. Casey is not well versed in law, and he had no reason to question Theo’s good faith. Times and morals change, however, and unfortunately Casey was taken for a ride. We cannot know whether this was the plan from the start, but this is how it ended. Casey will not be able to obtain the car.

This is the essence of the gentleman’s agreement in practice. As long as everyone is happy, everything is fine. The moment something goes wrong, the verbal agreement is worth nothing.

What Can We Learn From the Above Gentleman’s Agreement Case?

Casey lost a significant sum. For a fraction of that loss, a lawyer could have drafted a contract that would have protected him. Afterward there is often nothing to be done, but beforehand you can still secure the advantage.

A verbal agreement can go sour even between people with no bad intentions. It happens that the parties genuinely remember things differently, especially when a longer time passes between the agreement and its performance. Human memory is selective, particularly once financial interest enters the picture.

For larger sums, consulting a lawyer is strongly recommended. A well-drafted contract not only provides protection but also makes the parties’ intentions clear and prevents misunderstandings. This is in the interest of both parties, even if asking for the agreement to be put in writing seems at first like a sign of distrust.

If the other party is reluctant to sign anything, that in itself is a signal. No one refuses an agreement they mean seriously just because it is also put on paper.

When Can a Gentleman’s Agreement Still Be Acceptable?

Of course, it is neither possible nor necessary to eliminate verbal agreements from our lives entirely. In low-value, easily reversible matters, where the risk to both parties is minimal, a verbal understanding can be a practical solution.

But when it comes to a car, real estate, a business share, a loan, or any more substantial asset, a gentleman’s agreement on its own is not enough. In such cases it is worth seeking out a lawyer and putting the agreement in writing. This is not a lack of trust, but a sign of foresight.

If you need help with a contract, a verbal agreement, or any other legal matter, feel free to get in touch. Book a consultation, and together we will look at how best to protect your interests.