You work so hard. You spend so many hours negotiating a deal. Before you turn the agreement to the lawyers to draft it, it happens. You got what you came for- a fantastic deal.  They get up, you get up, and you… handshake on it.  What does the handshake really mean? Do you really have a legally enforceable agreement or is it only a symbolic gesture?

Many business people relate to this process and many have made a deal or established a long-term relationship based only on a handshake!  Many others have had bad experiences with deals founded only on a handshake.   Before we dive into the origin, business and legal significance of a handshake, it is worthy to note that in many cultures, the handshake is morally and socially, an enforceable agreement.[2] Depending on those moral and social norms, the breaching party is harshly punished.

Historical Background

Historians believe that the handshake was first used to make sure that two people did not carry any weapons that could harm the other. Some historians take this a step further and suggest that the up and down motion of the handshake is to rid of any weaponry that was somehow missed or not spotted[3].

Over time, the handshake evolved from ensuring the safety of each person to becoming a way for individuals to unite, seal deals, and establish peace. In many instances, it has become a common understanding of respect and agreement; the rejection of a handshake may be interpreted, at times, to offend the other without having to say anything.

The meaning of a handshake varies depending on the culture, conversation and where it is taking place. Each handshake has a unique interpretation and expectations that one becomes naturally accustomed to; this is especially the case in Business and in Law.

Implication in Business

The handshake has become an essential component of business etiquette. A properly performed handshake can strengthen a business relationship as it establishes mutual affirmation. Likewise, a poor handshake may imply that either of the parties is uncomfortable; often, enough to stop a business relationship in its tracks.  As the business conversation progresses and an agreement is reached, the parties shake hands to seal the deal.  To an observer, it looks like the parties shook hands because they reached an agreement; but in reality, the handshake signifies an important step in establishing a mutual trust towards a long-term relationship when all is said and done. Further, the act of the handshake goes beyond that of an agreement or relationship building; it does not only build a solid foundation, it helps eliminates any possible disputes by encouraging the parties involved to work together to amicably solve any future misunderstandings or disagreements; as opposed to seeking the intervention of the expensive and lengthy legal process.

Legal Significance

In law, depending on the facts surrounding the events during a negotiation, the court will determine whether the act of a handshake is valid as an enforceable contract.  In general, the handshake contract is a verbal contract that is actually considered to be a legally binding contract if it is followed by an act such as payment or reliance is shown. Without going to the details of its enforceability, when used properly, a simple oral agreement sealed by a handshake can save business people from legal expenses and other complexities that come with written contracts.

This is not to discount the importance of writing and signing in a contract; to the contrary, the very nature of business deals is dictated in writing by terms, conditions, and signatures. In general, unlike to what people may think, utilizing handshake deals, whether they are simple or complex, is risky. When the terms of a handshake deal become too complex, it becomes less appropriate to use a handshake deal due to the fact that the discussion prior might have led to misunderstandings. What many people do not know is that courts may treat handshake deals as any other legitimate contract and the premises of a dispute come down to an individual’s word against the other. To eliminate any misunderstanding and to ensure that the terms and conditions of your contract are observed and to maintain the honorary significance of the handshake, business people are encouraged to seal the deal by handshake but to memorialize said deal in writing.

Should that deter us from making handshake deals?

In 2005, Michael D. Hanna was awarded $4.8 million in a federal court lawsuit alleging breach of oral contracts between Hanna and Strategic Energy Holdings (SEH).  In the words of Thomas R. Johnson, the lead lawyer in the dispute, “this victory for Mike Hanna gives businessmen and businesswomen confidence that courts will enforce their contracts, including oral contracts, and award full damages.”[4]

All in all, the handshake had and continues to have deep cultural significance. The fact of the matter is that the meaning of the handshake and its business and legal significance is continuously evolving and we need to take this into careful consideration when implementing it within our dealings.

Disclaimer.[5]

 

[1] This article is co-authored by Sawsan Selim.

[2] "The Handshake Deal Protocol." Y Combinator. Feb. 2016.

[3] Andrews, Evan. "What Is the Origin of the Handshake?" History.com. A&E Television Networks, 09 Aug. 2016.

[4] Johnson, Thomas R. "K&LNG Obtains $4.8 Million Award for Client in Oral Contract Dispute." K&L Gates LLP. 3 Nov. 2005.

[5] Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation.  The following information is prepared for advertisement use only.  The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Business Law.