"I am in the process of negotiating a dealership with a major regional manufacturing company. They proposed we sign a ‘Gentleman’s Agreement.’ What is it? How legally protected will I be in this kind of agreement?"
Investopedia defines the Gentleman’s Agreement as an unwritten agreement or transaction backed only by the integrity of the counterparty to actually abide by the terms of the agreement.
An agreement like this is not legally binding and could have a negative effect on business relationships if one party decides to default on their promise.
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As it is not legally binding it cannot be enforced in a court of law. Instead, the parties rely on the integrity and honor of participants in the agreement. This can sometimes backfire, and people are strongly advised to secure a legally binding agreement in lieu of an informal arrangement for their protection, as well as the protection of the other party.
If you enter into a Gentleman’s Agreement with the regional company, none of the parties to the agreement will be protected by the law. Most of international corporations do not prefer entering into binding contracts with partners they have not done business with for a respectable number of years.
The terms of a gentleman’s agreement may be unstated, oral, or written. Writing down an agreement does not necessarily make it legally binding, as agreements need to meet certain terms to be considered legally binding contracts. The parties to the agreement reach a mutually acceptable arrangement and agree to trust each other to fulfill the terms.
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This term dates to the 1800s, when it was first used in the railroad industry in the United States, although the concept itself is much older. Informal agreements have determined everything from national sovereignty to ensuring that particular people get jobs. The gentleman’s agreement has historically been criticized as a means of exclusion and sometimes such arrangements were used in highly abusive ways.
In some cases, a gentleman’s agreement can be a tool for facilitating a formal agreement at a later date or for streamlining proceedings. International organizations and other large groups may reach informal agreements while hashing out details. Taking time to write out and codify the agreement might be wasteful if everyone is in agreement.
The problem with a gentleman’s agreement is that it is unenforceable, and if it is violated, the injured party has no legal recourse. For this reason, even when an agreement is made between people who trust each other, getting a legally binding contract is strongly recommended.
"An agreement like this is not legally binding and it cannot be enforced in a court of law. Instead, the parties rely on the integrity and honor of the participants in the agreement"