Are Handshake Deals Enforceable?

In Business Tips, Contract Disputes, Contracts, Dispute Resolution by Don KochersbergerLeave a Comment

There is a common misperception that written contracts are required for any agreement to be enforceable.  While it is almost always preferable to have a written contract, hopefully crafted by an attorney with an understanding of the issues related to the specific type of agreement contemplated, all is not necessarily lost if you do not. There are some types of contracts that absolutely have to be in writing to be enforceable, but most contracts do not fall into this category (and, even if a contract is of the type where a written contract is necessary for specific enforcement, it doesn’t mean that you cannot recover at all for valuable property/services that were provided).  Let’s look at the following scenario and examine further.

“I own a small electrical engineering firm.  I work out of a small space with just one other employee.  I teamed up with an architect on a series of projects, understanding that I would not be paid until he was paid.  That was over a year ago.  The architect essentially embedded my stamped work into his construction set of drawings and then submitted them for permits and construction. The buildings were built.  I drive past them every day.  Judging from the way the architect avoids me, my email, my invoices and per Facebook, seems to have returned from a vacation in Mexico with his girlfriend, I suspect he has been paid.  No, I did not have a contract with the architect.  I hate myself for it and I know it was a bad business practice, but I felt I could trust the guy.  We had done similar projects in the past and he eventually came through for me with payment.  Today, it is a different story.  My question is, considering I had a “handshake” vs a contract and the buildings have been completed, do I have any chance of recovering payment for my work? Afterall, there is no question the EE work on the buildings was my work.”

In this situation, there are several options that may be available.  First, because we are talking about providing services that resulted in the construction of an improvement to some identifiable real estate, there may be an opportunity to file a lien on the property itself for the value of those services.  There are strict requirements with respect to liens like this, particularly as it relates to timing, so one should seek an attorney’s specific advice immediately to have any chance of pursuing this option.

In addition to a potential lien on the property (which technically involves pursuing the owner of the property, rather than the architect), one may proceed in court directly against the architect for payment.  In this instance, the engineer would pursue payment pursuant to the terms of your “handshake” deal.  The engineer in our scenario would be required to convince the court that the terms were sufficiently concrete, that engineer performed all obligations, and that they are entitled to payment.  Any evidence the engineer has that supports these facts may be helpful, which can include e-mails, witness’ testimony, phone records and other documents.  But it can also be as simple as the engineer’s word; their testimony is evidence too.  An experienced litigator could help evaluate the strength of the evidence available to enforce such a verbal agreement and give a sense of the likelihood of success.

Even if enforcing the exact terms of a verbal agreement is long-shot, people are not entitled to benefit from the property/services of others unjustly.  Accordingly, courts can have the power to grant what is called “equitable relief”.  Essentially, this means the court can weigh situation, determine what is just, and (within limits, of course) grant relief to achieve that justice.  An example of this type of equitable doctrine that applies to your situation is the doctrine of “unjust enrichment”.  This equitable claim is used to remedy a situation where one party acquires something from the other party, and it would be unjust for them to retain it without compensation.  Specifically, it would be unjust for the architect to take services and not provide any compensation at all.  Again, a knowledgeable attorney can evaluate the situation and determine whether this type of claim makes sense. (oftentimes people make both claims, just to be safe).

In conclusion, people are absolutely entitled to be compensated for the valuable work they provide- contract, handshake or otherwise. The law provides several ways to be compensated.

Did you provide work for a project and not get paid? Would you like to talk about a “handshake deal” gone wrong? Give us a call today. We can help. (505) 848-8581

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