Handshake Deals and Verbal Promises: Can You Enforce an Unwritten Contract?

Contracts don’t always come in the form of a neatly drafted document. They can be written, spoken, or inferred from conduct. When nothing is recorded in writing, the Court must determine what the parties actually agreed to.

How Courts Approach Unwritten Agreements

When faced with an unwritten contract, the Court looks at:

• what the parties intended to include in their agreement — assessed objectively by considering their words and conduct
• what a reasonable person would infer from the circumstances surrounding the agreement
• whether additional terms should be implied, even if they were never expressly discussed

Often, the parties’ conversations make the terms clear. But in many cases, people assume shared understandings that were never explicitly stated. This is where disputes arise, and where the Court steps in to interpret the agreement.

Business Partnerships: The Risks of a Handshake Deal

We frequently see disputes between friends or colleagues who went into business together based on trust rather than documentation. At the start, everyone is optimistic and aligned. Years later, memories differ, expectations shift, and disagreements emerge.

Even if you trust your business partner completely, a properly drafted partnership agreement is essential. It clarifies:

• each partner’s roles and responsibilities
• how decisions are made
• how profits and losses are shared
• what happens if someone wants to exit the business
• how each partner’s interest is valued

Without this, enforcing a handshake agreement becomes a matter of evidence — and often an expensive one.

Loan Agreements: Beware of “Payable on Demand”

Unwritten loan agreements come with their own traps, particularly around limitation periods.

In most cases, you have six years from the date the loan becomes repayable to bring a claim.

If A lends money to B without specifying repayment terms, the law generally treats the loan as repayable immediately.

This means the six-year limitation period starts running from the date the money was transferred, not from when you later ask for repayment.

An acknowledgement of the debt may restart the limitation period, but this depends on the specific circumstances.

These rules catch many people off guard, especially when loans are made informally between family or friends.

Lending or Borrowing Money: What You Should Do

To avoid disputes and protect everyone involved:

• document the transaction — even between relatives or close friends
• ensure each party receives independent legal advice. Using the same lawyer can create conflicts of interest.
• clarify whether the funds are a loan or an investment, and set out exactly how and when they will be repaid or returned

Conclusion

Proper documentation and legal advice at the outset dramatically reduce the risk of costly disputes later. When things go wrong, the legal costs of resolving an unwritten agreement are almost always far greater than the cost of preparing a proper contract in the first place.

If you would like further information please contact Catherine Ballantyne, Principal, Hunt & Hunt at [email protected] or +61 3 8602 9200.