What Is a Gentlemen's Agreement?

What Is a Gentlemen's Agreement?

Let me explain what a gentlemen's agreement is—it's an informal, often unwritten agreement or transaction that's backed only by the integrity of the parties involved to follow through on its terms.

You should know that such an agreement is generally made orally and isn't legally binding, though it might be sealed with a handshake or not.

Key Takeaways

Understand that gentlemen's agreements are informal, unwritten pacts between parties for transactions or commitments, not enforceable by law but upheld by integrity, social norms, and peer pressure.

These have been common in business and trade for centuries, despite their unofficial nature.

Understanding Gentlemen's Agreements

A gentlemen's agreement is more about honor and etiquette, depending on the parties' willingness to fulfill spoken or unspoken obligations without court involvement if broken.

Social pressures and norms enforce them, and breaking one can damage your reputation more than any short-term gain, eroding trust and making future deals harder.

How a Gentlemen's Agreement Works

These agreements appear in international trade, relations, and various industries, especially during the industrial age when regulations lagged behind practices.

They were used to control prices and limit competition in sectors like steel, iron, water, and tobacco.

Often, but not always, they're sealed with a handshake or similar gesture recognized by parties and witnesses.

Limitations of a Gentlemen's Agreement

At their worst, gentlemen's agreements enable anti-competitive practices like price-fixing or trade quotas, allowing illegal rules since they're not written contracts.

This can lead to higher costs or lower quality for consumers, or promote discriminatory practices like in old boys' networks.

Without legal protections, they're hard to enforce, and the U.S. government banned them in trade between nations in 1890.

History and Examples of Gentlemen's Agreements

In the 1800s and early 1900s, these agreements were common between industry and the U.S. government, prompting the formation of the Bureau of Corporations in 1903 to investigate monopolies.

Wall Street figures like J.P. Morgan used them to get clearances for mergers, such as allowing U.S. Steel to become the first billion-dollar company by overlooking antitrust laws.

In 1907, during a stock panic, President Roosevelt worked with Morgan on bank consolidations and allowed U.S. Steel to acquire a competitor via an unwritten rule violating the Sherman Act.

Example: Gentlemen’s Agreement Between the U.S. and Japan

Consider the 1907 Gentlemen's Agreement where the U.S. and Japan addressed Japanese immigration; Japan stopped issuing work passports to the U.S., and the U.S. ended discrimination against Japanese residents.

This was never ratified by Congress but functioned as an informal pact.

What Is the Purpose of a Gentlemen's Agreement?

The purpose is to close deals without regulatory oversight or third-party enforcers, reducing costs and increasing flexibility in reconciliation.

What Was the Gentlemen’s Agreement of 1907?

In 1907, it restricted Japanese immigration to the U.S. in exchange for ending segregation of Japanese children in San Francisco schools.

What Are Other Words to Describe a Gentlemen’s Agreement?

You can call it an informal agreement, unspoken agreement, handshake agreement, verbal agreement, tacit agreement, unwritten agreement, or even pactum in Latin.

Does a Gentlemen's Agreement Stand Up In Court?

It can be enforceable as an oral contract if it meets criteria, but some contracts like real estate must be written.