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Shaking Hands on a Deal

Why would a vintage tractor be a handy reminder of the need to ensure your contracts are appropriately entered into?

The tractor in question is the Ferguson TE20, the little grey Fergie to many in the farming community, but did you know that it’s inventor, Harry Ferguson, was once embroiled in a bitter dispute with the Ford Motor Company when a handshake deal went sour?

The case was settled out of court in 1952 (sadly, from a legal historical perspective, as we won’t ever know the real inside dealings) with the general consensus that Ferguson had won with a settlement in his favour worth about £3 million at the time. But the case cost him about half that amount as well as a great deal of stress and anguish from which he probably never really recovered. Ferguson died of an overdose of barbiturates in 1960. The coroner’s verdict was inconclusive.

At its basic level contracts are formed in 3 stages. First an offer is made, for example, I will buy your bull. Second, you accept that you will sell me the bull. Third, in consideration for your bull I will give you £1 in return. Clearly, no bull is worth £1, but the legal point is that something of value has passed between the parties. Historically, many deals with these basic elements in place have been done on a handshake. This was the Ferguson error. Nothing was written down. Ferguson and Henry Ford Snr both took each other at their word as gentlemen. The Ferguson dispute occurred after Ford Snr had died and Ford Jnr took over the running of the company. Of course, with no written documentation he argued any agreement between Ferguson and his father died with his father if it ever even existed. 

The lesson therefore is clear, handshake contracts cannot be relied upon. Or as the old legal adage goes, an oral contract is not worth the paper it’s written on! So how can you protect yourself and your business?

First, think! Ask yourself what contracts have I or do I think I have in place? You could have a raft of matters which you never thought of as having contractual obligations. From a casual worker helping on a Saturday (potential employment contractual issues), to that neighbour’s field which they said you could graze if you cut the hedges (is this a licence, or a more formal tenancy arrangement?) all the way through to grain supply contracts and animal sales (supply of goods and services to which terms and conditions may/could/should apply!) Which of these are written down and which are not?

Second, ask yourself if the relationship went sour, what would be the outcome. Part of the process of writing out a contract is setting out what happens if it goes wrong. I can only find one reference to the Ferguson V Ford case in online law reports. It was a hearing brought by Ford disputing the authority of a particular court to hear the case and seeking to transfer the hearings to another court in perhaps a more favourable jurisdiction. For the record the attempt failed, but the point is that if a written contract had been drawn up then it would have stipulated among other things the appropriate legal jurisdiction for any disputes to be resolved in and quite possibly the method of resolution without the need to go to court.

Third, use the resources available to you. The NFU Legal Assistance Scheme offers a free contract checking service and legal health check. Or contact your NFU Panel Solicitor. We can guide you through the contractual minefield. 

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