Legal Agreement: Everything You Need to Know
A legal agreement is when all parties involved with a legal contract have reached a "meeting of the minds." This means one party must have extended an offer to another party who then agrees to the terms of the offer. In other words, they are in mutual agreement.3 min read
A legal agreement is when all parties involved with a legal contract have reached a "meeting of the minds." This means one party must have extended an offer to another party who then agrees to the terms of the offer. In other words, they are in mutual agreement.
Characteristics of a Legal Agreement
To have a legal agreement, each party must agree to give up something of value in exchange for a benefit. For example, a contractor is hired to repave the driveway. He performs the work and you pay his fee. Both you and the contractor have agreed to give up something of value.
All parties to a contract must be competent. This means both parties must be:
- Of legal age.
- Of sound mind.
- Not impaired by drugs or alcohol.
If either party enters into a contract with someone deemed incompetent, the contract will not be enforced.
All parties involved in the contract must engage in the agreement freely. It will not be enforced if it is signed under duress. Likewise, a contract entered into where one party has committed fraud or exerted undue influence over the other party is not valid.
Types of Contracts
An example of a contract that must be in writing is when someone agrees to sell his property to someone else. A real estate sales contract must be written for it to be enforceable.
Bilateral contracts are the most common and considered traditional contracts. A bilateral contract is created when each party has made a promise to the other. It is a mutual exchange of promises among the parties.
A unilateral contract is created when one party makes a promise in exchange for an act by the other party. An insurance policy is an example of a unilateral contract. One party pays a premium (act) and the other agrees to pay future claims (promise).
When explicit written or spoken language is used to express an agreement and its terms it is considered an express contract.
When no offer and/or acceptance of an offer is expressed in words or in writing, it is an implied contract, which is based on the behavior of the parties that show intent to enter into an agreement.
Breach of Contract
Under the law, if one party fails to fulfill their obligations stated in the contract it is considered "breaching" the contract.
When a breach of contract occurs, it is possible that one or both parties will pursue having the contract enforced based on the agreed terms or choose to recover money due to the financial harm caused by the alleged breach.
The most common method for resolving contract disputes and enforcing the terms of the contract when attempts at resolution fail is using the court system by filing a lawsuit.
An alternative to a lawsuit is for the parties involved to agree to assign a mediator to review the contract dispute. The parties may also agree to binding arbitration during a contract dispute.
Elements of a Valid Legal Agreement
For there to be a valid legal agreement, along with both parties being legally able to enter into a binding contract, the contract must not be considered as:
- Against the law.
In everyday life, contracts can be and are made orally. An oral agreement between two parties can form a legally binding contract as long the product or service is legal. It can be difficult to have an oral contract enforced in court. In some situations, an oral contract is not enforceable under any circumstance.
It is recommended that businesses should have all agreements in writing. A written contract clearly outlines the rights and obligations of each party, which eliminates any confusion or disagreement.
Contracts and the Law
A business contract is a common legal transaction a company uses to enforce an agreement. The contract is usually governed by the state laws where it was created.
Contracts involving the sale of goods are controlled by the Uniform Commercial Code (UCC). The code is a standardized set of guidelines used by most states to govern commercial transactions.
Under the law, a contract is formed when several elements are in place: an offer; acceptance of the offer; and sufficient "consideration" exchanged from one party to the other.
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