Types of Legal Agreements: Everything You Need to Know
There are many types of legal agreements that may be encountered while conducting business, each with differing qualities meant to fulfill different needs.3 min read
Legal Agreements Overview
There are many types of legal agreements that may be encountered while conducting business, each with differing qualities meant to fulfill different needs that may arise in business. The purpose of these agreements, or contracts, is to create an enforceable obligation for the parties involved to act or not act in a particular way. These contracts are also meant to set out the terms that must be met by each party in order for the contract to be fulfilled. Having concrete terms and enforceability by the courts is necessary for the efficient conduction of business.
Express contracts are contracts in which the terms are stated expressly, or openly and definitively, either in writing or in spoken words (also known as orally). In express contracts, there is no doubt or interpretation of what was meant by the contract.
Although technically implied contracts can also refer to what are known as implied-in-law contracts, or express contracts, when most refer to implied contracts they are speaking of implied-in-fact contracts, or contracts whose terms are made by the circumstances surrounding two parties. What this means is that the contract is suggested by how the parties behave towards one another, rather than by any spoken or written terms.
Bilateral and Unilateral Contracts
A bilateral contract is a contract wherein both sides agree to offer something of value for the fulfillment of the contract. This is the most common type of contract, and most contracts fall into this category. A unilateral contract, on the other hand, is a contract where only one side is bound to act in order to fulfill the contract. The party that may act to fulfill the contract is also not subject to legal punishment should it fail to act on the contract.
Unconscionable contracts are any contracts that are considered to be unfairly one-sided in a party’s favor. Such contracts are ones which no person of sound mind would enter into and no person of fair mind would offer for consideration. Courts have found that generally such contracts stem from the exploitation of poorly educated or impoverished consumers who lack the knowledge or ability to seek out better options in the marketplace.
An adhesion contract is one drafted by a party with greater bargaining power, so much so that the only choices for the weaker party are to either accept or reject the contract. These are often called “take it or leave it contracts,” and they differ from unconscionable contracts insofar as they do not necessarily exploit the other party involved. If there is no attempt to deceive regarding the nature of the contract, it may not be considered unconscionable, although a court may still refuse to enforce such a contract if it deems that a meeting of the minds never truly occurred.
Aleatory contracts are mutual agreements in which agreed upon actions will occur only if certain uncontrollable events occur. Any insurance policy would be an example of this, as the insured party will not receive the benefits of their policy unless an event beyond their control occurs.
General Business Contracts
These are contracts that help you run your business on a basic level, including structuring your business and giving shareholder protection. General business contracts can include:
- Partnership agreements. These set out how partners may relate to one another and what obligations each partner may have to the business.
- Indemnity agreements. These call for one party to be indemnified, or held harmless, by another party in a situation that normally might call for damages.
- Nondisclosure agreements. These hold one party accountable if they divulge information deemed confidential by the other party to the contract. They are also known as confidentiality agreements.
- Equipment or property leases. These set out the conditions and terms for the leasing of equipment or property. They may determine deposit amounts, monthly payment amounts, payment schedules, and maintenance requirements, amongst other details.
This is a contract whose terms have been fulfilled and for which there is nothing more to be done. In a certain sense the term “executed contract” is deceptive since in actuality, once the contract is finished, it ceases to exist in anything but a historical sense.
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