Types Of Legal Contracts: Everything You Need to Know
Types of legal contracts encompass any agreement between at least two individuals or businesses that creates a legal obligation to do or not do something specific, such as provide a service. 3 min read
What Is a Contract?
Types of legal contracts encompass any agreement between at least two individuals or businesses that creates a legal obligation to do or not do something specific, such as provide a service. The legal contract puts the agreement in writing and outlines the associated duties and rights of each party. All valid legal contracts must be enforced by the appropriate court.
Contracts that affect members of the public are governed by specific statutes. For example, an insurance contract guarantees that financial resources will be available to the individual who signed the contract in the event of an accident.
A contract must be created by the parties themselves, not by the court. If parties cannot agree on the terms of a contract, the contract does not exist. The law encourages competent parties to form contracts for the purpose of completing legally allowed objectives. In general, if both parties are competent, the contract is valid and thus enforceable by the court. The parties must legally abide by the agreed-upon terms even if they do not prove beneficial, provided that the contract was not signed under fraud or duress.
Almost any transaction can be covered by a contract. While different business situations require different types of contracts, all must include an offer, terms of the offer, and acceptance by both parties. Common contracts include those governing a sale, service, property ownership transfer, or a combination thereof. The parties to a contract can be individuals, corporations, partnerships, or even branches or departments of the government. A contract can be among more than two parties.
Only those parties that have signed a contract are bound by its rights and duties, with certain exceptions. In some cases, these rights or duties can be legally assigned to a third party. A life insurance contract is an example of third-party contract involvement since it includes the insured, the beneficiary of the policy, and the insurance company.
A written agreement between two or more parties is not necessarily a legally binding contract. When a contract is valid, the courts will enforce the rights and responsibilities therein.
Contracts Under Seal
At one time, a contract had to be stamped with a seal to qualify as legally enforceable. The seal was used to represent the agreement between all parties that failure to abide by the contract would result in legal consequences. Today, most jurisdictions do not require a seal for a contract to be valid. In fact, some courts even legally recognize implied contracts.
With this type of contract, the parties detail the terms in writing or orally when the contract is formed. An offer is made to and accepted by the recipient with a full understanding of its terms and conditions.
Implied contracts are those that arise from a mutual intent to promise that has not been expressed in writing or out loud. This category includes both contracts implied in fact and in law. However, contracts implied in law are more accurately described as quasi-contracts since they do not include the requirements of a true contract. Rather, they are used by the courts to rectify unfair situations.
An implied contract follows the below requirements:
- Is as legally enforceable as express contracts.
- Depends on an act of substance by the parties involved.
- Requires circumstances that indicate intent on behalf of both parties to enter a contractual agreement.
- Does not arise in conflict with either the express declaration of the parties or the law.
- Exists regardless of assent.
- Requires a reasonable deduction that intended agreement was implied by facts or actions.
- Does not exist if harm or inequity would result from its existence.
If an implied contract expires but the parties continue to operate as if it still exists, a new agreement with the same terms is implied.
Executed and Executory Contracts
If the terms of a contract have been fulfilled and no actions for either party remain, the contract is considered executed. An executed contract no longer exists. If the contract is not complete and at least one of the parties still has duties or obligations to fulfill, the contract is considered executory.
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