Key Takeaways

  • Legal agreements are enforceable arrangements that establish clear obligations and protect parties in business and personal matters.
  • Agreements can be classified by form (express, implied), party obligations (bilateral, unilateral), fairness (unconscionable, adhesion), and risk (aleatory).
  • General business contracts cover essentials like partnerships, indemnity, nondisclosure, and leases.
  • Additional agreement types include confidentiality, employment, intellectual property, and financial contracts.
  • Understanding differences between agreements and contracts is key—agreements reflect mutual assent, while contracts add enforceability.
  • Properly drafted agreements reduce disputes, clarify expectations, and provide remedies if obligations are breached.

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.

Common Features of Legal Agreements

While legal agreements differ in purpose and structure, most share several core elements that ensure clarity and enforceability:

  • Offer and acceptance: One party proposes terms, and the other party agrees.
  • Mutual consideration: Each party exchanges something of value, whether money, services, or commitments.
  • Intention to create legal relations: The parties intend for the agreement to be legally binding.
  • Capacity and legality: Both parties must have the legal ability to contract, and the subject matter must be lawful.

These elements help distinguish enforceable legal agreements from casual understandings or social promises.

Express Contracts

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.

Implied Contracts

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.

Agreement vs. Contract

The terms "agreement" and "contract" are often used interchangeably, but there is a legal distinction.

  • An agreement is any arrangement where parties share mutual understanding, whether written, oral, or implied.
  • A contract is a specific type of agreement that is legally enforceable because it meets formal requirements such as consideration and lawful purpose.

For example, a promise to meet for lunch is an agreement but not a contract, since it lacks consideration and enforceability. A promise to deliver goods for payment, however, becomes a contract once accepted.

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.

Fixed-Price and Cost-Based Contracts

Some legal agreements are defined by how payment and risk are allocated:

  • Fixed-price contracts: One party agrees to deliver goods or services for a set fee, regardless of costs incurred. These provide budget certainty but may pose risks if costs rise unexpectedly.
  • Cost-based contracts: The buyer reimburses the seller for actual costs plus a fee. These reduce risk for the provider but can lead to higher costs for the purchaser.

These distinctions are especially relevant in government, construction, and service contracts where risk allocation is critical.

Unconscionable Contracts

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.

Adhesion Contracts

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

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.

Confidentiality and Employment Agreements

Two other categories of legal agreements frequently used in business include:

  • Confidentiality agreements (NDAs): These protect sensitive information, such as trade secrets, customer lists, or business strategies, from being disclosed without authorization.
  • Employment agreements: These set out the terms of the employer-employee relationship, including salary, duties, benefits, termination conditions, and intellectual property ownership.

Such agreements provide clear expectations and reduce the likelihood of disputes between employers, employees, or business partners.

Executed Contracts

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.

Intellectual Property and Licensing Agreements

Legal agreements also govern ownership and use of intangible assets:

  • Intellectual property (IP) agreements: Define ownership rights to inventions, creative works, and technology. They are crucial for startups and companies engaged in research and development.
  • Licensing agreements: Grant permission for one party to use another’s IP, such as software, trademarks, or patents, under defined conditions.

These agreements help monetize innovations, regulate use, and protect against unauthorized exploitation.

Frequently Asked Questions

  1. What makes a legal agreement enforceable?
    A legal agreement is enforceable if it includes offer, acceptance, consideration, lawful purpose, and mutual intent to be bound.
  2. What is the difference between a contract and an agreement?
    All contracts are agreements, but not all agreements are contracts. Contracts are legally enforceable; agreements may not be.
  3. What types of legal agreements are common in business?
    Business agreements include partnership contracts, NDAs, employment contracts, IP licensing, and leases.
  4. Can oral agreements be legally binding?
    Yes, oral agreements can be binding if they meet contract requirements, though proving terms in court can be difficult.
  5. Why are legal agreements important?
    They establish clear rights and duties, minimize misunderstandings, and provide remedies if obligations are breached.

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