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Legality In Contracts

Updated: March 28, 2023
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Legality in contracts is an essential component of enforceable agreements. A single misstep can result in a host of legal problems.

Below, we’ve outlined everything you need to know about contract legalities:

What Is Legality of Purpose in Contract Law?

The legality of purpose in contract law is the terms and conditions in legal documents that are legally binding and enforceable. They often contain mutually agreed-upon obligations and requirements. Every enforceable contract must have the legality of purpose.

Here is an article that discusses the legality of purpose in contract law.

What is a Contract?

Contracts , also known as agreements, are legally binding documents between two or more parties. They come in a written or oral format. A signed contract is more straightforward to enforce than a verbal one.

Contracts are built on trust. If one party doesn’t hold up their end of the agreement, the other party can enforce the contract provisions in civil court. You should also use clear, concise language versus complicated wording, known as “ legalese .”

This web page also discusses contracts.

Why is Legality Important in Contracts?

In any business transaction, a written contract is essential. Agreements can serve as future references, part of the business’ policies, and evidence.

Here are six reasons why legality in contracts is essential:

Reason 1. Specification

Specification is one of the many reasons a written contract is necessary for your business. It can legally serve as proof of mutually agreed-upon details.

This element also clarifies the terms of a contract between a company’s owners or investors, as well as the services provided by a third party and the payment obligations to hired workers. As legal proof, you should state these obligations in all of your written contracts.

Reason 2. Avoids Misunderstandings

A written contract is usually produced between parties entering into a business agreement during a sensitive business venture. The main goal of this formal written agreement is to allow each concerned party to read and understand the terms and conditions .

These terms include each party’s expectations and what they have agreed to after a discussion. The written contract will also remind both parties that this is a serious business transaction.

Reason 3. Reassurance

A written contract can provide security and peace of mind to all parties involved. For example, employment contracts lay out the terms of the relationship between the employer and the employee. These terms specify the employee’s duties and responsibilities, payment, and overall relationship.

An employer is legally responsible for paying an employee’s wages and other benefits as required by law. In contrast, the employee must perform their assigned duties as outlined in the job description. When a party breaches the terms and conditions, the contract adequately protects the aggrieved parties.

Reason 4. Confidentiality

The ability to agree to confidentiality and non-disclosure provisions protecting sensitive information. This feature is one of the ultimate benefits of having written contracts in business transactions .

The concerned parties are legally bound to keep the transactions and information shared between them confidential as part of the agreement. Any party who violates this confidentiality agreement will be held liable under the contract.

Reason 5. Privacy

When one of the parties to a contract breaks it, the written agreement becomes vital. It will be used as a general reference to determine to what the parties agreed. They can also reveal who is truly at fault.

Having a written contract readily available reduces the chances of bringing the issue to court. It can even prevent the dragging out of litigation longer than necessary, which can be costly and time-consuming.

Reason 6. Creates a Bonafide Paper Trail

A written contract serves as an official record of the terms upon which the parties have agreed. It may, for example, specify the:

  • Level of authority given to business owners or managers
  • Completion date of any work contracted to a service provider
  • Payment of completed work
  • Stating the terms of when to terminate a contract .
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What Determines Legality in Contracts?

When a contract meets the legal requirements, it is legally enforceable. An agreement usually entails the exchange of goods, services, or money, or the promise of any of these. Although most oral contracts are legally binding, some contracts may require additional formalities.

4 Requirements for a Valid Contract

The four elements of a contract are essential to creating a binding agreement, regardless of the types of contracts you use. Let’s take a closer look below at how to write a contract that is valid below:

Requirement 1. Offer

Every legal contract begins with a verbal or written offer from one party to another, and written agreements prove that a contract exists.

The offer is a proposal for a relationship’s terms. It can also include any number of rights, obligations, warranties, and conditions that the parties must meet.

An offer does not become formally valid until received by the intended counterparty, also known as an offeree. The offeree has the option to revoke or counter the offer before accepting it.

Before the offeree accepts the offer, the offeror can withdraw it. A counteroffer will cancel the original offer, preventing the offeree from accepting it later.

Requirement 2. Consideration

An exchange of consideration must occur for a contract to remain valid. Consideration may be a vague, difficult-to-define concept, and this assertion is due to consideration presenting itself in different ways.

Depending on the scope of the transaction and the parties’ motivations, consideration can take various forms. In a contract, consideration is the sum of each party’s rights and obligations.

The following are examples of common types of consideration:

  • Money
  • Actions
  • Restrictions

The consideration must also be mutual, which means that each party must carry out the contract’s terms.

Requirement 3. Acceptance

Acceptance is the third component of a valid contract. Acceptance can be verbal or written, just like an offer.

For most cases, acceptance necessitates some form of action on the part of the offeree. In other words, a party’s inaction, silence, or other passiveness as evidence of contract acceptance will not suffice.

Conditional acceptance is possible in some contracts. Acceptance that creates a valid agreement through a party’s performance is possible in some cases.

Requirement 4. Intent

The final element of a contract is that the parties must mutually agree upon the terms. Intent is each party’s awareness of and willingness to comply with the agreement.

On the surface, this may appear to be an unusual requirement. However, in written agreements, questions of intent and whether the parties had an actual “meeting of the minds” arise frequently.

Examples of Legality in Contracts

Need an example of legality in contracts to solidify your understanding? Let’s take a look at one below:

  • Tom is a consultant
  • Jim owns and business and needs Tom’s services
  • Tom agrees to help Jim in exchange for payment
  • Tom drafts up an agreement and goes over it with Jim
  • Jim agrees to the terms and signs on the signature line
  • Tom agrees to the terms and signs on the signature line
  • The legality in contracts is upheld in this situation.

Contract lawyers in your state can help you draft the terms, conditions, and warranties. They ensure that your contract clauses are perfect for your unique situation, from contract drafting to an executed contract.

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