Legal Contracts: Definition, Types, How They Work
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What are Legal Contracts?
Legal contracts are legally enforceable agreements between two or more parties that govern what each person can or can’t do. When these legal agreements are drawn up, promises are made between the parties that are upheld in the court of law.
Legal contracts are useful because they protect each party in case of a legal dispute. They also set expectations so that anyone that signs the contract understands their rights and responsibilities within.
Main Types of Legal Contracts in Business Law
Legal contracts play a vital role when it comes to law enforcement. When parties sign a binding contract , it gives law enforcement and the court system a reference document to help make decision.
In law, there are several types of popular legal contracts:
- Service Contract : A service contract is an agreement between a contractor and a customer that covers service, maintenance, and repairs of purchased equipment for a certain period.
- Employment Contract : An employment contract is a contract between an employee and employer that defines rights, responsibilities, and expectations of both parties during an employment term
- Confidentiality Agreement : A confidentiality agreement requires that all parties to the contract agree not to share or sell private information
- Sales Contract : A sales contract is a contract between a buyer and a seller that defines the rules and responsibilities of each party of the agreement
- Independent Contractor Agreement : When a non-employee is contracted by a company to complete a job, an independent contractor agreement a signed contract that explains the work being done, work deadline, compensation information, and roles and responsibilities of contract parties.
- Loan Agreement : A loan agreement is a contract between a lender and a borrower that explains the amount of money being loaned, the repayment schedule, and any associated fees that accompany the agreement
- Partnership Agreement : A partnership agreement is a contract document that explains the management structure, roles, responsibilities, and daily operations of a business partnership
Here is an article where you can learn more about popular types of legal contracts.
How Legal Contracts Work
Legal contracts are essential documents that protect parties when disputes happen and explain certain roles, responsibilities, and terms that each party agrees to.
For a legal contract to be admissible in court, it must meet the following requirements:
- The agreement must not require either party to do anything illegal. If an illegal act is required as part of the contract, the document would be considered unenforceable in the court of law.
- Both parties must agree to all the terms of a signed contract ; this is called mutual assent.
- There must be something of value exchanged that warrants signing a contract. This process is called consideration.
- Both parties must be of sound mind and able to make their own decisions when signing the contract. This also requires each party to be of age to enter into the agreement.
- No party may be forced into signing a contract. If the agreement is not made of the free will of both parties, it constitutes grounds to terminate contract agreements.
If a contract does not meet each of these requirements, the agreement is considered null and void and will not hold up in the court of law. When this happens, the contract is typically immediately vacated and neither party can be held responsible for the terms of the contract, regardless of their wishes.
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What is a Breach of Contract?
A breach of contract occurs when one or more parties fail to uphold the obligations that they agreed to upon contract signing. If a rule within a contract is broken, you can usually do one of the following:
- Sue
- Demand a remedy
- Terminate or amend the agreement
Let’s say you hire a mechanic to fix the air conditioner in your car. When you bring the car in, the mechanic does a quick diagnosis and informs you that the blower motor needs to be replaced and the freon must be recharged. You agree to the work and sign the work contract that allows the mechanic to complete the job.
A week later, you come to pick up your car and realize the air conditioner is still not working. When confronted about the situation, the mechanic states that he was unable to source the blower motor for your vehicle, so he just replaced the freon. However, the contract clearly states that the blower motor was to be replaced.
This situation constitutes a breach of contract.
While your car was in the mechanic’s shop, you were forced to use a taxicab to get around, and you missed hours of work as a result. Because of this, you can sue the mechanic for damages, which would include lost wages, taxi expenses, and a refund for the blower motor part and service.
Your second option is to demand a remedy. This would involve opening a discussion with the mechanic about the problem, demanding that he source the blower motor and fix the air conditioning. You could do this by sending a demand letter from a lawyer.
The last option is to amend the agreement. This might include removing the charge for the blower motor and the related labor from the bill and modifying the contract to include an agreement solely to recharge the freon in the car.
Check out this article to learn more about how legal contracts work.
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Examples of Business Legal Contracts
No matter what industry a business is in, legal contracts play a vital role. Signing contracts helps customers and clients understand the services that businesses provide, and for companies, they provide vital protection, as well.
Business legal contracts typically cover one of three areas:
- General
- Employment
- Sales
General Business Contract Example
A great example of a general business contract is a partnership agreement. When a company creates a partnership agreement, it defines the roles, responsibilities, and liabilities of partners and shareholders in a company. Some of these usually include:
- Goals
- Operations
- Names and personal details of partners
- Decision-making procedures
- Partner contributions
- Profit and loss distributions
- Financial liability
- Tax liability
Employment Contract Example
Employment contracts are important to businesses because they govern the relationship that ownership and management have with the employees of the company. Employment contracts typically cover the following areas:
- Rights
- Responsibilities
- Obligations
- Compensation
- Scheduling
- Employment duration
- Benefits
- Confidentiality agreements
Sales Contract Example
Sales contracts govern the interactions between a buyer and seller. They are used to ensure that consumers fully understand the deal they agree to and that sellers can be held accountable for any unscrupulous business practices.
Here is a quick overview of what sales contracts can include:
- Selling price
- Product information
- Warranties or service contract details
- Contract duration
- Payment methods
- Sales agreement
- Purchase agreement
Get Help with Legal Contracts
Whether you need to draft a contract, get help with a contract review or get advice on a contract negotiation, there’s one person you can count on to get the job done right: a lawyer. Contract lawyers have special expertise in all areas of legal contracts and can help you make the most of your contracts.
Post a project on ContractsCounsel today to get matched with contract lawyers who specialize in legal contracts.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
Meet some of our Legal Contracts Lawyers
Benjamin W.
I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!
"Benjamin was a great communicator. He understood that I was looking to negotiate, not litigate. Very happy with the work. Hiring him for a second project now."
David B.
A twenty-five year attorney and certified mediator native to the Birmingham, Alabama area.
"David was able to meet my turnaround time and still do a thorough job and provide great feedback on my document."
Rebecca S.
I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.
"Rebecca you were awesome I appreciate you working with me and helping me get this done. I look forward to working with you in the future."
Adam B.
With over 25 years of experience in the technology sector, I am a strategic business counsel, outsourced general counsel, and a leader of high-performing legal teams aimed to help maximize the efficiency of all stakeholders. I recently joined the renewable energy space with the addition of a new client on its way to becoming the first Chinese battery company to build a battery manufacturing presence in the US beginning with a 1+ GWh cell and pack plant, and a domestic anode and cathode plant. In my most recent full-time role, I served as the Sr. Director and Assistant General Counsel at SMART Global Holdings, where I served as the general counsel for the HPC and AI division of this publicly traded holding company, comprised of four companies, before becoming the global head of the commercial legal function across all portfolio companies, including two multinational industry leaders. During much of my career, I provided outside legal services on a recurring basis for several years advising several high growth start-ups and venture firms as well as house hold names, and also led one of the country's fastest growing infrastructure resellers and managed services providers. My core competencies include contract review, commercial negotiation, legal operations, information security, privacy, supply chain and procurement, alliances and channel sales, HR, and general corporate. I am passionate about leveraging my legal skills to achieve business solutions, supporting innovation and growth in the technology sector, and helping maximize the commercial flow and efficiency at growing companies. I hold an undergraduate business degree, a JD, a MSBA Taxation, and certifications from the California Bar Association, Six Sigma, and ISM.
Ema T.
I am a NY licensed attorney experienced in business contracts, agreements, waivers and more, corporate law, and trademark registration. My office is a sole member Law firm therefore, I Take pride in giving every client my direct attention and focus. I focus on getting the job done fast while maintaining high standards.
April 15, 2021
Samantha B.
Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.
April 19, 2021
Pritesh P.
Experienced General Counsel/Chief Legal Officer
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