Whether in your personal life or as part of business or work, you have probably entered into a binding legal agreement. When entering into a legally binding contract, it is important to understand how the agreement process works to ensure your obligations and expectations are appropriately documented.
What is a Legal Agreement?
A legal agreement is a method of formally stating and recording the terms of an agreement between two or more parties. If the agreement is legally binding, participants are legally required to obey the stipulations listed in the agreement. This is useful because it allows participants to take legal action if they do receive what was promised.
What Makes a Legal Agreement Binding?
Whether you want to ensure a third party is bound to their promises, or you want to be wary of what you are committing to, it is important to understand when a legal agreement is binding. Contract laws govern when a legal agreement is binding, and they generally require:
- Offer and Acceptance: There needs to be a clear offer made by one party and unambiguous acceptance by the other party.
- Consideration: Something of value (consideration) must be exchanged between the parties.
- Signature: Some types of agreements may require a signature.
Failure to ensure any one of the required elements of an agreement is in place can result in an agreement that is not enforceable.
How Do You Write a Legal Agreement?
There are several steps that should be followed when drawing up a legal agreement. Your first order of business should be to ensure that the requirements listed above (offer/acceptance, consideration, and signature) are met. Other aspects of a legal agreement may or may not apply, so carefully consider if you need the following when typing your own legal agreement.
Identify All Involved Parties
To avoid any future confusion, explicitly name all parties involved with the legal agreement. Full names and titles of individuals (or companies) should be listed, as well as any other identifying information. Simply referring to a party as John Smith leaves room for ambiguity. Referring to a party as John H. Smith, CEO of Corporation operating out of Nevada is much more specific, and harder to contest the identity of the individual.
Make sure that your legal agreement states exactly what each party is giving and receiving in detail. Adhering to this ensures that the document reflects what is being offered and what is being accepted. This prevents parties from disputing terms later on. For example, if someone wants to sell or buy a property, they may have the property appraised so they understand its monetary value. Including a description of the property and it’s appraised value helps to define the terms of the agreement and keeps all parties equally informed.
Decide What Ends the Contract
For ongoing legal agreements, such as a hiring or renting agreement, it is wise to include stipulations that end the agreement. For example, if a renter signed a legal agreement that they would not keep pets in their apartment, a landlord could instantly end the agreement if they acquired proof the renter was keeping a dog. This can also apply to one time transactional agreements, but the circumstances tend to be more complicated and often require one party to keep tabs on the other to ensure compliance.
Ongoing legal agreements also benefit from including a section on conflict resolution. Conflict resolution may be required if parties want to contest aspects of the legal agreement, or if they believe interpretation is ambiguous. Establishing a process for resolving conflict like this helps to keep any disputes civil and gives the parties a procedure to rely on.
Hire a Notary or Witness
Not all legal agreements require the presence of a notary or witness, but they can be a helpful way to establish the legitimacy of a document. For example, a witness can testify that both parties willingly signed the agreement, while a notary will have a formal record of the signing of the agreement. This prevents one party from claiming fraud or forgery regarding their acceptance of the agreement.
Types of Legal Agreements
While it would be impossible to name every variation of agreement, some information about common forms of agreement are included below:
- Non-Disclosure/Confidentiality Agreement: Helps protect confidential information.
- Entertainment Contract: Specify actions to be performed by a performer and conditions pertaining their performance.
- Employment Agreement: Sets the terms of an individual’s employment; similar agreements include independent contractor agreements and non-compete agreements
- Licensing Agreement: Allows a third party to use intellectual property, often for payment of a royalty or other fee
- Lease Agreement: Establishes the rental terms between a tenant and landlord
- Promissory Note: Memorializes the terms around a loan, including repayment, interest, and penalties
- Bill of Sale: Documents the sale of personal property
- Purchase Order: Commitment to purchase items at an agreed upon price point
- Agency Agreement: Establishes the job scope and payment terms for an agency
- Franchise Agreement: Outlines the relationship and terms between a franchisor and franchisee
- Settlement Agreement: Documents the agreement between the two parties to resolve a dispute
No matter the type of legal agreement, it is likely to include a variety of terms, including indemnification, warranty, choice of law, and many more. To ensure the most favorable terms are included in your legal agreement, contact us today.
Ten Tips for Making Solid Business Agreements and Contracts by Bethany K. Laurence for Nolo
How Do You Know if You Have a Legally Binding Agreement? By Eugenia Munoz for Legal Vision