Legal or Equitable Theory Contract: What You Need to Know
Contracts are an integral component of any business transaction. They outline the terms and conditions that bind parties to a deal. But how do you determine the contractual obligations in case of a dispute? This is where the legal or equitable theory contract comes in.
Understanding the Legal Theory Contract
The legal theory contract adheres strictly to the express terms of the contract. This means that the words used in the agreement and the intentions of the parties at the time of signing it are critical. Any terms that are not explicitly stated are not enforceable under the legal theory contract.
This type of contract strictly follows the principle of freedom of contract. The parties have the autonomy to decide what is best for themselves and the contract confirms these intentions.
In case of disputes, the court will use the language of the contract to interpret the parties` intentions and decide their legal obligations. This means that any provisions not explicitly stated will not be considered.
Understanding the Equitable Theory Contract
The equitable theory contract is a bit different. It is based on the principle of fairness and equity. In this type of contract, the court will look beyond the words stated in the agreement and consider the parties` intentions and circumstances.
Under the equitable theory contract, the court will look for any implied terms and intentions that are not explicitly stated in the written agreement. This is because it is presumed that the parties intended to include all necessary terms for the agreement to be legally binding.
The equitable theory contract ensures that parties are not unfairly bound by the strict and literal interpretation of the written agreement. Instead, it allows for the court to consider the parties` intentions and the circumstances surrounding the contract.
Which Theory Contract Should You Use?
The type of contract that you use will depend on the nature of the transaction and the parties involved. If you are dealing with parties who are experienced in business and legal matters, a legal theory contract may be more appropriate. This type of contract will strictly adhere to the express terms of the agreement and ensure that the parties` intentions are clearly defined.
On the other hand, if there is a power imbalance between the parties or if one party is inexperienced in legal matters, an equitable theory contract may be more appropriate. This type of contract allows the court to look beyond the written words and consider the parties` intentions and circumstances.
In conclusion, both legal and equitable theory contracts have their place in business and legal transactions. It is important to understand the differences between the two and choose the appropriate type of contract for your specific situation. By doing so, you can ensure that your contractual obligations are legally binding and that you are protected in case of a dispute.