I took it to mean the other kind of sister-in-law, i.e., the woman married to the poster's brother.
That means your hubby and the sister are having a baby together? I think you should get eggs from other source not from your husband's sister. It is kinda absurd. Goodluck!
It's legal. It is an excellent idea to work with an attorney who handles fertility-related paperwork (you have one attorney and she has another) and sign an agreement in advance of the surrogacy attempt.
What is the nature of your infertility? Could she donate an egg, and you carry the baby? That might be easier all around (though a more expensive process, involving IVF. The way you are discussing, it could just involve a turkey baster.)