Abusive contracts are contracts that either illegal or are unfair for one of the parties. Abusive contracts are void under law and are not enforceable. If a court finds a contract to be illegal or abusive, they will cancel the contract and it will be as if it never existed.
A contract may be deemed abusive under a few different types of contract theories. The main reason a contract might be abusive is that it is “unconscionable”. This means that the contract is so one-sided that it would be unjust for one of the parties to perform their duties.
A contract can be unconscionable if it involves duress, undue influence, or unequal bargaining power. Most abusive contracts are unconscionable because of unequal bargaining power- one party took advantage of the other party’s lack of knowledge, experience, or resources.
In some cases, an abusive contract may also be voided because the subject matter of the contract is illegal: Illegal contracts usually involve activities that are prohibited under state or federal laws, for example: gambling, employing a minor, or agreeing to enforce discriminatory employment policies/practices.
Perhaps the most common example of an abusive contract is where the parties are unequal in terms of bargaining power (i.e., the contract is unconscionable).
For example, an older or more experienced party may enter into negotiations with a less experienced party. If they use their experience to their advantage and take advantage of the other party’s lack of knowledge, this might be deemed an abusive contract based on unconscionable bargaining power.
This type of situation is common where the parties have prior dealings with one another, but one of the parties has undergone a change of management or leadership. Oftentimes a change of leadership will mean that one party is new to the relationship and is not familiar with the way the two companies do business. The more established party might take advantage of the other party’s lack of knowledge of past business dealings and dramatically raise prices. This type of arrangement might cause a contract to be void.
Unconscionable and illegal contracts will usually be deemed void by a judge in a court of law. This means that the contract is simply terminated, and the parties may walk away without having to fulfill contract obligations.
Damages awards are usually not issued as a remedy for an abusive contract; nor are equitable remedies such as specific performance. This is because void means “as if no contract ever existed”. Thus neither party is allowed to recover losses if a contract is found to be abusive. Instead, the voiding of the contract is considered the appropriate remedy, as this releases the aggrieved party from the contract terms which were abusive or illegal.
There are many steps that can be taken in order to avoid being party to abusive contracts. These include:
- Reading the entire contract carefully. Most abusive contracts are entered into because the victimized party did not fully understand all of the contract terms
- Have an attorney read and review the contract to make sure that the terms are not illegal or abusive
- If you are unsure or unsatisfied with any contract provisions, be sure to bring this up during negotiations and attempt to reach a better agreement
- Do not sign any contract if the other party cannot explain the terms clearly
- Do research to learn about the business or person that you are dealing with. This is especially important if you are taking over duties for previously existing business dealings
Finally, contract laws may be very different from jurisdiction. You may wish to research the contract laws in your area if you are unsure of local rules. An attorney can also help provide advice regarding contract laws.
Contracts can often be complex and complicated undertakings. Even seemingly simple agreements can present legal issues, especially if one party has significantly more bargaining power than the other. Working with a contract lawyer can help prevent issues with illegal or abusive contracts. An experienced contracts attorney can also help represent you in court if a lawsuit needs to be filed should you feel a contract has been breached.