Abusive Contracts

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 What is a Contract?

A contract is an agreement between two parties that creates mutual legal obligations. Contracts can be oral or written, but some are required to be in writing. Oral contracts are more difficult to enforce and should be avoided, if possible.

Some contracts are required to be in writing in order to be valid pursuant to the statute of frauds. Contract types that are required to be in writing include:

  • A contract that involves the sale or transfer of land;
  • A contract that involves the sale of goods over $500;
  • A contract where one individual promises to pay the debt of another;
  • A contract in which performance cannot be completed within a year of the contract formation;
  • A contract involving the consideration of marriage; and
  • A contract in which an executor of an estate agrees to personally satisfy the debts of the estate.

Contracts are part of most individual’s everyday life. Therefore, it is important to be familiar with the rules governing contracts to ensure a contract is valid. Valid contracts must include the following elements in order to be legally enforceable:

  • An offer, such as an individual will pay $100 for 50 cupcakes;
  • And acceptance of the offer that is presented, such as the ordering party agrees to pay $100 for 50 cupcakes; 
  • A promise to perform, such as the cupcake seller saying they will perform by making 50 cupcakes;
  • A valuable consideration, or payment of $100 for the cupcakes; 
  • A time or an event when the performance must be completed, such as 50 cupcakes next Saturday for the birthday party; 
  • The terms and conditions of the performance, such as 25 cupcakes should be vanilla and 25 should be chocolate; 
  • Performance, when the 50 cupcakes are delivered and the baker is paid $100. 

It is important to note that the laws and regulations regarding contracts vary by state. Many contracts are governed by state statutes. An attorney can help an individual ensure their contract complies with local regulations.

In most cases, a contract must include the following information:

  • Identification of both parties entering into the contract, such as names and addresses;
  • Reasonably identifiable subject matter; 
  • Clearly stated fundamental terms and conditions of the agreement; and
  • Signatures of both parties.

It is important to note that if both parties to the contract do not sign the agreement, then the non-signing party is not liable for their performance of the contract. However, if the contract is for the sale of goods, the only signature that is required is the party accepting the goods as well as a term regarding the quantity of the goods. This may apply if the individual selling the goods did not include an area for the seller to sign or made it clear their signature was not required.

What are Abusive Contracts?

An abusive contract is a contract that is either illegal or unfair to one of the parties. An abusive contract is void under the law and is not enforceable. If the court finds a contract is illegal or abusive, the contract will be cancelled and treated as if it never existed.

A contract may be found to be abusive under several different contract theories. One of the most common reasons a contract may be abusive is that it is unconscionable. An unconscionable contract is a contract that is so one-sided that it would be unjust for one of the parties to perform their duties under the contract.

A contract may be unconscionable if it involves: 

  • Duress; 
  • Undue influence; or 
  • Unequal bargaining.

The majority of abusive contracts are unconscionable because of unequal bargaining power. This occurs when one party takes advantage of another party’s:

  • Knowledge;
  • Experience; or
  • Resources.

Abusive contracts may also be voided if the subject matter of the contract is illegal. Illegal contracts typically involve activities that are prohibited under state or federal laws. Examples may include: 

  • Gambling; 
  • Employing a minor; or 
  • Agreeing to enforce discriminatory employment policies or practices.

What is an Example of an Abusive Contract?

One of the most common examples of abusive contracts occurs when the parties have unequal bargaining power and the contract is unconscionable. For example, an older or more experienced party may enter into negotiations with a younger or less experienced party. If the more experienced party uses that experience to take advantage of the less experienced party’s lack of knowledge, it  may be deemed an abusive contract based on unequal bargaining power.

This type of situation is common when the parties have had prior dealings with one another but one of those parties has undergone a change in management or leadership. In many cases, a change in leadership means that one party is new to the relationship and is not familiar with the way the two parties previously did business. 

The more established party may attempt to take advantage of the newer party’s lack of knowledge of past business dealings and dramatically raise the prices. These circumstances may cause a contract to be found void.

What is the Remedy for Abusive Contract?

In most cases, an unconscionable and illegal contract will be deemed void by a judge in a court of law. In these cases, the contract is simply terminated and the parties are not required to fulfill any contract obligations.

In general, damages awards are not given as a remedy for an abusive contract. Additionally, equitable remedies such as specific performance are not awarded as remedies for abusive contracts. 

This is due to the fact that a void contract is treated as if the contract never existed. Therefore, neither party is permitted to recover losses if the contract is found to be abusive. Instead, finding the contract void is considered to be the appropriate remedy because it releases the aggrieved party from the contract terms that were abusive or illegal.

How Can I Avoid Getting into an Abusive Contract?

There are steps that an individual can take in order to avoid entering into abusive contracts. These may include:

  • Read the entire contract carefully. The majority of abusive contracts are entered into because the aggrieved party did not fully understand all of the contract terms;
  • Hire an attorney to read and review the contract to make sure that the terms are not illegal or abusive;
  • If an individual is unsure or unsatisfied with any contract provisions, they should bring this up during negotiations and attempt to reach a more favorable agreement;
  • Do not sign a contract if the other party cannot clearly explain the terms; and
  • Research the business or individual with whom the contract will be entered into. This is especially important if an individual is taking over duties for previously existing business dealings.

As previously noted, contract laws differ by jurisdiction. An attorney can help ensure an individual does not enter into an abusive contract or one that does not comply with local requirements.

Do I Need a Lawyer if I Have an Issue Involving an Abusive Contract?

Yes, it is essential to have the assistance of a contract lawyer for any abusive contracts issues. Contract laws can be complex and different in every state. Even simple contracts may present legal issues, especially if one party has significantly more bargaining power than another party.

An attorney can help prevent issues such as illegal or abusive contracts. An attorney can draft your contract, review a contract prior to you signing, and review any contracts which you may have already signed. If necessary, your attorney can represent you during any court proceedings, in the event a dispute arises.

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