Protect Yourself From Unfair Contracts

As a business owner, you will enter into a number of contracts – leases, supplier agreements, employment contracts, and more. You want to ensure that any contract you sign is fair and offers you some legal recourse, should a contract dispute arise. But it’s equally important to make sure you don’t inadvertently create unfair or illegal contracts yourself.

The following is an overview of how to avoid signing or creating an unfair contract.

Maryland Contract Basics

Maryland law recognizes five basic components of a contract:

  • Competent parties – Adults who are mentally capable of understanding the terms of the contract
  • Offer – The proposal by a party to take an action and/or pay for goods or services
  • Acceptance – Approval of the terms and conditions of the offer, as may be evident by the signatures of the parties to the agreement.
  • Consideration – The agreement specifies consideration, which means all parties gain something from the transaction (for example, a rental contract specifies that a landlord gets rental income and a tenant gets a place to live)
  • Performance – Performance is when the contractual obligations are fulfilled (for instance, your tenant has paid rent on time for 12 months and moves out at the end of the lease, having provided 30-days’ notice).

Legal issues may arise if any of those five requirements is in question or is non-existent. For example, if a tenant has a move-in date of May 15, but you fail to provide the keys on time, the tenant could have legal claim for non-performance.

When a contract dispute arises, it may end up being a matter for the court to resolve. A court may find a contract unenforceable due to:

  • Misrepresentation – This means one party has deliberately made a false statement or withheld information essential to the contract. Landlords who fail to provide tenants with a lead-based paint disclosure before entering a rental agreement could be found liable for misrepresentation because it withheld essential information.
  • Unconscionability – This term means a contract is clearly unfair, and that the contract’s consideration benefits one party significantly more than the other. In a contract dispute involving musician Lady Gaga and her former boyfriend, Lady Gaga claimed the contract was unconscionable because she signed it when she was 18, and her boyfriend, who was 38 at the time, used his knowledge of the music industry to take advantage of her inexperience for his own financial gain.
  • Lack of competency – Generally, a contract signed by a minor is unenforceable, because a minor is not considered competent to sign a contract. A person who cannot read, or who doesn’t speak English but signs a contract written in English, may be found to lack the basic competency required for signing a contract. The same is generally true for people who have a severe cognitive impairment, such as dementia.
  • Violation of a state or federal statute – Any established state or federal law takes precedent over a contract. So, if a trucking company had an employment contract that required drivers to work more than the federally mandated maximum number of driving hours, that contract would be unenforceable.
  • Non-specificity – There are plenty of contract templates online, often offered for free. But you have no way of knowing who prepared the document, how recent it is, or whether its terms would comply with local laws of the State or County. In addition, a contract that lacks specifics is difficult to enforce.

The best way to avoid entering into an unfair or illegal contract is to consult a business law attorney. Never sign a contract until your attorney reviews it, and get legal help in creating the contracts you use in your work.

Lusk Law, LLC, specializes in helping business owners interpret and create contracts, putting them in the best position to avoid litigation. Our experienced attorneys have provided legal counsel and representation to business owners and individuals in Frederick County, Howard County, Baltimore County, Baltimore City, Carroll County, Washington County, and Anne Arundel County, and other counties in Maryland. If you have questions about contracts, please call us at 443-535-9715 or fill out our contact form.

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