What’s in a Contract? The fine print matters.
Many small business owners are at a loss when it comes to the legal aspects of their enterprise. They may be experts in their field, but they are usually not attorneys, so when they come to our firm seeking to enforce a contract that has been breached by one of their clients or customers, we often have to deliver some bad news.
One of the most common problems is the absence of an attorney’s fees provision. There are some statutes that allow a party to collect attorney’s fees if they prevail in court, but those statutes are few and far between. Typically, in order for the court to award attorney’s fees, there must be a written provision in the contract explicitly allowing for those fees.
Our small business clients frequently do not realize this, so even if they have a strong claim against a client or customer, it may not be worth it for them to retain us to pursue that claim, because their client or customer will not be compelled to reimburse them for their attorney’s fees. But by having an experienced attorney review their contracts ahead of time, they can avoid those types of headaches down the road.
An experienced attorney can also make sure that the client is receiving the full protection the law allows. For instance, Maryland law entitles a party to interest and late fees when someone fails to pay that party money pursuant to a contract, but as with attorney’s fees, interest and late fee provisions must be written into the contract.
Similarly, we frequently see contracts that include provisions that are not only unenforceable, but that could get our clients into trouble. For example, home improvement contractors are only permitted to charge a homeowner 1/3 of the contract price upfront, but many of them charge 1/2 of the price, which is a violation of the Maryland Home Improvement Law and which could subject the contractor to significant penalties.
We have also seen small business owners include confessed judgment clauses in their contracts. Those clauses can be very useful, because, when enforced properly, a party that is owed money can obtain a judgment for what they are owed without having a trial. However, confessed judgment clauses are prohibited in consumer contracts, so if a party tries to enforce such a clause in a consumer project, they will be in violation of the Consumer Protection Act. Like the Maryland Home Improvement Law, violations of the Consumer Protection Act could lead to serious fines and other penalties.
In addition to making sure that a small business owner’s contracts are in compliance with Maryland law and ensuring that the contract affords as much protection as possible in the event of a breach, an experienced attorney can also help someone who is just starting out determine the best type of business entity to form. There are many different types of entities, all of which come with their own pros and cons, including different tax ramifications. We make sure that our clients make the right choice for their business, and we will work in conjunction with accountants in order to do so.
Sometimes, our clients have created a valid legal entity, but they might forget to file personal property returns each year, which could lead to their entity being forfeited (meaning that the entity no longer legally exists). We can help our clients overcome those difficulties as well, and we can also draft or modify our clients’ articles of organization/incorporation if necessary.
Our goal is to ensure our small business clients can focus on doing what they do best while being confident that, if something bad should happen, as it so often does, they will at least have a solid legal foundation to stand on. When a small business owner tries their hand at drafting or enforcing their contracts, or simply consults a legal website to help them, they are generally doing themselves a disservice and could be putting their business and their livelihood in jeopardy.
