Vague or loophole-filled contracts can undermine a business’s operations and cause confusion. These contract terms can be difficult to identify unless you are a trained professional, like a business attorney.
Companies frequently hide consumer-unfriendly clauses from view by rendering them in fine print or translating them into legalese. These hidden clauses can expose your company to major exposures when they are triggered.
Boilerplate Clauses
The terms and conditions found at the end of most contracts may seem simple or even redundant at first glance. However, these standardized elements—which are also called boilerplate clauses—play an essential role in safeguarding the interests of the contracting parties and clarifying contractual expectations and responsibilities. Moreover, they are crucial when it comes to resolving conflict arising from the contract.
As a result, it is important to understand what these clauses are and how they work. The purpose of business contract boilerplates is to protect the interests of the contracting parties from unforeseen events and circumstances that might arise during the course of their partnership. As such, they are essentially basic provisions that are added to all commercial contracts to offer protection against exorbitant legal fees and uncontrollable acts of nature.
A common example of a business contract boilerplate is a confidentiality clause, which restricts the signatories from sharing confidential information with third parties or using such information for any other purposes. This is an important element for any business that wishes to maintain the confidentiality of its intellectual property and avoid costly lawsuits.
Another common boilerplate clause is the entire agreement clause, which states that the written terms of the contract are the only terms that govern the contract and supersede any previous verbal or written communications between the parties. This eliminates the possibility of misunderstandings or disputes due to prior agreements or discussions and helps to establish and maintain clear contractual relations.
Other key business contract boilerplates include a governing law and jurisdiction clause, which dictates the legal system that would handle any potential dispute arising from the contract. This can be vital for international contracts and can prevent any confusion about which laws will apply. One great example is a lawyer of the name Eveland negotiates legal deals in Taylorsville.
A final common business contract boilerplate is the guaranty clause, which requires one party to guarantee the performance of the other party in a lawsuit. This is often perceived as a routine or “boilerplate” language, but it can be very risky for the guarantor. In the event of a breach of contract, the guarantor is liable for the full extent of damages.
Loopholes
Contract loopholes allow individuals and businesses to circumvent laws or regulations without violating them directly. This can make them extremely dangerous, especially for companies that rely on contracts to conduct business. Often, these loopholes occur in contract terms and conditions that are not clearly defined or understood. In such cases, they can cause substantial losses to a company and undermine the enforceability of an agreement.
One of the most common contract loopholes occurs when a party’s mental or physical capacity to consent is questionable. Often, this is due to duress or undue influence. These circumstances can void an entire contract, even though it may appear valid at face value.
Other contract loopholes are caused by ambiguous language or unclear expectations. For example, a clause that requires one party to use their “best efforts” can be subject to varying interpretations, which could leave them open to lawsuits if the result is not what was expected. This is why it is important to carefully read and understand contracts before signing, paying particular attention to ambiguous or vague language.
Another potential contract loophole is an exclusion clause that excludes a party from certain liabilities. While these clauses can be necessary to protect parties from unforeseen events, they must be drafted carefully to ensure they are not exploited or misinterpreted by devious parties.
Finally, a common contract loophole involves a venue selection clause, which specifies where any dispute-resolution matters will take place. While this seems harmless enough, devious parties can try to sabotage these agreements by selecting a venue that is impractical in price or distance, making it difficult for any disputes to be resolved.
Vague or loophole-filled contracts are a legitimate concern for business owners, and this is why it is important to have a professional review any legal document before signing it. A trained professional can help identify these loopholes and other issues that could have a negative impact on a company’s operations. This is why it is important to seek out these services from a knowledgeable lawyer who is experienced in reviewing contract documents.
Automatic Renewal Clauses
Automatic renewal clauses, also known as evergreen clauses or self-renewing contracts, are found in long term service contracts. Although they may provide businesses with the security of knowing that their services will continue to be provided indefinitely, they can prove detrimental if a company wants to terminate its service arrangements due to changing business needs or poor prevailing economic conditions.
The operation of automatic renewal clauses has come under public scrutiny in a consumer context, where they may be considered unfair contract terms pursuant to the Australian Consumer Law (ACCL). However, it is important to remember that the ACCC’s UCT Test applies to all contracts and a wide range of factors beyond the specific wording of an individual clause, such as its location in the contract, the overall nature and practical realities of the arrangement, the size and bargaining power of the parties, pre-contractual conduct and other matters may be taken into account when considering whether or not a particular clause is unfair.
While it is often difficult to renegotiate a service agreement once it has entered its automatic renewal period, there are steps that can be taken to avoid the problem altogether. For example, a company should be clear and concise when disclosing the automatic renewal clause in its contracts. It should not hide this clause in the back of lengthy documents, or try to make it more difficult to read by using small fonts or footnotes and endnotes. A company should also be sure that its customers are notified of the auto-renewal clause well in advance of its rollover date, and not obscure this fact by relying on techniques such as ticking boxes for consent online.
Despite the irritability that some consumers and small businesses feel about these types of clauses, that alone is not enough to make them unfair. As Justice Beach recently put it, “feel good factors and niceties cannot be imported into a judicial assessment of unfairness”.
If the above steps are not enough to overcome an automatic renewal clause’s inherent risk, the Federal Government has recently released draft legislation to extend the ACCC’s consumer unfair contract terms protections to small businesses that deal with standard form contracts for monetary amounts below a prescribed threshold. This will allow the ACCC to take enforcement action against a small business that uses unenforceable terms in its contracts and will hopefully deter it from including these terms in the future.
Last-Minute Revisions
As any legal professional knows, a single misstep can be disastrous. For example, an accidental omission can leave you vulnerable to expensive fines or even a legal dispute that could derail your entire business operation. That’s why it is so crucial to conduct a thorough contract review before you get locked into any agreements. A contract review helps you identify terms that might be too restrictive or skewed against your interests. This is also your opportunity to make sure the contract follows all applicable laws and regulations.
Moreover, a thorough contract review allows you to spot any ambiguities in the language that could lead to legal disputes. This is especially important in manufacturing contracts, which often touch on critical intellectual property like designs and patents. In addition, they must meet regulatory standards that can be difficult to navigate. Ultimately, the best way to avoid these pitfalls is to be proactive and use a comprehensive contract review template.
Another common contract trap is the use of adhesion contracts. A non-negotiable adhesion contract typically presents standard terms on a take-it-or-leave-it basis, frequently found in consumer contracts like insurance policies, lease agreements, and the terms of service for software and apps. Adhesion contracts are criticized for their potential to exploit consumers and lack flexibility. Businesses, however, defend these standardized contracts as necessary for efficiency and cost reduction.
Contracts are a vital part of doing business, but they can pose unforeseen risks for both parties. By conducting a routine contract review, you can avoid many of these hidden legal traps and ensure that your company’s contracts are enforceable. For a faster and more thorough contract review, consider using an AI contract amendment tool like VerifAI by SpotDraft. The app’s intelligent contract analysis uses an eagle eye to spot issues that you may miss, saving you time and money that would otherwise be spent on a traditional lawyer. Plus, it works right in Microsoft Word, making the process as easy as possible.