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Common Loopholes in Contracts That Can Put You in a Tricky Situation Legally

Whether you are taking a new car on a lease, buying property, signing on a new client, or subscribing to an important service, it can be an exciting time for you as it is very likely to be the culmination of a lot of hard work and planning. Since the one common thing that binds both the parties legally to the deal is the contract, you need to pay a great deal of attention to reading it so that you do not end up being taken advantage of by an intentional act by the other party or due to an unanticipated situation not covered satisfactorily by any of the terms of the contract. Some very common loopholes that may exist in contracts that are not reviewed properly:

Read Also – Contracts- Not just Legal Documents but a Human Process

Beware of Clauses That Contradict Each Other, Says Jonah Engler

One of the most common contractual loopholes are terms like “notwithstanding” that are deliberately inserted in the clauses to provide an escape route for obligations that have been previously specified. It is very common to read a services agreement and find words like “hereunder” and “notwithstanding” popping up now and then. You need to think twice about contracts containing these terms that contradict the obligations of another party that have been explicitly stated earlier. Even though after going through the contract, you may think that the terms and conditions are perfectly watertight, a single occurrence of these contradictory terms can completely lend a contrary meaning to what you may have just read and appreciated. If you see one of these terms in any of the clauses, you need to be on high alert and review the offending clause once again to find out how it impacts you. In most cases, you will be shocked to discover how exposed you have become to ulterior motives by the other party.

Read Also – What are the Remedies for Breach of Contract?

Ensure Retention of Intellectual Properties by the Purchaser, Asserts Jonah Engler

If you are paying someone for creating an intellectual property like a product design by either a freelancer or an outsourced company, you need to ensure that you are the absolute owner of the intellectual property. The reason why safeguarding the right of use and the ownership of the intellectual property is important is because, under the prevailing U.S. copyright law, the creator of the work is generally held to be its owner, says Jonah Engler. This means that in the absence of a written contract specifying that the ownership right vests with the purchaser, it will be held that the creator of the work is its owner. Since most people are not aware of this, it is all the more important to ensure that the language in the contract indicates in clear and specific terms that the title, rights, and interests in the work rest with you and not the creator. According to https://www.forbes.com, the language in the contract should specifically address the use and ownership of the intellectual property.

Be Extra Alert to Last-Minute Revisions in the Contract, Warns Jonah Engler

Some parties tend to keep on altering and revising the language of the negotiated contract in an attempt to get the better of you. If you see an excessive number of revisions taking place, you should be alert to the fact that they may be trying to slide in something important while making the edits. It can seem tiring and also needlessly expensive in case you have hired an attorney to go through each revision even if the other party claims they are merely clerical changes; however, it is vital that all the edited clauses are checked minutely for any adverse fallout. If you are not careful, you could easily be at the receiving end of surprises like the loss of management control of a venture you established, or the other party taking the opportunity to walk out of the contract due to a shortfall in profits or any other benchmark. Typically, these lethal edits are not present in the first drafts but usually inserted after both parties have agreed on the broad contours of the agreement after protracted negotiations. Depending on the criticality of the contract, it is advisable to have an attorney review all the contractual exchanges and advise you on the best terms.

Take Careful Note of Auto-Renewal Clauses, Advises Jonah Engler

Most contracts will have a start date and an end date, however, in many cases; one party will tend to incorporate an automatic renewal clause in the fine print, of which you may not be aware at all. Typically, when this kind of a clause is present in the contract, you are obligated to serve a notice of termination to the other party, however, since you are not aware of the clause, you fail to do so and get locked into another contract period for which you need to pay extra. This kind of auto-renewal clause is typically encountered in subscription services so you need to thoroughly check the contract fine print to make sure that the contract expires on the schedule end-date. In case you fail to do so, you may have payments being kept on being deducted from your account or your credit card charged without your noticing it. The best strategy is to try to have the auto-renewal clause deleted from the contract or if it is not possible, then you need to carefully mark the date by which, you need to serve the notice of termination to the other party.

Read Also – An Introduction to Intellectual Property Laws


To ensure that you have a watertight contract that serves your interest in the best possible manner, you need to also understand the most likely threats. For example, you should insist on clarity on specific accounting practices that may impact the return on investment. You should also ascertain if you are responsible for paying legal fees of the other party in case of a dispute, and also avoid clauses that force you to resolve disputes in a remote location. In the case of the contract involving a party in a foreign land, you should know which country’s law will be enforceable as well as the implications of those laws.

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by danielng

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