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Hidden Hazards in Contracts - What to Look Out For, How to Avoid Them and How to Handle Them


In all of my years practicing business law and litigation, I have found that some of the most common sources of trouble and regret for my clients stem from confusing and not fully understanding contracts they are signing. Unscrupulous drafters can find easy refuge in encyclopedia-worthy amounts of text in contracts that help to hide what is really intended and to try to get away with some disturbing obligations. The worst part is this works because people don’t know what to look for or don’t look at all.

Three Big Hazards You Must Avoid

While the hidden traps in shady contracts might be particularly damaging, it doesn’t necessarily mean the person who drafted it was trying to rip you off. Some of them don’t know any better—and some know perfectly well what’s up.

Whenever you pick up a contract of any kind – from sales agreement to management agreements and asset or stock purchase agreements – I suggest you to consult a business attorney before signing anything. If you’re in St. Paul or the greater Minneapolis area, I would be happy to help you navigate around some of worst snares out there, including a few doozies:

1.) “Over-reaching”: You might not believe it but some contracts actually include a clause that says something along the lines of “you agree to pay [$fill in then blank with lotsa zeros], notwithstanding any legal prohibitions on liquidated damages to the contrary, and you agree this is not to be considered a penalty fee.” These usually won’t be upheld but you won’t know or get that benefit unless the contract goes through a lawsuit and a Judge determines it is in fact an invalid clause. Left unchallenged and enforced, you lose and pay more than you legally ought to have been charged. If you have to challenge it, you will be looking at the costs of paying a lawyer and time involved with a lawsuit possibly outweighing just paying the illegal penalty. Either way, you lose. Catch them in the act before you sign to stop them from overreaching legal boundaries.

2.) Usurious Loans: Interest rates can be killer but what most people do not know is that they are actually limited by the law based on the kind of loan or credit you have been granted. For most personal and consumer loans the interest can only go up to a certain level. Thanks to people not knowing better and complicated interest calculations, dishonest lenders can take advantage of these limits – or usury caps – and might charge you illegal interest rates. (“Usury” is a biblical term from a time when charging interest was considered a sin—which some religions still hold as true).

The penalties in Minnesota for usurious loans (a/k/a charging excessive interest) are thought to be the strictest in the country. The penalties can be significant, with Courts in Minnesota voiding the loan contract, causing the lender to forfeit all of the interest, and in some cases, even the principle too. But this is not true everywhere. Ever wonder why your credit card payments are always sent to South Dakota (or more recently Delaware and Nevada)? Because there are no limits on interest in those states.

3.) Attorney’s Fees: A lot of contracts have a clause (usually near the end) that requires you to pay for the other party’s attorney’s fees if they sue you for breaking the contract and win. Talk about pouring salt in the wound! These are lawful but are highly dependent on the actual words used in the clause and how it is intended to be applied or actually winds up being applied.

Sometimes these hazardous clauses in a contract can be dealt with through negotiation before you sign off on the deal. But other times these terms, and similar clauses, are part of the deal—take it or leave it. But one thing is for sure every time—if you have already signed the agreement you will have way less ability to change the contract after the ink is dry—at least easily or cheaply. By being patient, careful and actually reading the contract before you sign it, you can prevent significant future consequences and financial harm.

If you have questions before you sign the contract that has been put in front of you, contact an attorney at a St. Paul business law firm like MKT Law. If you’ve signed the agreement already and want to try and change it, or worse yet, are being sued over the contract, contact a business litigation lawyer at MKT Law.

When you work with us, we can help you avoid devastating and destructive contracts up front before signing your name on the dotted line. We also can help if you have already signed off on the deal and are being sued over the terms of the contract. Likewise, we can help you hold someone to what they promised and the contract they signed with you.

Call MKT Law to enforce your agreements too! At MKT Law we help you unravel the trickiest legal situations and empower you by helping you understand your rights under a contract.

If you have any questions about your contracts, do not hesitate to contact MKT Law today!

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