Hidden Clauses in Everyday Contracts: What You Might Be Agreeing to!

Introduction

In our day-to-day life we make numerous agreements with the mutual understanding of both parties and the contracts which could be legally enforced becomes the agreements. As we all know the contracts plays a very important role in our everyday life. We knowingly or unknowingly agree to many terms and condition which gave us benefits some of them are useful and followed by the enforced laws but some of them are not followed by law and their terms and conditions becomes the trap for the parties where they face many problems regarding the privacy, unwanted demands of money, or many other issues arises with the same. While many contracts contain the hidden clauses, which are not noticeable but they create a big impact in the performance of the contract.

The Hidden clauses in a contract must to follow the guidelines prescribed in the Indian Contract Law 1872,¹ but all the contracts with the hidden clause not always follow those guidelines or take benefits of the loopholes of the law or Act. By this blog, we try to find out the importance of the proper representation of the hidden clauses to maintain the transparency in the formation of the contract and its performance.

Common Type of Hidden Clauses

Every contract has its own terms and conditions according to its validity and implacability. In case of contracts of Auto-renewal and Subscription traps, the user agrees to the terms and conditions during the subscription for services of a particular thing, like we mostly use the streaming platforms for the entertainment purpose and for that we have to buy the subscription for enjoying the services, at the time of subscription contains all the points to be agreed by the user but sometimes in the hidden clauses contains the terms related to continuation of the subscription until you tern it off and it auto deducts the cost for the subscription. These are considered as the subscription traps.

These hidden clauses not only limit to it but it also has a wider aspect which covers the things like wavier of rights, limited liability, mandatory arbitration and restriction on legal action, etc. Here another important thing related to the restriction on legal actions and the data sharing and privacy concerns. In these situations, the hidden clauses do not open all the points like who have the access of your data and how would they use your data, and in these kind to agreements the users only have to agree either they will not be able to use the services. These hidden clauses also bind their users to with other conditions like not able to take legal action if any mishap takes place because the user already given their consent for the use of their data, which creates a serious issue of data privacy which violates the rights to privacy.²

On the other hand, by not sharing the proper way to use or share the data of the users, the companies violate the right to information³ of the peoples as well. These are the common types of hidden clauses in the agreements or the contracts which affects the transparency and the performance of the contracts and it also violated the Indian Contract Act 1872.

Real Life Examples

Hidden clauses in contracts have led to significant financial and legal troubles for individuals and businesses alike. Here are some notable cases:

1. The McDonald’s Royalties Oversight: The original owners of McDonald’s sold their business to Ray Kroc, but they intended to retain 1% royalties in perpetuity. However, due to a contract drafting error, the royalty clause was omitted, causing them to lose out on millions of dollars from one of the most successful fast-food franchises.⁴
2. The Tokyo Stock Exchange Typo: In 2005, Mizuho Securities Co. mistakenly offered 610,000 shares of J-Com for 1 yen each, instead of one share for 610,000 yen. This typo resulted in a $345 million loss, as the Tokyo Stock Exchange was unable to cancel the erroneous trade.⁴

How to Identify Hidden Clauses

Hidden clauses are often buried in fine print or written in complex legal jargon, making them difficult to spot. Here are some key red flags to watch for:

1. Unclear or Vague Language: Phrases like “subject to change” or “at the company’s discretion” can indicate flexibility in terms, often favouring the business.
2. Mandatory Arbitration Clauses: These Clauses waive your right to sue the company and force dispute into arbitration, where companies have a strong position.
3. Auto-Renewal Terms: Subscription services frequently include automatic renewal clauses, making the cancellation difficult and leading to unexpected charges.
4. Data Sharing Agreements: Some Contracts allows companies to sell or share the personal data of their users without their consent, raising the privacy concerns.

Protecting Yourself from Hidden Clauses in Contracts

Before signing, the contracts should be carefully examined by the party because the concealed clauses may have unintended financial and legal consequences. Mandatory arbitration clauses, liability limitations, and the auto renewal conditions are found in many contracts. These provisions may restrict consumer rights or result in additional cost and these provisions are also difficult to locate because they are written in very sophisticated legalese or concealed in elegant language which commonly not noticed by the parties and they face problems with it.

To protect yourself from these mishaps, always read the fine print and look for the unclear or too complex language that can conceal harmful words. Watch out for the auto renewal clauses, chich could commit you to contract that are long term and have no clear method to cancel or terminate the contract.

If a contract seems one-sided or unclear, negotiating or modifications can help to ensure the fairer terms. Many businesses include the hidden clauses and follow a standard form of contract to protect their interest, but consumer have the right to request the transparency and fairness in it. Seeking for legal advice for complex agreements is also a smart approach to overcome this type of issues, as professional can identify potential risks and suggest necessary revisions.

Conclusion

Hidden Clauses in the contracts can have significant financial and legal consequences, often catching individuals and business off guard. These clauses ranging from the auto-renewal terms and liability limitations to mandatory arbitration agreements are frequently buried in fine prints which making them difficult to detect. Many companies use complex legal terms to obscure unfavourable terms, leaving the consumers with limited option once the party signed the contract.

To protect the rights and the transparency of the formation and the performance of the contract, its essential to read the contract carefully before signing it, identifying its vague or misleading language, and seek legal advice if it is necessary. The negotiation for the fair terms and stating the informed about the Consumer Protection Laws can help the parties to prevent them from unexpected liabilities. By being proactive, the individuals can ensure the agreements serve their interest rather than becoming costly traps.

References

1. Indian Contract Law for governing the Contracts and Agreements and ensuring the legal uniformity in Indian territory.
2. Right to Privacy is protected under Article 21 of the Indian Constitution, which guarantees the right to life and personal liberty
3. Right to Information (RTI) in India is a fundamental right under Article 19(1)(a) of the Constitution, which guarantees freedom of speech and expression
4. MikeLegal, Famous Errors in Contracts that Cost Big Money
   MikeLegal – Famous Errors in Contracts that Cost Big Money