One of the classes first year law students have to take is a Contracts class. Contract law taught in law school covers the negotiation and requirements for making an agreement between two people. The phrase that is pounded into law students' heads is "meeting of the minds." The two parties to the agreement have to actually agree.
Yet, book learning doesn't always correspond to reality. The reality is most contracts aren't about negotiation, but are all about submission. You want this loan? You sign this contract. You want this car? You sign this contract. You want to rent this space? You sign this lease. You want this credit card? You sign this micro-printed, unintelligible contract that says we can change this micro-printed, unintelligible contract whenever we feel like it. What my law school professor should have focused on was nursery rhymes, old TV shows and Walt Disney films.
OLD MOTHER HUBBARD: Old Mother Hubbard owned some land in Texas. Exxon showed up and told Mother Hubbard that they'd like to lease some of her subterranean oil cupboard space. The contract contained a clause that included all of Mother Hubbard's adjoining land in the area in the lease and before Mother Hubbard knows it, all of her oil, not just the oil on the land she leased, is gone. This all inclusive contract clause, the Mother Hubbard Clause, bears her name.
DRAGNET: Joe Friday always got his man. Relentlessly, week after week, he scoured the city, Los Angeles City, capturing every criminal. There were no holes in his net. Most Small Business Loans contain Dragnet Clauses, an agreement that everything your business owns, is due to be paid and could conceivably be turned into cash and even thinks about (intellectual property) becomes collateral, or security, for the loan. Many SBA loans add in the business owner's personal assets and house, in addition to the business assets. If you can't pay back the loan, Joe Friday Bank will capture all of the business and personal property.
ANACONDA: In Walt Disney's Jungle Book, Mowgli gets wrapped up by the python Kaa as Kaa's voice hypnotically hums, "Trust In Me." Well, it is a jungle out there when you are getting a loan. Most borrowers are like Mowgli in the clutches of Kaa the Credit Union when they sign the Loanliner agreements. Loanliner is the standard form contract used for most of our local credit union personal loans !-- overdrafts, signature loans and car loans. The contract contains a cross-collateral agreement or as it is known in legal slang, an Anaconda Clause.
Kaa the Credit Union is giving you the loan, while their advertising and demeanor leads you to believe you can trust them, all the while wrapping up any collateral you pledge on one loan to all your other loans. Everything feels fine, warm and cozy even, until you can't pay -- then the python coils crush you.
Here is how it works. You open an account with a credit union. You sign an agreement for a $500.00 overdraft. Next, you get a $6,000.00 personal loan. Finally, you get a loan and buy a car. The car is now collateral for all your loans. Every single loan has to be paid before you can get title to your car. Oh and your account is collateral for your loans too, so if you don't pay, Kaa will just take the money in your account.
Knowing about these clauses won't change the contracts.
If you want the loan, you will have to submit, but at least you should know what you are getting yourself into when you sign on the bottom line.
E. Kent Winward is an Ogden attorney. He can be reached at firstname.lastname@example.org.