Are legal loopholes ethical?

[Lord MJ]

I would say no.

The use of legal loopholes to achieve your ends is TOTALLY unethical, unless by chance the rule you are trying to find legal loophole in is itself unethical.

I'm currently dealing with a guy who signed a contract with us, but now he doesn't want to honor his obligations, so he is pulling all sorts of legalism trying to get out of the agreement.

I'm pretty here someone here would argue "If its legal it's perfectly fine." Feel free to do so, if you are looking for a smackdown.

[Darth Wong]

Of course the use of loopholes is unethical; that's why we have the phrase "dealing in good faith" for people who don't do that sort of thing. It's also why judges in extreme cases can declare "equitable estoppel".

[Chmee]

One man's insistence on adherence to the letter of the law is another man's loophole .....

You'd need to give me a lot more specific details before I could comment on the ethics. Every time somebody loses because of a procedural issue they scream loophole, and most of the time what really happened is they fucked up.

[Stravo]

Of course one can argue that if your contract has legal loopholes then you didn't draft a very good agreement and you should get reamed for it when the time comes.

[Lord MJ]

One man's insistence on adherence to the letter of the law is another man's loophole .....

You'd need to give me a lot more specific details before I could comment on the ethics. Every time somebody loses because of a procedural issue they scream loophole, and most of the time what really happened is they fucked up.

I'm of the opinion that "The letter of the law" is almost as evil as legal loopholes.

I am talking about behaving in an honorable manner.

If you make an agreement, trying to go get out of it, by picking at loopholes in either the agreement, or laws in place is unethica, UNLESS the agreement itself was unethical.

[Lord MJ]

Of course one can argue that if your contract has legal loopholes then you didn't draft a very good agreement and you should get reamed for it when the time comes.

Even if a contract has a legal loophole, it is still unethical to make use of them. There's the hole good faith thing.

You thing that rather than honoring your agreements, trying to weasel out of it by crawling to a lawyer and getting him to poke holes in the agreement is okay?

In this case it was agreement that we was supposed to provide a piece of software to us as part of a partnership arrangement.

Later he decided he didn't like the arrangements. Well our contract only referred to the software by name. So he tried to say that he could give us a napkin with the name of the software on it, and he would be in compliance. He also tried digging around my my personal background to find outside things that would render the agreement void.

Does this sound ethical to you?

[Stravo]

Its completely and totally ethical for an attorney to help a client find a loophole in an agreement. Its part of what lawyers do. If the agreement is properly drafted then there are no loopholes and no wiggle room.

All I'm saying is welcome to the world of contracts and contract law. This happens on a very regular basis. I finished a trial last year where a guy swore on his children (Literally. Prompting the Judge to chide him that it would be no more binding than the oath he already took when he was sworn in) that he had signed this agreement when we knew all along it had been forged.

Agreements are not the iron clad documents some people want them to be.

The Good Faith efforts is meant to apply to actually trying to fullfill the terms of the agreement. He's making the argument that your contract only asked for a name. Well...it would be a good faith effort to provide you something with that name - if his argument is correct.

All I'm saying is that unethical is a strong term to use when its routine in the business world to renegotiate or reinterpret a contract.

[Lord MJ]

This also refers to using loopholes in regs unrelated to the law or agreement in question.

For example using a procedural error to get out of an agreement. This actually happened with an organization I was building a website for.

The members of the organization agreed to the terms of our work agreement, but they failed to have an OFFICIAL vote, and I was ignorant of thier internal prcoesses. So later on when the treasurer of the organization found she could get the site done by a friend who offered to work for free, she tried to tell us that we never had an agreement because thier internal protocols were not observed. Fortunately the organization's President sacked the treasurer for that behaviour...

[Lord MJ]

Its completely and totally ethical for an attorney to help a client find a loophole in an agreement. Its part of what lawyers do.

No it isn't. It's LEGAL, but not ethical. If you have an agreement to do x, but you decide you don't want to do x anymore, then trying to get out of doing x by going to a lawyer is unethical because it harms the person you have an agreement with.

If the agreement is properly drafted then there are no loopholes and no wiggle room.

It was properly drafted the guys simply trying to concoct outrageous situations to get out of his obligations.

All I'm saying is welcome to the world of contracts and contract law. This happens on a very regular basis. I finished a trial last year where a guy swore on his children (Literally. Prompting the Judge to chide him that it would be no more binding than the oath he already took when he was sworn in) that he had signed this agreement when we knew all along it had been forged.

Agreements are not the iron clad documents some people want them to be.

The Good Faith efforts is meant to apply to actually trying to fullfill the terms of the agreement. He's making the argument that your contract only asked for a name. Well...it would be a good faith effort to provide you something with that name - if his argument is correct. [/quote]

Again you're confusing legal with ethical. Yes by the law these actions would technically be legal. (But honestly that napkin bullshit would never stand up in court, since both parties both knew that we were referring to software.) But certainly not ethical.

All I'm saying is that unethical is a strong term to use when its routine in the business world to renegotiate or reinterpret a contract.

Again legal vs ethics. And this argument is also a fallacy, claiming that somehting being routine makes it ethical. Attempting to renegotiate a contract is perfectly ethical, refusing to honor the orginal agreement unless you get what you want is not. Reinterpreting without the consent of the other party is certainly unethical, unless of course you had differing interpretations from the beginning.

[Vicious]

Just because something is legal, and even commonplace doesn't make it ethical. Trying to claim compliance with the terms of the agreement by exploiting semantics is, while possibly legal and commonplace, not ethicl by any stretch of the word.

[Nick Lancaster]

Yes. It seems that the 'Rule of Law' crowd has become the 'If it's not expressly forbidden, it's legal' crowd.

When you start getting into the realm of literal truth, you're on shaky ground. If you promised "WobblySoft" to a client without any specifications, then you'd have to examine the contract to see if an actual software product was implied, i.e. a cocktail napkin with 'WobblySoft' printed on it does not qualify, as it would not, in any stretch of the imagination, provide a level of support or services.

[Darth Wong]

The habitual exploitation of semantic loopholes in laws and legal agreements is unethical because it is a drain on society. As a result of this behaviour, laws and contracts must be exhaustively examined by highly paid specialized personnel (ie- lawyers), and despite that expensive and socially parasitic activity, abuses still occur.

The result of all this activity is a net loss for society; people who could be doing productive work are instead focusing their energies on preventing, identifying, and correcting semantic abuse of contracts and laws.

[Queeb Salaron]

There are a lot of blanket statements being made here, and I'd just like to point out that there is a difference between a loophole and an honest-to-goodness complaint against a contractor who implies that X service/goods be exchanged when the contract does not explicitly state it. In this sense, finding the "loopholes" is perfectly ethical.

[Lord MJ]

There are a lot of blanket statements being made here, and I'd just like to point out that there is a difference between a loophole and an honest-to-goodness complaint against a contractor who implies that X service/goods be exchanged when the contract does not explicitly state it. In this sense, finding the "loopholes" is perfectly ethical.

in my situation it was a guy who would join the team and get a percentage of the firm. He didn't like the percentage and he wanted more, so we gave him more. He agreed to the amount and we signed the deal.

Later on he decide he deserved MORE. Contract? What contract?

Since we weren't going to let him renege on his agreement because he suddenly decided he wasn't happy with what he's getting (even though that number is ultimately what we agreed to) he started trying to poke holes to get out the the agreement including pulling that rediculous napkin bullshit.

How can anyone possibly consider this ethical behavior?

[Queeb Salaron]

in my situation it was a guy who would join the team and get a percentage of the firm. He didn't like the percentage and he wanted more, so we gave him more. He agreed to the amount and we signed the deal.

Later on he decide he deserved MORE. Contract? What contract?

Since we weren't going to let him renege on his agreement because he suddenly decided he wasn't happy with what he's getting (even though that number is ultimately what we agreed to) he started trying to poke holes to get out the the agreement including pulling that rediculous napkin bullshit.

How can anyone possibly consider this ethical behavior?

Why is he going through all this trouble? Why can't he just ask for a renegotiation of the contract? Were I in his position, I think I might just tell my teammates that I'd like to renegotiate. If the contract is not open for renegotiation, I would simply leave the firm and find another firm with whom I could draft a suitable contract.

Of course, I'd have to find out what the penalty was for breaching contract, of course (assuming that quitting is breaching contract), and weigh that against my desire to be a squeaky wheel. All said, were I in your position, I would remind him that he has this option.

[Lord MJ]

in my situation it was a guy who would join the team and get a percentage of the firm. He didn't like the percentage and he wanted more, so we gave him more. He agreed to the amount and we signed the deal.

Later on he decide he deserved MORE. Contract? What contract?

Since we weren't going to let him renege on his agreement because he suddenly decided he wasn't happy with what he's getting (even though that number is ultimately what we agreed to) he started trying to poke holes to get out the the agreement including pulling that rediculous napkin bullshit.

How can anyone possibly consider this ethical behavior?

Why is he going through all this trouble? Why can't he just ask for a renegotiation of the contract? Were I in his position, I think I might just tell my teammates that I'd like to renegotiate. If the contract is not open for renegotiation, I would simply leave the firm and find another firm with whom I could draft a suitable contract.

Of course, I'd have to find out what the penalty was for breaching contract, of course (assuming that quitting is breaching contract), and weigh that against my desire to be a squeaky wheel. All said, were I in your position, I would remind him that he has this option.

This was a partnership agreement not an employment agreement. It was an agreement around the formation of a corp.

Basically it says he puts in software x and he gets y% of the corp.

He decided that he wasn't happy with y%. So he then refused to honor any of his obligations according to the agreement. And not only that, sale software x himself and claim 100% of the profit for himself.

Since that goes against the agreement, he resorted to the legal loopholes.

[Chmee]

The habitual exploitation of semantic loopholes in laws and legal agreements is unethical because it is a drain on society. As a result of this behaviour, laws and contracts must be exhaustively examined by highly paid specialized personnel (ie- lawyers), and despite that expensive and socially parasitic activity, abuses still occur.

The result of all this activity is a net loss for society; people who could be doing productive work are instead focusing their energies on preventing, identifying, and correcting semantic abuse of contracts and laws.

But y'know, while they're doing all that, they're not shooting at each other .... they both think they have a shot at reasonably resolving the dispute. Beats some of the alternatives that a lot of the world has to live under.

[Lord MJ]

Sorry to necromance but a little more information.

The contract dispute I had with the guy, he actually agreed to all the terms of it. But later said "I agreed to it then, but now I changed my mind." (Mostly because he was talking to his buddies and they told him he was cheated.) And proceeded to send in a laundry list of demands, demanding that his share be increased well out of proportion to what he was bringing in.

And to top it off, he accused me of being shady by expecting him to keep his end of the bargain .

How does this sound ethical. You can't sign a contract and the extort the other side into granting concessions to you by refusing to comply with the agreement unless they give in to your demands. And then try to find loopholes to nullify the contract if your demands aren't met. Once a contract is signed, it's up to the other side to decide if there is going to be a renegotiation. If the other side doesn't agree you are stuck with the agreement and it is unethical to do anything but follow it, (unless of course the agreement was unreasonable, or the other side has employed trickery or unethical conduct.)

It is also unethical for a lawyer to accept a case of a guy saying "I signed this agreement, find a loophole so I don't have to honor my obligations." And quite frankly doing that should be a criminal offence, since that goes well beyond Breach of Contract, it is showing outright contempt for an agreement and the principle of contracts in general.

It seems the whole reason we need such extensive legal systems is as Wong said, people simply refuse to keep thier word.

I find myself wondering how the heck I ended up dealing with an individual that embodies the absolute worst qualities that human can have.

I wish there was a way I could publicly warn people about this man so that they would not do business with him, but that would be considered slander .

I wonder based on this affair whether I am more upset about the man himself, or a legal system and cultural mindset that make it possible and acceptable to engage in such behavior.

[Queeb Salaron]

Sorry to necromance but a little more information.

The contract dispute I had with the guy, he actually agreed to all the terms of it. But later said "I agreed to it then, but now I changed my mind." (Mostly because he was talking to his buddies and they told him he was cheated.) And proceeded to send in a laundry list of demands, demanding that his share be increased well out of proportion to what he was bringing in.

Well, I'd call a lawyer for sure on this one, but the way I remember reading my contract law text, the law works like this: If the guy is contractually obligated to provide product X, then he must do so. If he fails to do so, he is in breach of contract, and therefore his payment of Y% can be severed.

He does have the right to demand a contract renegotiation, but the drafters of the contract are not obligated to grant one to him. The only reason they do is if product X is extremely valuable, and if the company cannot stand to lose it.

I say, if you can stand to lose product X, then you should refuse his demands and hold him in breach of contract when he refuses to give you his product. Then you can walk into any courtroom in America, hand the judge a copy of the contract, and force him to compensate you for lost business, etc.

How does this sound ethical. You can't sign a contract and the extort the other side into granting concessions to you by refusing to comply with the agreement unless they give in to your demands.

It's not ethical. But it's legal. If you're accusing HIM of shady business practices, you have the option of voiding the contract by the means provided in the contract itself (I hope you have established a cancellation clause). He's trying to find out how much you'll pay for his product, and if you've offered him all you can, then you have the right to refuse demands. He can't literally force you to pay him more; you always have the option of cutting him out of the deal and replacing him. But he can drive up the price of his product (assuming that it's his product, or that he has the right to sell it). It's perfectly within his legal means to determine the price, and well within yours to let him go.

Once a contract is signed, it's up to the other side to decide if there is going to be a renegotiation. If the other side doesn't agree you are stuck with the agreement and it is unethical to do anything but follow it, (unless of course the agreement was unreasonable, or the other side has employed trickery or unethical conduct.)

Yes, he employed unethical business tactics. But he hasn't done anything illegal. Loopholes in themselves are not unethical. Every contract should be airtight, and if there are no loopholes to exploit, then ethics becomes a non-issue.

It is also unethical for a lawyer to accept a case of a guy saying "I signed this agreement, find a loophole so I don't have to honor my obligations."

Ethics aren't as valuable as money to some lawyers. Ethics don't make car payments.

And quite frankly doing that should be a criminal offence, since that goes well beyond Breach of Contract, it is showing outright contempt for an agreement and the principle of contracts in general.

That's extreme in the most extreme sense of the word. I understand you're upset, but you'll find that judges in civil cases are able to recognize when a loophole is being exploited for the sake of it being exploited, and are quick to punish those offenders who have contempt for the law. But there's no sense in making criminals of those who simply have a contempt for the law.

It seems the whole reason we need such extensive legal systems is as Wong said, people simply refuse to keep thier word.

That's the nature of people, not the nature of the legal system. Law is and has always been at least partly reactionary. Its roots are traditional in some sense, but since its inception, law has struggled to react to human nature.

I find myself wondering how the heck I ended up dealing with an individual that embodies the absolute worst qualities that human can have.

When in doubt, blame HR.

I wish there was a way I could publicly warn people about this man so that they would not do business with him, but that would be considered slander .

Report him to the Better Business Bureau.

I wonder based on this affair whether I am more upset about the man himself, or a legal system and cultural mindset that make it possible and acceptable to engage in such behavior.

Make the law work for you. Hire a lawyer to deal with this guy, and another lawyer to draft a loophole-free contract. You'll save a bundle in legal fees down the road.

[Petrosjko]

What sort of legal review did you get the contract subjected to before signing it, MJ?

[Lord MJ]

Once again this isn't a business contract.

It was a partnership contract.

A group of professionals and I are working to establish a technical organization. We were doing business planning for a set of services and software we wanted to build.

We met this guy and he was interested in joining us, he had a piece of software he was building, and we felt that it would be a worthwile addition to our portfolio, and he would make a good addition to our team. We had no problem adding new people even if it meant splitting up the pie among more people.

It all sounded good.

However we had numerous disputes over the size of his share. He was contracted to 15%. He somehow spin-doctored that into us taking 85% of his company.

It gets even better.

After much going back and forth, we finally came to an agreement regarding his share of the venture. Plus we added a whole bunch of clauses to satisfy a laundry list of "concerns" he had. We signed the contract and moved forward.

Several months later, he started complaining that his share wasn't big enough again. He started complaining that the other partners in this was cutting into his share. (After all simply math dictates that he would have more if everyone else had less, or there were fewer partners.) And he said he should own half or more. (Which basically meant he would own half, and the rest of us would divide the remaining half amongst ourselves, not to mention the fact that we would have to also factor in what our investors own as well. Meaning that everyone else that was working on this venture would be have to divide 20-30%, while this clown owned 50%). He then stated that he didn't care about the rest of us, and that he shouldn't have to share his company with the rest of us. Of course he then refused to honor his contractual obligations if he didn't get what he deserved, and then he said he was going take his software and form his own organization with him as 100% owner and he would keep 100% of the money.

When we reminded him, that under the contract the software product was property of the organization, and trying to sell it and keep 100% of the money to himself would constitute Breach of Contract as well as violation of intellectual property, he accused me of trying to cheat him, and screw him out of his product.

This is when the napkin bullshit started. And he hired the lawyer to get him out of his contract. And he started sending us long 5 [age rants via email to us and our professional advisors how we are agents of Satan and that he's going to send us to Hell where we belong and that his lawyer is going to take us down.

The sheer absurdity of his case reaffirms my assertion that the conduct of both he and espescially his lawyer should face some sort of criminal prosecution.

It takes a special type of moron to engage in this type of behavior. Of course I'm the moron for trying to associate with such a guy in the first place.

[Boyish-Tigerlilly]

Its completely and totally ethical for an attorney to help a client find a loophole in an agreement. Its part of what lawyers do.

So if that is what they do that must mean automatically that's what they ought to do?

How do you go from it's the way they do things and what they do, to the action is therefore perfectly ethical?

As for the they ought to get reamed cause it's their own fault..how does that apply? If someone gives another person a blank check by accident, not thinking, it's ethical to write in anything you want to ream them?

[The Third Man]

How does this sound ethical. You can't sign a contract and the extort the other side into granting concessions to you by refusing to comply with the agreement unless they give in to your demands.

You are quite right, it is against common business ethics to behave like this. I would say that the guy's actions break the concept of "signing in good faith"

Of course I'm the moron for trying to associate with such a guy in the first place.

Not really, if all parties signed in good faith and you had no indicator at that time that the guy would go back on his word then you can't blame yourself.

Did you check up on his history/reputation at all prior to signing? Bitter experience similar to yours has taught me to always do as much of this "due diligence" stuff as possible.

[Petrosjko]

What a fucking mess, MJ. Sorry to see you tangled up in it.

I was just curious about what sort of legal review you put the contract through before signing it, though. It sort of relates to a conversation I had with my own lawyer a couple-three weeks ago. We're friends outside of work, knew each other long before we got to cranking paper together.

I made a joke about legalese being designed for the express purpose of keeping lawyers employed. His reply that while that was an element to it, there was a larger, beneficial purpose to having legalese be somewhat dense and impenetrable. Essentially, it keeps amateurs from playing with fire. Most any contract is good so long as all parties are operating in good faith, the instant things go sour, poorly written contracts cause nightmares for everyone.

So if the average person's eyes glaze over when staring at a legal document, they're much more likely to get a lawyer involved before trying to execute it.

Using loopholes to worm out of an agreement is unethical as all hell. Unfortunately, once one side has crossed that Rubicon, the other is left with no other choice but to hammer back as hard as they can.

Get some good lawyers and pound his ass into the ground.

[NecronLord]

I would say that it depends on the ends. It's ethical when you're doing it in an Oscar Schindler fashion. It's unethical when you're doing it to try and get out of a good faith agreement in order to benefit yourself. So, basically, agreement with the OP.