If You Haven’t Read It or Don’t Understand It, Don’t Sign It

photo - read the contract (by Martin)Whether oral, implied or written, businesses couldn’t exist without contracts. Whether you want others to be bound by your contract or another party has one for you to sign, you need to fully understand contract language and its possible implications. You don’t want to find out about a clause or a section that’s contrary to your interests when something goes wrong after you’ve signed the contract.

Don’t Guess. Find Out What the Contract Means and How It May Impact You.

If you don’t understand certain language, maybe you fear looking stupid or the cost of having an attorney review it. When it comes to contracts, there is no such thing as a stupid question (only a stupid answer). The cost of reviewing a contract is probably less than you might imagine and A LOT less expensive than having something go very wrong after you’ve signed a contract you don’t fully understand.

Paying for an attorney to review contract language (whether it’s a contract you want to create or the other party’s contract) is like paying for insurance. You have homeowners insurance though in all likelihood your house won’t burn down or be split in half by a falling tree, but it’s a very sensible thing to have in case those events actually happen.

Language in a contract may be very fair and comply with applicable laws, but since you’re not an expert in contract law what you think you know about the contract is actually only a guess. You shouldn’t risk your business based on guesses. You wouldn’t lease property based on what you think will be the monthly payment or your hunch on where you think the property is located. Don’t make the same mistake with contracts.

Once You Sign It, It’s Yours

One example of a contract gone bad is that of Barbara Coleman, who entrusted Prudential-Bache Securities, Inc., and one of its account executives to handle her investments. She was not satisfied with them and sued them in federal court. The trial court dismissed her case because the contract that she signed when she first obtained defendants’ services contained an arbitration clause. It required her to bring such claims to arbitration (an alternate dispute resolution method which is essentially a private trial) NOT to court. That dismissal was upheld on appeal.

According to that appellate decision, Ms. Coleman argued that, “(S)he signed the instruments without understanding the importance of the arbitration agreements contained therein, and that the agreements are contained in contracts of adhesion (illegal form contracts). Her consent to arbitration, she contends, was invalid.”

The court didn’t buy Ms. Coleman’s claims. “There is no evidence to support the claim that the arbitration clause itself, standing apart from the whole agreement, was induced by fraud,” the decision states, “(A)bsent a showing of fraud or mental incompetence, a person who signs a contract cannot avoid her obligations under it by showing that she did not read what she signed.”

If you do the same thing as Ms. Coleman and try to sue the other party when things go bad, you’ll probably get the same result. Protect yourself and your business. Read contracts, understand them and have them reviewed by an attorney.

If you have any questions about contracts that have been given to you to sign, or that you have already signed, call my office at (714) 415-2007 so we can talk about them and clear up any misunderstandings you may have.