Read Before You Sign

Who takes the time to read documents they sign these days? Reading takes time and can be difficult. Most of the time all works out….most of the time. What happens when you sign a contract and later find out you do not like its terms?

Florida law is crystal clear. A person cannot get out of a contract because he or she did not read it. That rule is simple enough, but it gets applied in some interesting situations.

In the Rodriguez case, Rodriguez sued his insurer because the insurer refused to pay medical bills. The insurer refused because it claimed the application for insurance filed by Rodriguez contained materially false statements. Rodriguez argued he should not be penalized for the false statements because they were completed by the insurance agent after which he signed the application without reading it.

The court ruled that the insurance company had a unilateral right to rescind the policy on the basis of misrepresentation. Even though the misrepresentation was not intentional by Rodriguez, Rodriguez was bound by a duty to read and know what he signed. Because the application was incorrect and misled the insurance company, the insurance company could rescind coverage.

What about reading but not understanding? That usually won’t work either. In another recent case, the insured was hurt by another driver who had little or no insurance. When the insured tried to recover under his own policy, he was told he did not have uninsured motorist coverage. He argued the insurance agent did not explain the uninsured motorist portion of the application and that he also did not read the application.

The court ruled that the insurance company had no duty to explain coverage unless the applicant asked for an explanation. It also applied a “can’t get out of a contract because you didn’t read it rule.”

Diaz v. Kendall Imports was a class action filed by automobile purchasers against an automobile dealership. The contracts required disputes to be decided by arbitration and not litigation. The plaintiffs tried to wiggle around that requirement by arguing the contracts were in English, but the contracting parties did not read English and therefore signed contracts they did not understand.

The court ruled that since there was no testimony the plaintiffs were prevented from reading the documents or prevented from having them read by someone who could read English, they were bound by the contract terms just as if they read and understand the contracts. The arbitration clause was enforced.

There are some exceptions to the “can’t get out of a contract because you didn’t read it rule.” Perhaps the easiest to understand is when the other party to the contract owes a fiduciary duty to the person who later wants to void the contract. A fiduciary duty is imposed based on the relationship between the parties. Typical fiduciary relationships include attorney/client, agent/principal, corporate officer, shareholder, and trustee/beneficiary.

Fiduciary duties can be imposed in a wide variety of other relationships. It has been described as “one of the most elusive concepts in… law.” It can be implied whenever one party justifiably relies on another to act for and protect that party.

It can be difficult to establish a fiduciary relationship in many relationships. For example, a bank financing a mortgage is not a fiduciary to the customer borrowing money. Courts consider that to be a business relationship between two parties absent some special circumstances.

Arm’s-length business relationships rarely engender a fiduciary relationship. But, those transactions can morph into a fiduciary relationship when one party takes action to protect the other. When that happens, fiduciary responsibility can be imposed; the bottom-line is don’t count on it.

Fraud might get someone out of a contract even if they didn’t read it. When someone makes false statements to induce another to sign a contract, such fraud in the inducement might allow the induced party to void the contract. 

Puffing is allowed but fraud is not. Puffing is a common sales practice of making exaggerated claims for promotional purposes. Fraud is intentionally false or misleading statement. They are a lot alike and often the judge or jury has to decide if statements were puffing or fraud.

Woefully one-sided contracts might also give the non-reading signer a break. When a contract is so one-sided that the court feels it is unconscionable, it is generally known as a contract of adhesion. When the consumer has no choice because all sellers of a particular service or commodity mandate the same terms, the resulting contract may also be a contract of adhesion.

Adhesion contracts evidence grossly unequal bargaining power. When that happens, a court may allow the weaker party to void the contract.

Everyone has heard it is important to read a contract before signing. Not everyone is hurt because they signed a contract they did not read. But, failure to read can be an expensive shortcut.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.