Failure to Read the Contract is Not a Sign of Trust

As the news stories about the recently wrecked passengers of the Costa Concordia attest, we are used to taking the “fine print” on faith. Even though the cruise company is based in Florida, if those passengers want to sue for damages for their ruined vacation–and worse–they are forced by the contract terms they almost certainly did not read to bring that claim only in Italy. Whether it’s the new terms of service for google’s free offerings or the EULA on the new accounting package your company just spent thousands implementing, odds are you dispensed with any meaningful review of the pages and pages of contract terms.

Maybe faith is the wrong term. On one hand, we may think that if there was something especially egregious, someone else will have raised an outcry. These companies are dependent on their reputation, right? On the other hand, it’s a matter of take-it-or-leave-it. The passengers of the Costa Concordia knew they couldn’t have renegotiated the choice of forum clause on page whatever of the fine print. Their choice was to accept the terms or skip that cruise. Whether it is the cruise line or the software developer, we do not even know who to talk to if we wanted to negotiate a choice of forum clause.

That habit of trust/reliance/futility may spill into situations where we do actually have a say. I worked with an attorney in resolving the headaches some business owners are having. They signed-off on new bylaws amended by their corporate secretary/partner but they didn’t read them. Now they have bought out that partner–but they still have those bylaws. In managing their investors, they are distracted by provisions they need to amend at exactly the time they need to be focused on a critical deal. To have taken more time to read the document at the outset!

Contract Prof Blog tells the cautionary tale of the $16 Million typo at issue in CRP/Extell Parcel I, L.P. v Cuomo 2012 NY Slip Op 50073. New York law required the condominium developer give condo buyers the right to a refund of their deposit if the construction were not completed a year after the date of completion stated in the planning approvals. In the case of The Rushmore development, that stated completion date was September 1, 2008 date and thus the latest allowable refund date was one year later on September 1, 2009. The executed sales contract, however, allowed refund demands based on the planned completion date in 2008 instead of the (customary) maximum window in 2009. That one digit error was not deviousness or hard bargaining. Presumably, if the error had been noticed right away, the parties would even have agreed on a correction. But once the building ran into trouble, that simple error transformed into a $16 Million disaster.

So avoidance of focusing on the details of a deal isn’t a sign of trust. Our training to ignore contracts of adhesion or the ever-present EULAs can’t spill over to how we run our businesses.