More often than not, parties to a contract execute a contract without reading all the fine print. This is often a result of the inclusion of legal terminology in the contract which is not easily understandable to the average reader. However, it is very important that one reads and understands all the terms of the contract prior to execution because a party to a contract is charged with knowledge of and assent to an agreement which the party signed.
In the recent case Supreme Court case of Melena v. Anheuser-Busch, Inc., a former employee of Anheuser-Busch filed suit, alleging she was discharged in retaliation for filing a workers’ compensation claim. Anheuser-Busch moved to compel arbitration of the matter based on a provision in Melena’s employment agreement which stated any disputes between employee and employer were to be submitted to mandatory arbitration. Melena argued the arbitration provision of the contract was unenforceable because it was made a condition of continued employment with Anheuser-Busch and therefore she had not assented to it.
In holding the provision enforceable, the Court found that inequality in bargaining power is not a sufficient reason to hold a provision of a contract unenforceable. The Court reasoned that although Melena was forced to accept this provision in the contract in order to maintain her employment, this factor alone was not sufficient to invalidate an otherwise enforceable agreement. The Court further held that Melena had accepted the offer of Anheuser-Busch to arbitrate disputes by continuing her employment and receiving compensation.
Another case which highlights the importance of reading and understanding a contract prior to signing is Breckenridge v. Cambridge Homes, Inc. In Breckenridge, the plaintiffs, purchasers of a new home, sued the defendant for breach of implied warranty of habitability, based on the defendant’s failure to make certain requested repairs to plaintiffs’ new home. The Illinois Appellate Court ruled plaintiffs were not entitled to recover because they had signed a contract which included a limited warranty. The Court held a party who has an opportunity to read a contract before signing, but signs the contract before reading, cannot later plead lack of knowledge. The Court held plaintiffs were charged with knowledge of what was contained in the contract and had acquiesced to the contract’s terms when they executed the contract.
This issue was also addressed in Regency Commercial Associates, LLC v. Lopax, Inc. In this case, the parties negotiated a contract for the sale of land which contained a restrictive covenant (“covenant”) which restricted uses of the surrounding land and prohibited the sale of the land to fast food restaurants that sold chicken. The seller of the land brought suit alleging the restriction did not restrict it from selling land to Buffalo Wild Wings, stating it was not a fast food restaurant. The court found that when parties agree to and insert language into a contract, the presumption is it was done purposefully and the language employed is to be given effect. The court stated the parties’ intent is to be ascertained from the words of the contract itself where the terms are unambiguous. In this case, the court held the restrictive covenant did not apply to Buffalo Wild Wings, because it concluded Buffalo Wild Wings was not a fast food restaurant.
If you don’t read or understand a legal document, seek advice or be prepared to live with the consequences of your silence