What You Should Do Before Signing a Contract

Throughout your life you’re going to have to sign contracts. They may be for a credit card, a car purchase, a rental agreement or any number of other things. But unless you plan on being 100% self sufficient you’re going to have to sign them.

For many of us, signing contracts can be pretty mundane. You signed one when you opened your bank account and again when you got the car loan, later you signed one at the dealership for the actual purchase. After that you signed more when you registered your vehicle with the state. That’s a lot of legal work for one purchase.

But how often do you read your contracts? I work in a local credit union as a loan officer. I would say I present about five contracts a day. Over the three years I’ve been opening accounts and granting loans, I have had a total of two people take the time to read the contract before they signed it. I’m proactive enough to go through the general gist of the document, but the vast majority of my clients don’t fully understand much beyond the interest rate and the monthly payment they’re agreeing to. I work for a reputable and honest company, and we still have disputes with our members because they disagree with the terms they’ve legally obligated themselves to by signing a contract.

Too many of us assume three things when we just sign at the line without reading what we’re agreeing to.

The first is that the company is looking out for our best interest and will be proactive about informing us if there’s anything out of the ordinary we should be aware of. If any of you have had a credit card with a major company, you know first hand this isn’t always the case.

The second is the assumption that the law will protect us from anything shady or abnormal ever being on a contract in the first place. While laws are constantly changing and many new regulations are being put into place, it’s not very wise or very responsible to assume the government will protect you from fulfilling obligations that you’ve willingly signed to.

The last is that the language of the contract is too intimidating to even be understood. This goes on a case by case basis. Many places will have simple contracts in lay man’s terms, and others will try to be as deceptive as possible. Either way, tackling a contract and actually getting something out of your reading can be a bit intimidating.

So let’s address these issues.

1. The company has my best interest at heart

Even the best companies are still looking out for number one. Remember that most of the reasons you’ll be signing a contract are because you’re engaging in a voluntary business transaction. That means you’re not being forced into it and neither is the business. Companies can expect a certain amount of personal responsibility on the part of their consumers. These companies are not your parents. They are under no obligation to offer any further means of disclosure than the contract itself. You can ask for clarification, but the business doesn’t have to outline everything for you. Many of them will, but even then, they’ll just give you a brief overview.

A business has your best interest at heart in that they want you to be a repeat customer and to continue using their business. But they also acknowledge that this is a willing exchange and you – as an equal partner in the transaction – share equal responsibility in ensuring your needs are taken care of by the terms of the contract.

2. The law will protect me

This faulty logic is also due in part to a shift of responsibility. By assuming the law will protect you, you give up responsibility for your best interests to the government. Regardless of your thoughts on government involvement, it’s safe to say the law has to follow relatively vague guidelines in an attempt to cover all contracts. Your situation is unique, and the law may not be detailed or specific enough to cover your grievances.

The law will also very rarely protect us from ourselves. It recognizes – like the business – that this is a contract you have entered into willingly. It protects you from entering an agreement through deception or threat of violence. It does not protect you from entering an agreement because of self-deception, apathy or ignorance. The law dictates that the terms of the contract be outlined, but it doesn’t dictate that you have to understand them before you sign the document.

3. Contract language is intimidating

I know first hand that this is true. I’m sure we all do. The language of many contracts is convoluted because they attempt to avoid any loopholes or discrepancies. Other contracts are hard to understand because the company is hoping you don’t understand them. This makes it easier for those less-than-ethical businesses to take advantage of their customers.

Read through a contract before you sign it. If you don’t understand something in there, ask the other person to explain what it means. If you’re feeling particularly uncomfortable about a contract, you may even want to record the conversation so you can use it in the future. If you still don’t understand, ask to take the contract home so you have the time to go over it and understand it. Ask others for help in knowing what it is that you’re signing your name to. And ultimately, if you still feel uncomfortable, don’t sign the contract. You always have the option to walk away from the deal. In the short term, this can be incredibly frustrating and time consuming. But in the long run, you’ll be protecting yourself from the negative consequences that come from signing something you don’t understand.

A Citizen does everything possible to be personally responsible. By taking the power of the contract into your own hands, you have more influence than you’d guess. Major cell phone companies would stop charging exorbitant rates if customers weren’t so willing to agree to them. Major credit card companies would change their policies if they realized they were losing their business to local banks and credit unions where the consumers have more say in the cards they use. But most of all, your own peace of mind and well being will be increased because you have taken care of yourself. You as an individual won’t be able to change the policies of the big auto dealer down the street, and you may have to get a lower card limit, smaller cell provider or used car, but you’ll have the peace of mind that comes from knowing your life is in your own hands, and your future does not rest on the whims of some business.

For more articles like this, check out www.artofcitizenship.com

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Comment by Sarah Joy Albrecht on February 25, 2010 at 7:55pm
Well-written. These are excellent reminders.
It's important not to sign things just because it's convenient or you're being pressured.
Comment by Russel G. on February 25, 2010 at 4:56pm
Tanner, great post with some fantastic suggestions. I used to read "contracts" fully even before I went to law school. A couple of things I learned pushed me cynically away from the habit, however.

First, a contract between a two individuals is going to be relatively bullet-proof. A "contract" that is in essence a boilerplate agreement printed by the thousands by a national corporation is going to be more closely scrutinized because the "bargaining power" between the parties is so disparate.

I heard a former Arizona supreme court justice speak, and he illustrated this by saying anytime he gets such a "contract" he always crosses out the arbitration clause and initials it to indicate he does not agree with the provision. The person who presented the agreement, usually a low-level representative of the company or salesperson, usually shrugs and submits the "contract" anyway. His legal opinion is that by his crossing out the provision, he probably wasn't altering the terms of the contract. If that's so, then this "contract" really isn't much of a contract, because there is no way to negotiate the terms. With a real contract, provisions such as that are negotiated, or disagreements can at least be heard. With a boilerplate document there is no such negotiation.

Also, there have been cases critical of these boilerplate contracts, and the disparity of bargaining power among the parties, not to the point of voiding the contracts of which I am aware, but enough that most companies and banks know they tread a thin line with these.

I had to chuckle when you stated that most cell phone companies and credit card companies would change their rates and policies if people weren't so willing to agree to them. That's the problem, though. Their business models are built so that they will get most of the people who will agree without complaint, and their rates and polices are therefore vindicated. Marketing wins the day for these companies, and more often than not, customer service will wiggle them out of tight spots created by their misleading or heavy-handed practices after the fact.

I agree that people should take responsibility for their actions, but contract law is not an inviolable sanctuary for corporations unwilling to put their customers on equal footing in the bargaining process for services.

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