Have you ever signed a contract without fully comprehending what it said?
No worries. We all have been there.
A recent study conducted by ProPrivacy.com found that only 1% of technology users actually read the terms and conditions. The study also found that 70% of those surveyed lied, claiming they “read the agreement,” with 33% claiming to have “read it thoroughly.”
Some popular examples of big mistakes done because someone didn't pay much attention to a contract are:
1. Uber Technologies
An Uber driver, Abdul Mohamed, sued Uber over payment-related issues. However, the contracts he had agreed to by clicking on “I agree” buttons required mandatory arbitration for such claims. When Mohamed argued that he hadn't read the contracts' terms of service, the court ruled against him, asserting that even without a traditional "ink pen signature," clicking on "I agree" buttons - especially followed by the use of the platform - equates to a form of “signing.”
The court stated that whether a party reads the contract or not is essentially irrelevant, as long as they had a legitimate opportunity to review it, despite the inconvenience of reading on small smartphone screens. Consequently, it was concluded that a binding and enforceable contract had been formed. (source)
2. Punctuation error
Two major Canadian telecom companies entered into a contract with one of the parties believing that they could terminate the contract before its decided time due to a punctuation error and ended the contract. This minor error was valued at $2.3 million. (source) Signing a contract before reading it can lead to unforeseen consequences, as we may end up unknowingly agreeing to conditions that are not in our best interest.
3. Case Study- George v. Bekins Van & Storage Co., 33 Cal.2d 834, 848–49 (1949).
Unfortunately, at the time it seemed like a good idea not to read the contract to save time and headaches, you likely won’t have much success convincing a court not to enforce a contract against you because you didn’t actually read it.
The judgement of the case clearly states that, “Party shall be bound by its terms even if he/she has not read the signed agreement and signed it without being aware of its existence.” George v. Bekins Van & Storage Co., 33 Cal.2d 834, 848–49 (1949); see also N.A.M.E.S. v. Singer, 90 Cal.App.3d 653, 656 (1979).
Below, we have highlighted some of the common provisions and contracts that we may sign without reading them.
Provisions to look out for in a variety of contracts!
- Automatic Renewal Clauses: These allow for automatic renewal of subscriptions, potentially leading to unexpected charges for services you no longer want.
- Termination Clauses: These allow us to understand how and when the agreement can be terminated, there may be penalties or consequences associated with termination.
- Data Collection and Sharing: These details can reveal invasive practices, such as extensive data collection and sharing of your information with third parties.
- Pricing and Payment Terms: Unclear payment terms can lead to financial difficulties or disputes.
- Exclusivity Clauses: when a contract entails exclusivity (meaning you can't engage with competitors), make sure this is reasonable and beneficial to you. Long-term or overly restrictive exclusivity could limit your flexibility and opportunities.
- Content Ownership Rights: when signing a Terms & Conditions on any website, you may want to look for Content Ownership Rights: they stipulate that content you create or upload becomes the company's property, potentially leading to unauthorized use of your content.
- Non-Compete Clauses: These clauses prevent partners or individuals from engaging in competitive activities during and sometimes after the partnership or working relationship. A broad or long-lasting non-compete clause could unduly limit your future business activities.
- Right to Modify Terms: These allow the company to change the agreement at any time without prior notice, meaning the terms could change unbeknownst to you.
- Reverse Engineering: A provision you may find is Reverse engineering: it involves taking apart a product to see how it works, usually with the intent to create a similar product. This may limit your field of action if you are working in a similar space.
- Limitations of Liability: These clauses can limit a company's liability, meaning you might not have recourse if their product or service causes you harm or loss.
- Arbitration Clauses: These dictate that disputes will be settled through arbitration, not court, possibly limiting your right to sue or participate in class-action lawsuits.
- Duration: It is important to understand a contract duration, as it should be reasonable and fit the underlying business purpose e.g. confidentiality for a NDA.
- Use of Logos: You may want to limit the way your logos are being used.
- Anti-Dilution Provisions: Be cautious about full ratchet anti-dilution provisions, as they can heavily dilute your stake in subsequent financing rounds if new shares are issued at a lower price.
- Liquidation Preference: Multiple liquidation preferences in favour of the investor can significantly dilute your share in the event of an exit.
- Conversion Triggers: Be wary of automatic conversion triggers at the discretion of the noteholders, which could lead to unexpected dilution of your stake.
- Governing Law: Understand which laws will be used to interpret the agreement and resolve any disputes.
- Hidden Fees and Costs
The potential for hidden fees and expenditures is one of the most frequent effects of skipping through a contract. Many contracts have provisions outlining additional costs or even penalties that could be imposed in certain situations. If these fees are not paid, it may result in unforeseen financial obligations. Consumers lose millions of dollars annually due to hidden fees in financial contracts, claims a report by the Consumer Financial Protection Bureau (CFPB).
- Unfavourable Terms and Conditions
The rights, duties, and obligations of each party are outlined in the terms and conditions of a contract. People and companies risk accepting disadvantageous conditions by failing to read these provisions carefully. For instance, a clause in a rental agreement can permit the landlord to raise rent drastically following a certain time frame. Such clauses can result in increased fees or limited rights if they are missed.
More than two thirds of people (68%) either don’t read or don’t understand contracts they sign for subscriptions or utilities, according to new research by The University of Law (ULaw).
- Legal and Financial Liability
Another risk factor for legal and financial liabilities is failing to read a contract. People who sign without fully comprehending the terms risk unintentionally accepting responsibility for losses, contract violations, or other unanticipated outcomes.
A Deloitte survey of 2,000 consumers in the U.S. found that 91% of people consent to legal terms and services conditions without reading them. For younger people, ages 18-34 the rate is even higher with 97% agreeing to conditions before reading.
- Loss of Rights and Protections
Contracts frequently contain clauses that protect the parties' rights and interests. Important safeguards may be lost if these laws are not read and understood. For instance, a non-compete clause in an employment contract can prevent a worker from joining a rival firm after leaving the employer.
- Missed Opportunities and Growth Potential
Neglecting to read a contract might have negative effects on future prospects and advancement in addition to the immediate financial and legal repercussions. An omitted clause or condition in a business partnership agreement, for instance, could hinder a company from fully or partially completing the expansion or acquisition of valued partnerships, which is the precise objective the contract is designed to give. According to a McKinsey & Company analysis, badly drafted contracts can cost big businesses 9% of their yearly revenue in lost value.
Biggest issue: data privacy
Data protection is an issue whether you read the contract or not. Contracts often contain clauses regarding data use, sharing, and protection, and reading these clauses will help you understand how your personal data will be treated. However, data protection goes beyond contractual agreements and includes broader concerns about the collection, storage and use of personal data. Even if you haven't read a contract, your personal data may still be vulnerable to data breaches.
The consequences of not reading a contract before signing can be serious and have long-term consequences for both individuals and businesses. Hidden fees, unfavourable terms, legal and financial liability, loss of rights and protections, lost opportunities and hampered growth are just a few of the potential impacts. It is important to take the time to read and understand the contract or seek legal advice if necessary. Remember that with a little effort, you can avoid big losses and regrets in the future.
How can SpeedLegal help?
Guardian journalist Alex Hahn spent a week in 2015 reading terms and conditions. Result: It took him eight hours to scan 146,000 words in 33 documents. A 2019 study by two law professors found that 99 percent of the top 500 U.S. websites have terms of service as complex as trade publications, and inaccessible to most people. (Source)
The above scenario is just a simple example clearly stating the importance of understanding your contracts.
SpeedLegal is your Grammarly for contracts! It can help you to Analyze, Assess, Remind and Manage your contracts. The above-mentioned cases and global analytics clearly depict how small details matter in the case of contracts. One should clearly know what are their obligations and rights when it comes to the information that is supposed to be protected. With SpeedLegal, receive the full benefits of an AI Contract Management Software which assess your contracts and provides a risk analysis too.
Try it for yourself and be part of the change from “Sign First: Regret Later" to “Review First: Sign only if favourable”.