Most modern real estate settlements and other contract signings are frenzied and intimidating affairs. A person may be asked to sign dozens of documents they have had no chance to review. The documents contain hundreds of paragraphs of boilerplate printed in a tiny font. There’s no reason to “look out for the small print” because it’s all small print.
People are busy. Children may be sitting at the table or waiting in daycare. The settlement officer may have three or four more closings that day. Documents may need to have some changes that are handwritten and initialed. Besides, most borrowers (or their spouses or children or parents) really want that home or car or business loan, so they are eager to sign or feel pressured to sign.
If, after the settlement, all goes well no one will likely ever read these documents. But what if there is a default or a dispute and the borrower doesn’t want to be bound to the terms of the deal. Is there an escape?
The likely answer is almost certainly that the borrower will be stuck with the documents he or she signed. The universal rule is that a person who executes a document is legally obligated to read it before executing it. In most states, a person’s signature does not even have to be legible and the person signing does not even have to be literate in order to be bound by an executed legal document. As long as the beneficiary of that document can prove that the person actually signed, the courts will enforce the document. If the person seeking to escape the deal claims illiteracy, they will be deemed to have asked that the document be read to them before signing.
Of course, there are defenses to written documents, although they are hard to establish. The primary defenses are fraud, duress and mutual mistake.
Many unhappy borrowers attempt to assert that they were induced into signing by promises from the other party that something was going to happen other than what the documents provide. This is an argument that is almost always bound to fail because most legal documents contain an integration clause or a merger clause. According to Nolo.com:
This is a provision in a contract stating that the contract represents the full and final agreement of the parties and supersedes any other agreements, oral or written, on the same subject. The purpose of an integration clause is to prevent one party from later claiming that what the parties actually agreed to was different from what was written in the contract.
Unhappy parties sometimes fare better by claiming that they were fraudulently induced into signing a contract because the other party never had any intent to actually carry through with the terms of the deal. This is more common in contracts to provide goods or services than in debtor/creditor transactions.
Fraudulent inducement is extremely difficult to prove because the unhappy party needs to show a specific fraudulent intent on the other party. Fraud may be impossible to establish, especially when the other party is a lender who has fully performed at the beginning of the deal by advancing money, and is now only waiting to be repaid.
To establish duress, a party must show that the other party committed a wrongful threat while the complaining party was overwhelmed by fear and precluded from using free will or judgment. This defense usually requires that a person show they were physically intimidated into signing a document. The claim that someone in default of a contract was forced to sign a settlement document because the lender threatened to foreclose on their home or seize their bank accounts will almost never succeed if the other party was authorized by the contract or the law to take those actions.
A mistake is an error that causes one party or both parties to enter into a contract without understanding the obligations or results. When only one party has a mistake that will usually be insufficient to negate the deal. However when both parties make a mistake this is the defense that is most likely to enable a party to escape their obligations. The perfect example is when a contractor agrees to dig a foundation for a set price, but it turns out that an unusually large boulder resides in the ground that would require a much more expensive process for excavation. Unless the contract specifically assigns that risk to one party or the other the court may say that both parties were mistaken as to the condition of the ground, and therefore the contractor is relieved of his duties. Mistake is a very fact-intensive defense that will require a court to understand what both parties to the contract believed at the time the deal was signed.
Contract defenses are hard to prove. Even in the most confusing circumstances a signed document will almost always stand up in court. This is why it’s important to understand all of the terms of anything you sign before you put the ink to the paper.