Why do I need to read a contract before signing it?

Posted on.
By Sonja Daly.

As obvious as it sounds, you must read a contract before you sign it. People don’t read a contract for many reasons, but mainly because:

• They don’t think it is important;

• They don’t have the time;

• They rely on what the other party has told them is in the contract;

• They can’t understand the language used in the contract

If you do not know what the contract says, you cannot know what your obligations and responsibilities are under the contract. This creates a real risk of you not complying with the contract. This could leave you exposed to incurring further expense, having the contract terminated and/or having legal proceedings brought against you. You will generally not be able to rely on a failure to read the contract to avoid legal liability.

Even if the other party has told you the gist of the contract, you still need to read it yourself because they may not tell you about all of the key terms, or they may misrepresent them.

Case Study:

John is a builder. He entered into a head contract with a developer to build a multi-storey building. Under his contract with the developer he would issue an invoice on the 28th of the month and be paid within 28 days.

John enters into a subcontract with an electrician to do all of the electrical work in the building. He talks with the electrician about the cost and the work that is to be carried out and signs the contract based on this conversation.

The electrician issues an invoice on the 7th of the month and requests payment within 14 days. John is unable to pay as he has not been paid by the developer. After the 14 days the developer issues a Notice of Intention to terminate if payment is not made within 7 days. John is still unable to pay. The contract is cancelled and the electrician sues John to recover payment for the work done along with interest at 10%. If John had read the contract he would have known that the time for invoicing and payment did not fit in with his head contract

Some key tips to follow when entering into a contract:

1. Ask to take the contract away with you to give you time to read it more closely- do not skim read the contract but rather read it in full;

2. If you have limited English skills, ask a trusted advisor or family member to translate the contract for you;

3. Seek legal advice about the contract so everything can be carefully explained to you.

4. If you are have entered into more than one contract, be sure to check that they coincide with each other.

For further information, please contact the Commerical Litigation Team.

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