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Duty to Read and Disclose in Contracts

With contracts, under traditional common law (i.e., case precedent), in the absence of fraud, one who signs a written agreement is bound by its terms regardless of whether he/she read and understood it. Accordingly, people are bound by their contracts even if they choose not to read them. If not reading a contract was a defense, wouldn’t people purposefully not read the contract to preserve a defense in case of a breach of contract dispute?

In contemporary times, there are, however, several statutes which govern certain types of transactions (e.g., real estate purchases, automobile purchases). Some states overturn contracts that are difficult, exceedingly tedious, and even physically painful to read. Some states require that particular, pertinent information be conspicuous by enlarging the font or putting it in a different color.

One other important, related notion is the concept of a prominent, sophisticated entity. Courts will not let a party to a contract out of a contract on the grounds of lack of understanding (or the like) if the party is a prominent, sophisticated entity (e.g., an attorney or business person). Such a person should know better and courts are reticent to let them off the hook because of his/her knowledge and experience.

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