If Even The Best Legal Minds Don't Read Boilerplate Contracts... Why Are They Considered Binding?

from the just-wondering dept

Thu, Oct 14th 2010 11:11pm — Mike Masnick

Michael Scott points us to a discussion noting that famed circuit court judge Richard Posner has admitted that when he recently took out a mortgage, he didn't bother reading the legal language, which leads to stories of many other lawyers admitting they don't bother reading the legal language of many of the things they sign. And yet... those things are still considered binding. I think most people realize that the language of such things will almost never actually matter, but of course, when it does matter, it really does matter. And, of course, that leads to a general question: why do we even bother with all this ridiculous legal language if no one's really agreeing to it?

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Filed Under: binding, boilerplate, contracts, language, lawyers

48 Comments

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Anonymous Coward, 14 Oct 2010 @ 11:22pm

One issue is that all major lenders and use the same contract language.
In order to be able to resell the mortgages in bulk, the buyers have to be sure that they do not need to read each one.
Therefore, Fannie Mae, among others, have standardized everything.
Also, these contracts are contracts of adhesion..."take it or leave it." there is very little negotiation allowed, for the reasons above. But the advantage is that the courts will construe the language in the favor of the individual, rather than the lender.
Other contracts, not as standardized, but as most attorneys will tell you, "So what." When individuals are negotiating, they have no real power.
When businesses have to sign contracts, you can bet they have lawyers reading and negotiating every word.
Then again "so what."
Do you buy a car based on the car, or do you go in and read every word of the manual and the warranty before you buy, because there just may be a paragraph you don't like.
You buy the car.
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Richard Cauley, 14 Oct 2010 @ 11:44pm

Boilerplate contracts
The previous commenter is right -- the reason businesses use standard contract language is to have consistency. Often groups of businesses -- like insurance companies -- use the same language because courts have already decided what certain terms or clauses mean and there is consistency and predictability.

However, just because Judge Posner didn't ready his mortgage contract doesn't mean that he shouldn't have -- I know that when I bought my house and got my mortgage, I read everything (even though I knew I couldn't change anything) just to know what I was getting into. There's really no excuse for not reading a contract if it's important to you and involves a lot of money. If the purchase agreement for you house is in "legalese," spend 50 bucks and take it to an attorney who will explain it -- it may save you a lot of heartache.

But I just don't buy the argument that because most people are too lazy to read the contracts they sign, that the contracts shouldn't be enforced. That's like saying if I'm too lazy to change the oil in my car, I should get a free car when the engine burns up.
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Griffon, 15 Oct 2010 @ 12:00am

Yeah...
But the reason that the verbiage is utterly unreadable is to 1. The people writing and reading prfesdionaly employed. 2. They don't normal folks being able to understand it, because when it matters it really dose matter and godforbid anyone would understand a concept well enough to ask quistions or even negotiate.
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MrWilson, 15 Oct 2010 @ 12:01am

Re: Boilerplate contracts
"...courts have already decided what certain terms or clauses mean and there is consistency and predictability."

Which is where the problem lies. The language has gotten so overgrown and nuanced that a normal person without a law degree cannot necessarily understand the meaning of the language in the contract.

Further, the consistency and predictability is only for the companies and the lawyers. There's nothing consistent or predictable about contracts for individuals except that you're likely getting screwed one way or another. The language is used to keep outsiders (i.e. normal people without law degrees) at a disadvantage.

If you have to hire a lawyer to explain it to you, then the system is already broken (or corrupted and self-perpetuating).

Even fighting unconscionable contract clauses after the fact requires a lawyer, i.e. a lot of money. All this need for lawyers makes asserting your rights cost prohibitive. More money + more lawyers = more rights. That's the definition of a broken system.
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Anonymous Coward, 15 Oct 2010 @ 12:03am

Re:
I think your keyboard is mispositioned.
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Anonymous Coward, 15 Oct 2010 @ 12:05am

Boilerplate contracts are like poker. Maybe your opponent can read something in your face. Maybe he's bluffing. Maybe it's bluster. Maybe he's got an ace in his hand, and maybe he doesn't. He seems like a nice guy. Maybe he is, and maybe he isn't. Maybe he's out for a friendly game and maybe he's out for the kill.

You can't know any of this from the legal text. That's the rules of the game! It's got to be there but it can't tip the entire hand.
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Anonymous Coward, 15 Oct 2010 @ 1:10am

The law, the instrument used by crooks to backtrack on their word, used and abused by people without morals or decency.

The law it is not important the trust is, choose with whom you make business with and you will rarely find yourself in a courtroom.

Old fashioned? maybe but it does work, the law is a poor substitute for honesty.
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Anonymous Coward, 15 Oct 2010 @ 1:21am

Re:
Forget mispositioned keyboard. You don't know how to read and write the English language!
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Anonymous Coward, 15 Oct 2010 @ 1:24am

Re:
Good lord. I'd hate to read a contract written by you. I think my brain would explode!
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Nick (profile), 15 Oct 2010 @ 1:39am

Re: Re: Boilerplate contracts
It's not designed to keep outsiders at a disadvantage anymore then HTML is. 'Legalese' is nothing more than a coding launguage for human legal interactions. It has scripts, basic librarys, and commands. The only difference is legalese has been in use for an extremly long time. With few patches and minimal rewrites. The system needs an overhaul. Imagine if instead of doing away with it, people still used BASIC. Just adding more code for every new feature. Eventually you'd be looking at millions of lines of code, and you'd need an eight year degree to understand it.
Every programing launguage has life span, I don't know what would replace it, but a new Legal launguage needs to but created. (L++ maybe?)
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Anonymous Coward, 15 Oct 2010 @ 2:22am

Ofcourse it should be binding. It's your own fault if you don't read it.
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colin S, 15 Oct 2010 @ 2:46am

Good grief. As a former lawyer (and business affairs for a major) I can only shake my head in wonder at the negligence of some of the profession. It is not easy money. Lawyers are paid to read not just every word that's there but (and more importantly) to look for what is not but should be there. THAT's the hard part. Skimming the boiler plate is an invitation for a professional negligence claim.

Crackers.
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abc gum, 15 Oct 2010 @ 5:06am

Re:
You can't be serious .... signing an automobile loan is not the same as signing a mortgage.

But you do get extra points for having a car in your bad analogy.
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abc gum, 15 Oct 2010 @ 5:10am

Re: Boilerplate contracts
"(even though I knew I couldn't change anything) "

Why not?
Just draw a line through what you do not like.

And beware the extra crap they try to sneak in there.
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abc gum, 15 Oct 2010 @ 5:15am

Re:
"Ofcourse it should be binding.

- Unless the terms are unconscionable.

"It's your own fault if you don't read it."

- Is it your fault the terms are written in such contorted language that it is almost unreadable?
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Anonymous Coward, 15 Oct 2010 @ 5:24am

They don't like it when you read the contract
Having gone through one refinance where I insisted on reading the contract, I can say they don't want you to read it.

The bank and the title company where we were doing the signing got quite upset at me for trying to read the contact they presented and threatened to delay the refinance if I didn't just sign it.

They also don't let you leave with the contract for good reason, so you are expected to just sign everything they push in front of you without taking the time to read it.

I don't know if that is normal behavior, or just what you get in the San Francisco bay area. Either way it is pretty irresponsible of them.
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alternatives(), 15 Oct 2010 @ 5:43am

Re: Re: Re: Boilerplate contracts
Its worse than code.

You can correct bad code and the program will still run.

If you change the boilerplate contract they'll tell you to go pound sand.

Go ahead - next Corporation to Consumer contract you get - try and change it. See how far you get.
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Beta (profile), 15 Oct 2010 @ 7:51am

Re: They don't like it when you read the contract
Which bank and which title company, so we'll know for future reference.

Another big advantage the corporations have is practice. When I sat down to sign my mortgage papers I sort of expected them to be reasonable and fair. What I saw was a mass of fishhooks. One in particular was the clause that said that they could change the contract if it turned out to be "incorrect" -- the contract they had written! -- but I had no such power. The whole thing was non-negotiable; I could sign or I could walk away and start the whole process over again, with probably the same result.

How about a few standard, public-domain contract forms, along the lines of open-source software or cryptography. The lender says "we use mortgage for 12-A", I do some research and find out that 12-A is simple, and that the court rulings on it have been consistent, and that various watchdog groups have looked it over and consider it fair. When I sit down, the contract is one page: "the parties agree to Registered Public Mortgage contract 12-A..."
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Anonymous Coward, 15 Oct 2010 @ 8:17am

These contracts should come with a summary that explains, in simple terms, what we are agreeing with, together with the full legalese.
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PRMan, 15 Oct 2010 @ 8:20am

Re: They don't like it when you read the contract
According to Federal Law, you have a 3-day right of rescission during which they MUST give you a copy of the contract.

http://www.bankrate.com/brm/news/loan/20040212a1.asp

You have 3 days to read the contract at your leisure and cancel the deal if you don't like it.
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PRMan, 15 Oct 2010 @ 8:23am

Re: Re: They don't like it when you read the contract
Those already exist. They are called "Fannie Mae compliant" and "FHA". There are others as well. There's a reason the judge may not have felt compelled to read his mortgage. They are very standardized.
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Anonymous Coward, 15 Oct 2010 @ 8:23am

Re: Re: They don't like it when you read the contract
Sorry, this was about 6 years ago, so I don't remember the title company, and the bank that it was with has since gone under.
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PRMan, 15 Oct 2010 @ 8:28am

Re:
Most good notaries that are present at your signing will be happy to tell you what each page means in a summary form.

Just ask them, "What am I signing here?" And they will reply, "You are allowing them to run your credit" or "check your tax returns" or whatever. These types of forms are very standardized. The main forms to look at are the long loan agreement form which will have the interest rate, prepayment penalties, etc. and the Good Faith Estimate, which will show you how much you are actually paying over the course of the loan.

I'm not in the industry, but I wrote software (including software to fill out these forms) for many years for several large lenders. I have refinanced multiple times myself as better rates have come along.
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Anonymous Coward, 15 Oct 2010 @ 8:36am

BFD, this is just smark risk management. The time you invest in reading the contract should be proportionate to the probability of encountering a situation where it matters. Most people are not going to have a dispute and mortgage contracts are highly regulated, so I don't see a problem.

There seems to be a latent black-or-white assumption that you either read every word or you read nothing. I agree that I didn't read my mortgage in that I didn't look at 95% of the paperwork I signed. However, I did look VERY carefully at two sections I really cared about. My girlfriend and I are relying on the right of survivability to pass ownership to the other should one of us die, so I checked that specifically, found it was wrong, and made them correct it. I also was very interested in the ability to prepay, so I made sure that was listed explicitly (It was).
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Beta (profile), 15 Oct 2010 @ 9:18am

Re: Re: Re: They don't like it when you read the contract
Really? I just tried a Google search for "Fannie Mae compliant" and got no exact match. Where's the text? And how do I point out a problem or suggest a change? Which lenders claim on their websites that they use this form?
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nasch (profile), 15 Oct 2010 @ 9:51am

Re:
You can change anything you want in a mortgage contract if both parties agree. It's definitely not take it or leave it. I think on both of the houses I've bought I had to initial some changes that were made after the contracts were printed. The same applies to any other contract. Don't like something in your employment contract? Cross it out and initial it. Your employer can accept or reject the change.
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Anonymous Coward, 15 Oct 2010 @ 10:24am

I'd really like to see a movement where consumers actually carefully read contracts, and those asking for them to be signed have to deal with the consequences.

For example, if Hertz wants you to sign a 3 page contract they just presented to you in order to rent a car, stand in line and read it.
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Anonymous Coward, 15 Oct 2010 @ 10:27am

Re: Boilerplate contracts
I generally agree with this, except that $50 is likely to get you an attorney worth $0, which is part of the problem.
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Christopher (profile), 15 Oct 2010 @ 2:14pm

ANY legal contract should be in common language that a 6 year old can understand. If a six year old cannot understand, with their limited reading skills, what is in the contract?

It's too complicated and hard to understand for most adults to understand.

Yes, that underestimates a lot of adults, but overestimates some others.
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Christopher (profile), 15 Oct 2010 @ 2:16pm

Re:
Stand in line, read it OUT LOUD, and let other people know what they are getting into.
If that was done, a lot of people would refuse to sign those contracts.
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Anonymous Coward, 15 Oct 2010 @ 2:44pm

Re: Re:
Correct. Thats is why I specifically used the warranty and manual. The warranty is the contract, and the manual is an attachment to that contract.
The loan docs are completelty different between a home loan and a car loan. That is why I skipped that analogy.
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Anonymous Coward, 15 Oct 2010 @ 2:46pm

How can someone agree to a contract they don't understand?
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Anonymous Coward, 15 Oct 2010 @ 2:56pm

Re: Re:
You can change anything you want in a mortgage contract if both parties agree.

Of course you can, IF they agree. But most lenders just won't as a matter policy. That's the usual situation being discussed here.

It's definitely not take it or leave it. I think on both of the houses I've bought I had to initial some changes that were made after the contracts were printed.

You HAD to? That sure sounds like "take it or leave it" to me.

Don't like something in your employment contract? Cross it out and initial it. Your employer can accept or reject the change.

That's a real good way to loose a job. My employer automatically rejects anyone who so even so much as *asks* to make a contract change (except for executive positions, I'm told).
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Anonymous Coward, 15 Oct 2010 @ 2:59pm

Re: Boilerplate contracts
If the purchase agreement for you house is in "legalese," spend 50 bucks and take it to an attorney who will explain it -- it may save you a lot of heartache.

That's one cheap attorney! The last time I shopped around for an attorney to review a contract I couldn't find one to do it for less than $400.
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Anonymous Coward, 15 Oct 2010 @ 3:04pm

Re: Re: Boilerplate contracts
There's nothing consistent or predictable about contracts for individuals except that you're likely getting screwed one way or another.

As Judge DeAnn Salcido in San Diego recently said, "...you will definitely be screwed and we don't offer Vaseline for that."
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Anonymous Coward, 15 Oct 2010 @ 3:08pm

Re: Re: Boilerplate contracts
Why not?

Maybe because he wanted to buy a home and didn't have enough money to pay cash for it?

Just draw a line through what you do not like.

Yeah, good way to be rejected for a loan.
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Anonymous Coward, 15 Oct 2010 @ 3:11pm

Re: Re: Boilerplate contracts
If you have to hire a lawyer to explain it to you, then the system is already broken...

No, it's working as intended.

...or corrupted and self-perpetuating.

Ahhh, now you've got it!
Next.
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Anonymous Coward, 15 Oct 2010 @ 3:17pm

Re:
These contracts should come with a summary that explains, in simple terms, what we are agreeing with, together with the full legalese.

The devil is in the details. If a summary could completely explain the terms, then the legalese would be necessary, would it?
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Anonymous Coward, 15 Oct 2010 @ 3:17pm

Re:
Make that "...wouldn't be necessary..."
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Anonymous Coward, 15 Oct 2010 @ 3:19pm

Re: Re: Re: They don't like it when you read the contract
the bank that it was with has since gone under.

What? No bail out? Must not have been greasing the right palms.
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Anonymous Coward, 15 Oct 2010 @ 3:23pm

Re: Re:
Stand in line, read it OUT LOUD, and let other people know what they are getting into.

I hope you don't really need that car as they may just decide that they no longer have one for you.
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abc gum, 15 Oct 2010 @ 6:56pm

Re: Re: Re: Boilerplate contracts
"Yeah, good way to be rejected for a loan."

In business deals, one should always be prepared to walk away. They count on your inablility to do such so much that they are shocked when it happens.
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abc gum, 15 Oct 2010 @ 7:02pm

Re: Re: Re:
"I hope you don't really need that car as they may just decide that they no longer have one for you."

What a wonderful ad campaign you have stumbled across. I'm sure the impact from the publicity gained from such an endeavour would be seen immediately upon the bottom line.
Brilliant - just brilliant!
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nasch (profile), 15 Oct 2010 @ 8:09pm

Re: Re: Re:
Of course you can, IF they agree. But most lenders just won't as a matter policy. That's the usual situation being discussed here.

I was thinking more of the contract to buy the house. But for the mortgage, what would you even want to change? You could fiddle with points vs. rate and stuff like that, and the bank would generally negotiate with you. I'm sure you could change the monthly payment date, you could possibly adjust the term (with consequences in other areas of course). The basics about being required to pay it back, consequences for defaulting, etc. probably not, but I would think most of it is open. I've never tried because everything was agreed on ahead of time.

You HAD to? That sure sounds like "take it or leave it" to me.

"Had to" meaning "had to initial them, refuse to sign, or negotiate over the change." The other party requested a change (or there was a mistake), and it was then up to us to accept it or not. Which is exactly the negotiation process I was talking about.

That's a real good way to loose a job.

Possibly. Don't do it unless it's something really important to you.

My employer automatically rejects anyone who so even so much as *asks* to make a contract change (except for executive positions, I'm told).

In this market I'm not surprised. If there were a labor shortage, highly skilled workers would just about be dictating terms to employers instead of the other way around. In a more balanced market, both parties would be willing to negotiate (or more likely to).
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Gene Cavanaugh, 15 Oct 2010 @ 10:47pm

Mortgages
"A solution is better than a problem".

You are clearly right about the problem - mortgage companies direct their attorneys to make the agreements so long and tedious that they are essentially unreadable to avoid people complaining (and to gain a legal advantage without warning the victim).

Now, what is the solution? I am an attorney - I have wrestled with this, and I don't know!

Should we mandate a standard agreement (we have already taken steps in that direction) - the mortgage companies say that would eliminate needed avenues for borrowers.

Should we require short, readable instruments? How do we cover all the loopholes the unscrupulous would exploit?

Do we just not have mortgages (just kidding!).

We all know what the problem is; can someone suggest a SOLUTION? That's what we DON'T have!
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Anonymous Coward, 16 Oct 2010 @ 8:02am

Re: Re: Re: Re:
What a wonderful ad campaign you have stumbled across. I'm sure the impact from the publicity gained from such an endeavour would be seen immediately upon the bottom line.
Brilliant - just brilliant!

Yeah, and I'm sure the loss of your business will the subject of the next board meeting too.
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darryl, 17 Oct 2010 @ 3:01pm

It's a BOILERPLATE,,, !!!
Maybe the best legal minds are just that, and boilerplate contracts are also JUST THAT.

Ofcourse, the best legal minds are not going to read something they have allready studied, read and learnt over and over again. In law school and in the thousands of cases that involve those standard "boilerplate" contracts.

I dont have to read or study how a resistor works every time I have to design a new circuit. The function of a resistor is 'boilerplace'.

But you can bet most people who are not totally aware of the contract wording, (clients dont consider a contract 'boilerplate'), its new and different, and you would be stupid if you signed something you did not understand.

The best legal minds allready understand the contract, there is no requirement for them to try to study it or understand it, as they allready do.

After all its a boilerplate contract.

A contract is an equial agreement between two consenting parties, or more than two. But its an agreement, that all parties have to sign.

The contract is just as binding for the writter of that contract than anyone else who signs onto the contract.

So ofcourse the best legal minds do not need to read/study/analyse (again) a standard 'boilerplate' contract as they allready have done so, and as its a standard 'boilerplate' contract they have allready read and understood it. And probably ruled on its contents many times, and analyised in detail many aspects of these standard contracts so often they could do it in their sleep.

By using a boilerplate contract, its using something standard, and common practice in the industry, its done so that it's quicker and easier and more consistent.

Its done so highly paid judges DO NOT have to learn, and analyse obscure and convoluted contracts, that could and probably do hide important clauses.

No, the industry use standard practices, like all industries, they create 'boilerplate' methods that are well known by those skilled in the field.

Its not 'boilerplate' to a client, or too someone off the street buying a house, they have not studied those standard contracts in law school.

And you would be a fool to sign ANYTHING you have not read and fully understand.

The judges did not say they have never read, and do not understand boilerplate, or standard contracts, they just said they do not read every single word over and over again in a common, and well known legal document that they are allready extreemly knowledgable of.

So again, Mike another stawman. Trying to get out of contracts by claiming someone elses stupidity. If you sign a contract, it does not matter who else reads or understands that contract, its up to you to read, understand, and if you agree you sign.

If you dont understand the contract, how stupid are you to sign it !!!..
(well the judge did not read it so why should I).

(well the judge understands it, without reading it, but you DO NOT).

Its like saying if you see a judge breaking the law then its ok for you to also break that law, after all a judge did it !!.
(is that what you define as 'fair use') LOL..

Most, the vast majority of contracts that you enter into are not even written contracts, every time you purchase something from a shop for example you enter into a contract agreement with the vendor, that is an unwritten contract, therefore its 'boilerplate' by definition. You give the vendor a specific sum of money and he gives you something in return, the price tag on that item is a contract, that you can agree to enter into.

You do not 'study' or 'read' that contract beyond reading the value of the price tag.

You may try to vary the terms of the contract, and ask for a discount, and you will enter contract negiotations to vary that unwritten contract.

So again Mike, all you're doing is building strawmen arguments, that dont mean anything and make little or no logical sense.. But its the weekend, and we all know you want us to buy into your very own paywall... if the quality of your work was better that may make sense. But I dont want to enter any unwritten contracts with you that you refust to read because some judge does not want to read something he has allready read hundreds of times and understands it far better than you could probably ever.

That's why he's the judge and you are not I guess.
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Megain, 25 Aug 2011 @ 5:16pm

Learn to read. Legal language is not 'nuanced', it's usually in your native language, it's YOU who can't comprehend it. Get an education or don't ever sign a contract. I pity the fool...
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