Not Reading a Contract Costs a Party Half a Million Dollars

The Texas Supreme Court just confirmed what most of us already know – that you should read your contracts before signing them. In National Property Holdings, L.P., et al. v. Westergren, Westergren sold a piece of real estate to National Property Holdings (NPH) pursuant to a written agreement. Additionally, NPH orally promised to Westergren that once it develops the property, it will pay Westergren $1,000,000.

Once NPH developed the property, Westergren demanded his $1,000,000. Instead of paying the full amount, NPH gave him $500,000 and asked him to sign a release agreement, which was titled in bold and underlined AGREEMENT AND RELEASE and stated that Westergren agreed to relinquish any and all interest in the property and all claims against NPH in exchange for the total payment of $500,000. Westergren signed it without reading.

He later sued NPH for breach of their agreement to pay him $1,000,000 and claimed that he was fraudulently induced to sign the release. Westergren argued that at the time of the signing, NPH representatives told him that they will be making the second payment as soon as the building is built, that the release agreement was just a “receipt” and that he will be getting the other half of the $1 million as soon as their development of the land starts. Westergren admitted that he did not read the release because he “was in a hurry” and “forgot his reading glasses ” and that he relied on the NPH’s representations about the second payment instead.

The jury found that NPH fraudulently induced Westergren to sign the release and the Court of Appeals agreed. The Texas Supreme Court, however, was less forgiving. It found that Westergren had an ample opportunity to read the document and that had he done so, he would have discovered that the language of the agreement directly contradicted the representation made by NPH. The Court, therefore, found that NPH did not fraudulently induce Westergren to sign the release, reinforcing the old rule that “instead of excusing a party’s failure to read a contract when the party has an opportunity to do so, the law presumes that the party knows and accepts the contract terms.” The Court even cited the 19th century U.S. Supreme Court’s opinion that best describes this point of contract law as follows:

It will not do for a man to enter into a contract, and, when called upon to respond
to its obligations, to say that he did not read it when he signed it, or did not know
what it contained. If this were permitted, contracts would not be worth the paper on
which they are written. But such is not the law. A contractor must stand by the
words of his contract; and, if he will not read what he signs, he alone is responsible
for his omission.

Thus, while a party may have a claim for fraudulent inducement where it as induced to enter into a contract by false promises, where the written agreement’s terms directly contradict the false promises, the claim for fraudulent inducement will most likely fail.

CONCLUSION: As the old saying goes, “trust, but verify.” When it comes to signing a legal agreement, do not rely on the other party’s explanation of what the agreement does or means. Read it, and where appropriate, have an attorney review it on your behalf so that you know and understand what you are signing. Remember, that in Texas, if somebody tells you one thing, and the written agreement actually says something else, barring a rare exception, you will be held to what the written agreement says, not the oral representations.

Leiza Dolghih is the founder of Dolghih Law Group PLLC.  She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.