Read the Fine Print

May 16, 2018

Career / Business

I was once involved in a significant real estate deal in which the legal documents were rushed through to meet a “time is of the essence” closing deadline. Years later, when the partnership required additional funding, some parties chose to pay their shares while others couldn’t or wouldn’t. Unfortunately, the partnership agreement didn’t spell out how to handle this common scenario, which led to much fighting and ultimately, a failure of the investment. This neglect of crucial paperwork happens much more often than you’d imagine.

Careful Contract Review Is Crucial

It’s surprising, but many businesspeople will carefully negotiate a deal and then barely pay attention to make sure that the contracts accurately reflect the agreed-upon terms. The thoroughness of legal and financial advisers varies greatly; just because you’re paying for oversight doesn’t mean you’re getting it. It is crucial to ensure that someone knowledgeable and trustworthy reviews every detail of all business agreements.

While a seasoned, experienced attorney may know at a glance that specific clauses are acceptable, an attorney who is not paying attention can’t be fully trusted, no matter how experienced! Every term was put into a document at some point for a reason, and while it may be boring to review lengthy legalese, any clause that is ignored can come back to bite one or more of the parties involved. And it’s on the person signing the agreement to make sure that their professionals or subordinates are attentive to and accountable for the fine print.

Different Players with Different Perspectives

Many players only receive payment when a deal closes and have an incentive to overlook any bumps in the road that affect their compensation. They are usually the ones who minimize the importance of combing through documents, claiming that any suspicious language is “Just standard wording, there to satisfy the lawyers.”

The easiest way to gauge if the wording is unimportant is to suggest removing it! “If indeed it has no real ramification, then let’s just cross it out.” Often, the other side’s lawyers won’t allow that, proving that the phrasing is indeed meaningful. And if it’s genuinely not required language, it should be removed anyway to keep things as clean and straightforward as possible. This practice helps reduce the risk of misunderstandings and future legal disputes.

Beware an Unpleasant Surprise

When dealing with contracts from large institutions such as banks, insurance companies, and title companies, it’s virtually impossible to have the language changed; to enable mass production, they must use standard wording that fits many scenarios. But that doesn’t mean it’s OK to completely ignore the documentation presented by large companies.

Professionals who deal with these documents consistently know them like the backs of their hands and can clear them for signing very quickly. However, individuals who either fail to review or hire someone else to examine the lengthy proposals and agreements presented by various mortgage, investment, or insurance brokers will likely end up disappointed or even in financial peril. Complex documents favor the drafters, and all kinds of unpleasant surprises can be lurking within. If you don’t know exactly what you’re signing, make sure someone you trust does.

Boilerplate or Ticking Bomb

That being said, true boilerplate is almost impossible to keep up with today. Almost every web service that we rely on has dozens, if not hundreds, of pages of legalese, and it’s simply unrealistic to review them for the most part. Both legally and halachically, there is a strong argument when someone says that they did not read boilerplate language. It’s very possible you could prevail in a lawsuit or din torah over clauses which no one reads.

But when we are talking about key business terms and fundamental legal documents, especially in the context of sophisticated parties, courts, and batei dinim as well, expect that you or someone you trust will have read and accepted whatever you sign. And bottom line, you often will not know what you are getting into if you don’t have someone willing to delve into the disclosures you are sent.

Reading Fine Print Is Someone’s Job

A few years back, I met with some very nice investment brokers from a large Wall Street firm. The glossy marketing brochure they showed me presented a hedge fund investment that seemed like a no-brainer. This fund supposedly earned 14% annually for 20 years, much more than comparable investments, and did so with significantly less volatility. When I requested the full prospectus document (which every fund is legally obligated to produce), the broker expressed surprise that I had even read it. “How can you get through them?” he asked, as they’re usually hundreds of pages of tightly spaced numbers and legalese.

“That’s my job,” I responded simply. And in truth, as a broker, it’s his job to sell, not read the dull prospectus to ensure that what he is selling is a good product.

At Your Own Risk

So, what did the fine print reveal? The outstanding annual performance advertised in the brochure (14%) was achieved by a different fund, which is supposedly very similar to the one being offered. And while the other fund had done exceptionally well since it opened 20 years prior, the investment actually being offered to me had mediocre returns (7%), performing worse than comparable investments.

One doesn’t have to be a cynic to wonder why this information was hidden in the boring document that many people, likely including the brokers, don’t read. And even I, a cynic when it comes to Wall Street, was surprised at the brazenness of this particular bait and switch. This anecdote supports my opinion that ignoring the fine print is at your own risk.

What About Trust?

Some people say they trust the counterparties they do business with. But the gemarah encourages us to respect but suspect. Bottom line, when big money is involved, especially when there are gray areas, leaving things unclear is a recipe for trust to be broken down the line.

Good Contracts Maintain Good Relationships

Just as good fences make good neighbors, good contracts make for good business interactions. Written agreements are not the most valuable when enforcing terms on people who do not want to be honorable and do the right thing. However, honest and well-meaning people often forget the terms of an agreement, or when things are left ambiguous, they tend to naturally see things in a light that favors them.

That’s why the Chafetz Chaim and other gedolim directed people to write clear agreements to avoid fights down the road. It’s because you value and respect others that you desire to keep it that way with clear documentation. Anyone who doesn’t see it that way is probably either unrealistic about how business unfolds or purposefully trying to avoid clarity for their own benefit!