Hayton, Flint, and Rasmussen purchased a bulb farm and split it three ways. Flint and Rasmussen used their part to grow vegetables.
Flint and Rasmussen started a new business and applied for a $350k loan from the SBA. SBA required the bulb farm to secure the loan. SBA prepared the loan papers. All three proprietors of the bulb farm had to sign the loan papers.
Flint told Hayton that his understanding of the nature of the documents was that the SBA would allow Flint and Rasmussen to pledge their share of the bulb farm without splitting it up. Hayton did not read the papers, despite the fact that he had a master's degree in English Lit.
The bank foreclosed on the bulb farm in its entirety as required by the loan agreement when Flint and Rasmussen defaulted on the loan.
Procedural History:
Lower court found for Hayton (D), contract not applicable to Hayton.
WA COA affirmed, contract not applicable to Hayton.
WA Supreme Court reversed, found for P, contract applicable to Hayton.
Issues:
Can a party who voluntarily signs a document without reading it avoid the obligations contained in them if the legal effect of the document was misrepresented to the party?
Holding/Rule:
A party who voluntarily signs a document without reading it can not avoid the obligations contained in them even if the legal effect of the document was misrepresented to the party.
Reasoning:
One cannot, in the absence of fraud, deceit, or coercion be heard to repudiate his own signature voluntarily and knowingly fixed to an instrument whose contents he was in law bound to understand.
The whole panoply of contract law rests on the principle that one is bound by the contract which he voluntarily and knowingly signs.
It would be impossible for a person of ordinary intelligence, much less a person of the intelligence of D, to have misunderstood the contents of the document upon a casual reading.
There is no evidence that Hayton was deprived of the opportunity to examine the documents. The documents are plain and unambiguous.
There is no claim that Flint's conduct constituted fraud, deceit, or coercion. There is no claim of overreaching or unequal bargaining power.
The conduct, which was at most innocent misrepresentation, is not a sufficient basis to justify avoidance under the circumstances in this case.
In order to avoid contract obligations on the basis of innocent misrepresentation, a party must establish that he justifiably relied upon the misrepresentation.
However, the right to rely on representations is inseparably connected with the correlative problem of the duty of a representee to use diligence in respect of representations made to him.
It would have required little in the way of diligence to ascertain the truth of a representation made as to the legal effect of plain and unambiguous documents which a party has the opportunity to read.
A party cannot escape the duty of reading the documents in the absence of a showing that he was unable to read of understand the language used, that there was a special relation of trust and confidence in the representing party, that some artifice was employed to obtain his signature, or that something was done to prevent his reading of the document.
Hayton's fault in failing to read the documents can be likened to negligence.
From Restatement 172, "If the recipient knows that the assertion is false or should have discovered its falsity by making a cursory examination, his reliance is clearly not justified and he is not entitled to relief.
