Opinion ID: 2156289
Heading Depth: 2
Heading Rank: 3

Heading: Whether the Agreement to Arbitrate is Illusory

Text: [¶ 15] As a preliminary matter, Dell, citing Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), contends that the court should not have considered Stenzel and Gerber's claim that the reservation clause renders the arbitration clause illusory. In Prima Paint, the party seeking to avoid arbitration asserted that it should not be bound by the arbitration provision in the contract because the contract was fraudulently induced. 388 U.S. at 398, 87 S.Ct. 1801. The Court held that because the defense of fraudulent inducement went to the validity of the contract as a whole  a question properly subject to arbitration  and not to the parties' inclusion of an arbitration provision in their contract, the defense of fraudulent inducement should not be considered by a trial court in determining whether the dispute is arbitrable. Id. at 403-04, 87 S.Ct. 1801. Here, in contrast, Stenzel and Gerber assert that the agreement's reservation clause specifically operates to render the arbitration clause illusory because Dell could rely on the reservation clause to modify the agreement's terms governing arbitration at any time. Accordingly, the question of whether the arbitration clause is illusory was properly considered by the trial court even though the question necessarily blends into the larger question of whether the entire agreement is illusory. See A.T. Cross Co. v. Royal Selangor(s) PTE, Ltd., 217 F.Supp.2d 229, 234 (D.R.I.2002) (stating in connection with a challenge to an arbitration clause, [i]t does not matter, contrary to defendant's argument, that plaintiff's challenge could also apply to the existence of the entire contract.). [¶ 16] Stenzel and Gerber's assertion that the arbitration clause is illusory is based on the reservation clause in the preamble: These terms and conditions are subject to change without prior written notice at any time, in Dell's sole discretion. Stenzel and Gerber assert that Dell's unfettered right to alter the agreement, including the arbitration clause, renders the agreement to arbitrate illusory. Dell counters, and the trial court concluded, that the reservation clause merely serves to provide notice to Dell's on-line customers that future sales may be covered by different terms and conditions. In support of this construction, the court noted that other provisions in the agreement, most notably its integration clause, establish Dell's intention to be bound by the agreement's terms once a purchaser has accepted delivery of a Dell computer. The agreement's integration clause states that absent a separate written agreement, any attempt to alter the terms of the agreement is prohibited. [2] [¶ 17] A separate provision of the agreement cited by the court in support of its construction provides: THESE TERMS AND CONDITIONS APPLY (i) UNLESS THE CUSTOMER HAS SIGNED A SEPARATE PURCHASE AGREEMENT WITH DELL, IN WHICH CASE THE SEPARATE AGREEMENT SHALL GOVERN; OR (ii) UNLESS OTHER DELL STANDARD TERMS APPLY TO THE TRANSACTION. [¶ 18] Stenzel and Gerber contend that this provision does not lend additional support to the court's construction because the use of the present perfect verb tense (has signed) in the first clause refers to an agreement that has already been completed and does not anticipate future agreements. See Barrett v. United States, 423 U.S. 212, 216, 96 S.Ct. 498, 46 L.Ed.2d 450 (1976) (explaining that the present perfect tense denot[es] an act that has been completed). They also contend that the second clause is inapplicable because it merely informs customers that other standardized terms may be applicable to the transaction. [¶ 19] Contrary to Stenzel and Gerber's contentions, both clauses support the court's construction of the agreement and neither renders the agreement illusory. The first clause is consistent with the court's construction because it simply provides that absent a separate, signed purchase agreement, the purchase is governed by the terms and conditions of the agreement. The second clause also supports the court's construction because it has the effect of rendering the agreement the exclusive source for the transaction's terms and conditions in the absence of other applicable Dell standard terms. Neither party asserts that there are other Dell standard terms that apply to Stenzel and Gerber's purchases. [¶ 20] Under Texas law, contracts must be construed as a whole in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument. Shell Oil Co. v. Khan, 138 S.W.3d 288, 292 (2004) (footnote omitted); see also Acadia Ins. Co. v. Buck Constr. Co., 2000 ME 154, ¶ 9, 756 A.2d 515, 517; Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378, 382 (Tex.1985). These principles counsel in favor of giving harmonious effect to both the reservation and integration clauses by construing them to mean that prior to a customer's acceptance, Dell is free to unilaterally alter, supplement, or amend the terms of the agreement, but once a customer has manifested its acceptance of the agreement, the agreement cannot be altered by either party absent a formal written agreement authorizing the same. [¶ 21] Stenzel and Gerber also assert, however, that the apparent conflict between the reservation and integration clauses results in an ambiguity that must be construed in their favor because the agreement is an adhesion contract prepared by Dell. See Liszt v. Karen Kane, Inc., No. 3:97-CV-3200-L, 2001 U.S. Dist. LEXIS 8824, at -31; 2001 WL 739076, at  (N.D. Tex. June 27, 2001); see also Dairy Farm Leasing Co. v. Hartley, 395 A.2d 1135, 1139-40 n. 3 (Me.1978). A contract of adhesion is construed against the drafter. Crown Cent. Petroleum Corp. v. Jennings, 727 S.W.2d 739, 741 (Tex.App.1987). Stenzel and Gerber would have us construe the agreement in their favor by concluding that the reservation clause renders the entire agreement, including the agreement to arbitrate, illusory and, therefore, unenforceable. [¶ 22] We need not determine whether the two provisions result in an ambiguity, because even if they do, it would not justify the invalidation of the agreement as suggested by Stenzel and Gerber. If the agreement is ambiguous, the reservation clause must be construed against Dell and in favor of its customers by restricting Dell's right to modify the terms of the agreement as to future purchases only. The opposite result  invalidating the entire agreement, including the arbitration provision  would be contrary to the reasonable expectations of the members of the public who purchase computers from Dell. [¶ 23] Neither the agreement as a whole nor its requirement of arbitration is illusory.