Opinion ID: 1937959
Heading Depth: 2
Heading Rank: 1

Heading: Contract Calling for Arbitration

Text: `[T]he party seeking to compel arbitration must prove . . . the existence of a contract calling for arbitration.' Brown v. Denson, 895 So.2d 882, 885 (Ala.2004)(quoting Owens v. Coosa Valley Health Care, Inc., 890 So.2d 983, 986 (Ala.2004)). When determining whether a contract calling for arbitration exists, this Court applies the `ordinary state-law principles that govern the formation of contracts.' Oakwood Mobile Homes, Inc. v. Barger, 773 So.2d 454, 459 (Ala.2000) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). As support for their motion to compel arbitration, Bill Heard and Berry attached copies of the two arbitration agreements Dunlap signed in connection with the purchase of the Durango. Those agreements state in relevant part: [Dunlap] and [Bill Heard] agree that all claims, demands, disputes, or controversies of every kind or nature that may arise between them concerning any of the negotiations leading to the sale . . . or financing of the vehicle, terms and provisions of the sale . . . or financing agreement, arrangements for financing,. . . or any other aspects of the vehicle and its sale . . . or financing shall be settled by binding arbitration conducted pursuant to the provision of 9 U.S.C. Section 1 et seq. . . . Without limiting the generality of the foregoing, it is the intention of [Dunlap] and [Bill Heard] to resolve by binding arbitration all disputes between them concerning the vehicle, its sale . . . or financing, . . . including disputes concerning the terms and conditions of the sale . . . or financing,. . . the terms and meaning of any documents signed or given in connection with negotiations for the sale . . . or financing, any representations, promises or omissions made in connection with negotiations for the sale . . . or financing of the vehicle. . . . This Agreement is binding upon, and inures to the benefit of [Dunlap] and [Bill Heard] and the officers, employees, agents and affiliated entities of each of them. This Agreement will survive payment of [Dunlap's] obligation and any termination, cancellation or performance of the transactions between [Dunlap] and [Bill Heard]. Dunlap does not dispute that she signed the arbitration agreements, nor does she dispute that Berry, as an employee of Bill Heard, is included within the scope of those agreements. Instead, Dunlap argues that Bill Heard and Berry cannot prove that a contract calling for arbitration exists because, she argues, the arbitration agreements are components of the Retail Purchase Contracts, which she says were rendered unenforceable because of the nonoccurrence of a condition precedent to those contracts, namely, Dunlap's qualifying for financing. Dunlap argues that Bill Heard and Berry cannot enforce arbitration agreements that are part of unenforceable contracts. A provision in a contract making the contract subject to the procurement of a loan to finance the purchase price is a valid condition precedent to performance. Duncan v. Rossuck, 621 So.2d 1313, 1314 (Ala.1993). The law concerning the effect of a condition precedent is clear: `[W]here the parties to a proposed contract have agreed that the contract is not to be effective or binding until certain conditions are performed or occur, no binding contract will arise until the conditions specified have occurred or been performed.' Ex parte Payne, 741 So.2d 398, 403 (Ala. 1999) (quoting 17A Am.Jur.2d Contracts § 34 (1991)). Accordingly, when a contract makes securing financing a condition precedent to its performance, neither the contract nor any of its provisions become binding obligations unless and until financing is obtained. The Retail Purchase Contracts signed by Dunlap and Bill Heard in conjunction with the purchase of the Durango contain the following clause: [O]n a credit transaction the purchaser(s) [sic] offer is not accepted and the transaction is not consummated until (a) approval in writing by . . . a responsible Bank or Finance Company. No valid contract can exist without the acceptance of an offer. Southern Energy Homes, Inc. v. Hennis, 776 So.2d 105 (Ala. 2000). Thus, if the arbitration agreements signed by Dunlap and Bill Heard are to be considered a part of the Retail Purchase Contracts, the arbitration agreements are unenforceable. See Delta Constr. Corp. v. Gooden, 714 So.2d 975, 981 (Ala.1998) (a person cannot merely pick and choose the provisions in a contract that he wants to apply). In arguing that the arbitration agreements are components of the Retail Purchase Contracts, Dunlap invites us to apply the principle this Court discussed in Weeden v. Asbury, 223 Ala. 687, 690, 138 So. 267, 270 (1931): [I]n the absence of anything to indicate a contrary intention, writings executed at the same time by the same parties for the same purpose, and in the course of the same transaction, are in the eye of the law one instrument, and will be received and construed together as constituting one contract and evidencing the intention of the parties. This contemporaneous-writing principle is a rule of construction this Court uses when it is necessary to ascertain the intention of the parties. Hunter-Benn & Co. v. Bassett Lumber Co., 224 Ala. 215, 218, 139 So. 348, 349 (1932). However, [i]f a contract is unambiguous on its face, there is no room for construction and it must be enforced as written. Southland Quality Homes, Inc. v. Williams, 781 So.2d 949, 953 (Ala.2000). This Court takes note of the fact that the arbitration agreements and the Retail Purchase Contracts are part of a series of documents Dunlap and Bill Heard signed essentially contemporaneously. We also note that both sets of documents were executed for the same broad purpose: to govern Dunlap and Bill Heard's obligations with respect to the sale of the Durango. However, the Retail Purchase Contracts Dunlap signed are not ambiguous when addressing the relationship of those contracts to the arbitration agreements: This contract expresses the entire agreement between the parties, all previous verbal or written communications between the parties with reference to the subject matter hereof, excluding [sic] Arbitration Agreement, are merged herein. The Retail Purchase Contracts expressly prohibit construing the arbitration agreements as part of the contracts. The Bailment/Conditional Delivery Agreement, also signed by Dunlap, stresses the independence of the arbitration agreement in even greater detail: The Arbitration Agreement remains effective and enforceable even if your offer is not accepted or credit is not approved, accepted, and funded. [F]unding of the Contract is not a condition precedent to enforceability of the Arbitration Agreement. In Lilley v. Gonzales, 417 So.2d 161, 163 (Ala.1982), we stated that, where the parties express without ambiguity their intention, no court can alter the agreement, and no room for judicial construction is left. Dunlap's argument that the arbitration agreements are components of the Retail Purchase Contracts is contradicted by the unambiguous language in the documents she has signed. This Court cannot alter unambiguous language in a contract by applying a rule of construction that is contrary to the intentions of the parties. Lilley, 417 So.2d at 163 (Where . . . the language of the contract is unambiguous and plain in its expression, the court cannot alter the agreement by construction but rather must expound it as made by the parties.). Thus, we hold that the arbitration agreements are not components of the Retail Purchase Contracts. Accordingly, Dunlap incorrectly relies on Ex parte Payne, supra, and Ex parte Cobb, 781 So.2d 208 (Ala.2000), to argue that the nonoccurrence of the condition precedent  that she obtain financing  invalidates her agreement to arbitrate. In Payne, we held that the failure to satisfy the condition precedent rendered the arbitration clause unenforceable because the condition precedent and the arbitration clause were not only part of the same contract, but they both also appeared in a single document. Payne, 741 So.2d at 400. Thus, we stated that in order for Jay Pontiac to compel arbitration of Payne's counterclaims, the Retail Purchase Order containing the arbitration provision must be a binding contract. Payne, 741 So.2d at 403. Although Cobb held that a financing condition precedent in a retail buyer's order rendered an arbitration provision in a separate lease agreement unenforceable, there was no evidence before this Court showing that the parties intended that the documents be treated as separate contracts. Instead, the evidence in the record showed that Serra Toyota viewed the Cobbs' failure to obtain financing as having voided both agreements: [T]he record before this Court shows that, after the Cobbs' financing request was rejected, Serra did not view the Lease Agreement as a binding contract. Attached to the Cobbs' mandamus petition is a copy of the Lease Agreement containing the arbitration provision Serra seeks to enforce. Written across the first page of the Lease Agreement and across the first page of the Retail Buyer's Order are the words `VOID' and `TURNED DOWN.' Cobb, 781 So.2d at 211 (capitalization in original). Thus, Serra Toyota's argument that the lease agreement containing the arbitration provision remained an enforceable contract was inconsistent with Serra Toyota's own treatment of the Cobbs' failure to satisfy the condition precedent in the retail buyer's order. Accordingly, the documents were properly construed as a single contract that was invalidated by the Cobbs' failure to qualify for financing. Dunlap has not introduced similar evidence in the present case. Thus, both Payne and Cobb are distinguishable. Dunlap argues that, even if the arbitration agreements are not made unenforceable by the failure to meet the financing condition precedent in the Retail Purchase Contracts, Bill Heard and Berry still cannot prove the existence of a contract calling for arbitration because the arbitration agreements are not, by themselves, valid contracts. The requisite elements of [a contract] include: an offer and an acceptance, consideration, and mutual assent to the terms essential to the formation of the contract. Strength v. Alabama Dep't of Fin., 622 So.2d 1283, 1289 (Ala.1993). In the arbitration agreements, Bill Heard offered to disclaim its rights to pursue litigation in return for Dunlap's promise to do the same. Dunlap accepted Bill Heard's offer by signing the arbitration agreements. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Kilgore, 751 So.2d 8, 11 (Ala.1999) (Conduct of one party to a contract from which the other may reasonably draw an inference of assent to an agreement is effective as acceptance.). Further, both Dunlap and Bill Heard forfeited their right to a jury trial by agreeing to pursue arbitration. The destruction of this legal right was sufficient consideration for the agreements. See Smoyer v. Birmingham Area Chamber of Commerce, 517 So.2d 585, 587 (Ala. 1987)(to constitute consideration for a promise, there must have been an act, a forbearance, a detriment, or a destruction of a legal right, or a return promise, bargained for and given in exchange for the promise). Finally, Dunlap does not dispute that the arbitration agreements bear both her signature and the signature of a representative from Bill Heard. In Crown Pontiac, Inc. v. McCarrell, 695 So.2d 615, 618 (Ala.1997), we noted that [t]he purpose of a signature is to show `mutuality and assent,' which are required for a contract to be binding. Thus, because the arbitration agreements involve an offer, an acceptance, consideration, and mutual assent, they possess the requisite elements of a contract. Strength, 622 So.2d at 1289. Therefore, Dunlap is incorrect when she asserts that the arbitration agreements are not, standing alone, valid contracts. Dunlap next argues that the arbitration agreements are not enforceable contracts because, she says, the entire underlying transaction was fraudulent. However, in Johnson Mobile Homes of Alabama v. Hathcock, 855 So.2d 1064 (Ala. 2003), we held that fraud in the inducement  the misrepresentation of a material fact concerning the subject matter of the underlying transaction  is a matter to be considered in arbitration, not a basis for finding that an agreement to arbitrate is invalid. 855 So.2d at 1067. Accordingly, Dunlap's argument is without merit. Finally, Dunlap argues that the arbitration agreements that Bill Heard and Berry rely upon to prove that a contract calling for arbitration exists are not broad enough to cover the claims raised in her complaint. Yet Dunlap's complaint asserts that the essence of her agreement with Bill Heard was that [Dunlap] would trade in her 1999 Isuzu Rodeo; Bill Heard would pay off the remaining balance owed on the Rodeo; [and Dunlap] would purchase a 2002 Dodge Durango. In the arbitration agreements, Dunlap agreed to resolve by binding arbitration all disputes between them concerning the vehicle, its sale . . . or financing, . . . including disputes concerning . . . any representations, promises or omissions made in connection with negotiations for the sale. . . or financing of the vehicle. Dunlap's promise to trade in her Rodeo, as well as Bill Heard's promise to pay off any money she owed on the Rodeo, was part of the negotiations involved in the purchase and financing of the Durango. Thus, the language used in the arbitration agreements is broad enough to encompass Dunlap's claims. Accordingly, Bill Heard and Berry have met their burden of proving the existence of a contract calling for the arbitration of Dunlap's dispute.