Opinion ID: 1386919
Heading Depth: 1
Heading Rank: 2

Heading: for litigation of the latent-defect claims the settlement agreement supersedes the construction contract

Text: Dow and Federal assert that the trial court misconstrued the settlement agreement as well as the construction contract. They point to the settlement terms dictated into the record of the earlier court proceedings and to specific language in the court-approved settlement documents. Both the construction contract and the performance bond, they argue, remain in force and govern Dow's obligation to correct latent defects as well as its right to have any related dispute resolved by arbitration. They assert that their participation in the settlement proceedings did not operate to waive their right to arbitration of latent defect claims, which survived the construction contract. We cannot accede to this view. At issue here is the availability of the construction contract's arbitration clause for resolution of Hospital's latent-defect claims under the settlement agreement. Like any other promise-based obligation, a settlement agreement is governed by the principles of contract law. [9] A contract must be considered as a whole to give effect (1) to all its provisions without narrowly overfocusing on some clause or language taken out of context [10] and (2) to the parties' intent at the time the contract was formed. [11] Before full performance, contractual obligations may be discharged by a subsequent agreement whose effect is to alter, modify or supersede the terms of the original agreement or to rescind it altogether. [12] A claim under an earlier contract will be governed by a later agreement if the later operates to supersede or rescind the former. [13] Where not expressly stated, the legal effect of the later contract on the former must be gathered from a four-corners' examination of the contractual instrument in question. [14] Measured by the articulated rules, the settlement agreement in suit, when construed as a whole from its four corners, does not support the conclusion that Hospital's after-arising latent-defect claims from Dow's completed construction work are subject to arbitration. [15] The settlement agreement in suit is a multi-party agreement among Hospital, Dow, Federal and the project architect. It affects three separate contracts  one with the architect, the construction contract and the surety's obligation on the performance bond. The provisions of the settlement agreement are embodied in two court-approved documents  a Mutual Release Of All Claims as well as the Settlement Terms that were signed by the parties and approved by the court. [16] The court-approved agreement extinguished Dow's obligation to continue its performance under the construction contract and authorized Hospital to engage new contractors to complete the project. Dow and Federal were not released from their preexisting contractual obligations to remedy latent defects, if any, should arise from work already performed. The terms of settlement contain no express provision for arbitration of these after-arising latent-defect claims. Rather, the settlement provides that the trial court, sitting without a jury, would retain cognizance to entertain proceedings, brought to enforce the terms of the settlement agreement. It is clear from the wording of paragraph 4 of the Settlement Terms, which we quote in footnote 16, that the pre-existing construction contract clauses came to be terminated in all respects except for potential obligations of Dow or Federal for after-arising hidden or latent defects. When read as a whole, these critical settlement provisions make it clear that Dow's and Federal's rights and liabilities under the construction contract were discharged and stood superseded by the settlement agreement. The express terms of the latter agreement negate the notion now sought to be invoked  that while the construction contract itself came to be terminated, a portion of that contract, which reserved the right to litigate after-arising latent-defect claims, left intact the provisions to resolve such disputes by arbitration. In short, we hold that the earlier construction contract's arbitration clause is not invocable to resolve Hospital's after-arising latent-defect claims reserved by the settlement agreement. The settlement's terms are complete in themselves and supersede all prior agreements of the parties. When called upon to resolve these post-settlement claims on remand, the trial court is to look solely to the settlement agreement. THE TRIAL COURT'S ORDER REFUSING TO COMPEL ARBITRATION IS AFFIRMED; CAUSE REMANDED WITH DIRECTIONS FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS PRONOUNCEMENT. HARGRAVE, C.J., and LAVENDER, KAUGER and SUMMERS, JJ., concur. HODGES, SIMMS, DOOLIN and ALMA WILSON, JJ., dissent.