In the recent case of Burch v. Premier Homes, LLC, the Court of Appeals affirmed an order from the Superior Court of Los Angeles County denying defendant builder’s motion to compel arbitration of plaintiff homeowner’s construction defect claims pursuant to an arbitration clause in the parties’ purchase agreement.
The defendants developed and built a home which plaintiff offered to purchase. Defendants made a counter-offer which included an Addendum No. 2 relating to a limited warranty and arbitration of disputes. After considerable negotiations, in which plaintiff made clear that she would not give up her rights under California law, the parties agreed to strike the last sentence of Addendum No. 2 which expressly limited the parties’ options of redress to the Warranty Arbitration provision. The rest of the arbitration language in Addendum No. 2 was left intact.
Several months later, plaintiff filed a construction defect action against defendants. In response, defendants filed a motion to compel arbitration. The trial court denied defendants’ motion to compel, holding that the arbitration clause, from which a sentence had been stricken, was susceptible to conflicting interpretations as to its scope. In reaching its decision, the trial court considered extrinsic evidence, including oral testimony of the plaintiff stating that the sentence had been stricken for the purpose of ensuring that she would retain all of her rights against the builders under California law, including the right to assert construction defect claims in court.
The court of appeals affirmed the trial court’s order, holding that the trial court acted within its discretion when it opted to receive extrinsic oral testimony as to the parties’ intent at an evidentiary hearing. The court reasoned that even though the purchase agreement was integrated and language regarding arbitration still remained, the act of striking the sentence created ambiguity as to the parties’ intent, allowing extrinsic evidence to give effect to the mutual intention of the parties.
Home builders need to make sure that strike-outs or modifications do not not create ambiguities. If changes are necessary, home builders should consider preparing a new, unmarked document incorporating the changes. Home builders will minimize disputes about the intent of the parties by adding this step to the process.
This document is intended to provide you with general information about construction law developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.