Appellate Court Upholds Contract Requirement For Arbitration of Disputes

Gemstone Builders, Inc. v. Stutz, 261 P.3d 64 (Or. Ct. App. 2011)

Contractor sued homeowners, who had hired contractor to build a home for them.  Contractor sued for breach of contract, unjust enrichment and fraud.  The parties disagreed regarding the interpretation of their contract as it pertained to arbitration.  The contractor argued that the terms were irreconcilably contradictory, making the arbitration provisions unenforceable.  The homeowner sought to compel arbitration.  Addressing the issue, the trial court denied defendants’ petition to compel arbitration and defendants appealed.

The appellate court's parsing of the contract language is instructive in terms of the care that needs to be taken when drafting dispute resolution clauses.  Following discussion of the contract, the appellate court observed that the contract was “surely not a model of clarity” and that there was ambiguity regarding whether arbitration was binding.  However, the court concluded that such ambiguity did not render the contract unenforceable and, in the absence of extrinsic evidence of the parties intent, turned to “appropriate maxims of construction” to ascertain the reasonable intention of the parties.  Noting that “we are guided by policies that favor arbitration” and recognizing that “arbitration is intended to be an alternative to litigation,” the appellate court determined the trial court had erred in denying defendants’ petition to compel arbitration and reversed and remanded the case.

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