|
In a case determining that a residential construction dispute was subject to arbitration, the Colorado Court of Appeals held that an arbitration agreement survives expiration of the underlying contract unless there is "clear intent" to the contrary.
In Shams v. Howard, No. 05CA1936, 2007 WL 416356 (Colo. Ct. App. Feb. 8, 2007), Shams bought a home built by Meadow View. When Shams took possession of the home, the parties entered into a one-year warranty agreement containing an arbitration clause.
When the home flooded over a year later, Shams sued Meadow View and its manager, Howard, for negligent design and several other alleged torts. Howard moved to compel arbitration pursuant to the warranty agreement. The trial court denied the motion on the ground that the arbitration clause did not survive expiration of the one-year warranty agreement.
On appeal, Howard argued that the arbitration clause survived the expiration of the warranty agreement. In addressing this argument, the Court cited Colorado case law holding that absent clear intent to the contrary, an arbitration clause remains in force after a party terminates the underlying contract.
However, those cases were not directly on point because in this case, the underlying contract was not terminated by one of the parties but rather expired by its terms. The Court thus relied on the policy favoring arbitration and the majority rule in extending the presumption of survivability to contracts that have expired by their terms.
Based on the presumption of survivability, the Court held that the arbitration clause survived expiration of the warranty agreement because there was no "clear intent" to the contrary. Accordingly, the Court remanded the case with instructions to order arbitration.
As the Court indicated, under the majority rule, an arbitration agreement survives expiration of the underlying contract unless there is clear intent to the contrary. Nevertheless, parties may want to assure that the arbitration agreement remains in force by including express language of survival, particularly in those jurisdictions that do not follow the majority rule. See, e.g., Eatherton v. New York Life Ins. Co., No. L-05-1171, 2006 WL 1196042 (Ohio Ct. App. May 5, 2006) (finding an arbitration agreement unenforceable where the underlying contract expired by its terms).
Subscribe to a free weekly update on ADR case law and
legislation
|