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In enforcing an American Institute of Architects form arbitration agreement, an appellate court in Tennessee held that the parties mutually assented to arbitration and found no fraudulent inducement.
In Robert J. Denley Co., Inc. v. Neal Smith Const. Co., Inc., slip copy, No. W2006-00629-COA-R3-CV, 2007 WL 1153121 (Tenn. Ct. App. Apr. 19, 2007), Denley and Smith, parties to a construction contract, disputed the validity of their arbitration agreement. The arbitration agreement was contained within the "general conditions," incorporated into the main A101 contract by reference.
The Court rejected Denley's argument that there was no mutual assent to arbitrate. The Court reasoned that Denley was a sophisticated business party and the language of the A101 contract clearly incorporated the general conditions. Denley could not sign the contract and then deny its agreement because it did not read all of the provisions.
Regardless of whether Denley was aware of the arbitration agreement, "mutual assent is gathered from the language of the contract rather than the unexpressed or undisclosed intentions of the parties." See Gates, Duncan & Vancamp Co. v. Levatino, 962 S.W.2d 21, 25 (Tenn.Ct.App.1997). The Court found no "exceptional circumstances" that would allow for Denley to disavow a term of the contract. See Parton v. Mark Pirtle Oldsmobile-Cadillac-Isuzu, Inc., 730 S.W.2d 634, 638 (Tenn.Ct.App.1987).
The Court also rejected Denley's allegation of Smith's fraudulent inducement. Smith had no duty to inform Denley of the arbitration agreement's existence. The arbitration agreement would have been discovered through "ordinary diligence." Denley initialed every page of the contract, which referenced the incorporation of the general conditions three times. Any lack of knowledge on Denley's part was not caused by Smith's fraud, but Denley's "negligence in not carefully reading the contract." The Court held that the agreement to arbitrate, as incorporated by reference, is valid.
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