Emerald Texas, Inc. v. Peel

• Decision Date: 22 February 1996
• Docket Number: No. 01-95-01286-CV,01-95-01286-CV
• Citation: Emerald Texas, Inc. v. Peel, 920 S.W.2d 398 (Tex. App. 1996)
• Parties: EMERALD TEXAS, INC., Appellant, v. Robert PEEL and Cynthia Peel, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 398

920 S.W.2d 398

EMERALD TEXAS, INC., Appellant, v. Robert PEEL and Cynthia Peel, Appellees.

No. 01-95-01286-CV.

Court of Appeals of Texas Houston (1st Dist.).

Feb. 22, 1996.

Pamela Jane Batterson, Chris E. Ryman, Michael O. Whitmire, Houston, for appellant.

Otto D. Hewitt, III, Alvin, Richard Warren Mithoff, Houston, for appellees.

Before COHEN, O'CONNOR and WILSON, JJ., concur.

OPINION

COHEN, Justice.

Emerald Texas, Inc. (Emerald) appeals the denial of its plea in abatement and motion to compel arbitration.

On November 21, 1993, Robert W. Peel and Cynthia J. Peel (the Peels) entered into a "New Home Earnest Money Contract, Conventional Loan" with Emerald for the construction of a new house. Construction was completed in early 1994.

In May 1995, the Peels sued, alleging Emerald had entered into the contract ¹ with them to build the home but (1) that Emerald negligently designed and constructed the home, (2) that Emerald breached its implied warranty that the home would be constructed in good and workmanlike manner, suitable for human habitation, and (3) that Emerald had violated the Texas Deceptive Trade Practices Act.

Emerald answered, including a plea in abatement and motion to compel arbitration, based on an arbitration provision in the contract:

ARBITRATION:

All allegations, claims, disputes and other matters in controversy between seller and buyer arising out of or relating to this agreement, the breach hereof, the property, any work or improvements performed hereunder, any warranty or representation related to the matters described in this agreement or any work or improvements performed hereunder, any alleged defects relating to the property and/or any claims brought under the Texas Deceptive Trade Liability Act, shall be decided by arbitration in accordance with the.... The foregoing agreement to arbitrate shall be enforceable under the prevailing Texas Arbitration Law....

Emerald contended that the Peels' claims were arbitrable because they all arose from alleged defects in the home and from Emerald's handling of those claims under the earnest money contract, and that such claims were "factually intertwined" with the contract.

The Peels resisted arbitration, asserting that the arbitration clause did not cover this dispute, was unconscionable, and was fraudulently induced. Mr. Peel's affidavit stated that the contract was drafted by Emerald; that he was not represented by counsel when he entered the contract; that he has no expertise in homebuilding or in negotiating real estate transactions; that no mention was made about the arbitration clause or its relation to design and building defects; that the contract was presented as a "standard" earnest money contract; and that he received no consideration for waiving a trial.

On September 8, 1995, the court heard the oral argument of counsel on the motion. No evidence was taken. The court overruled Emerald's motion to compel arbitration and made the following findings of fact and conclusions of law:

(1) The Court finds as a matter of fact and a concludes as a matter of law that: The arbitration clause in the New Home Earnest Money Contract does not apply to this dispute;

(2) The Court finds as a matter of fact and concludes as a matter of law that: The arbitration clause contained in the New Home Earnest Money Contract, entitled "Conventional Loan," does not contemplate a remedy for the inadequate design or construction of the Plaintiffs' house, because it is a contract for the purchase of the house. Because the Peels are suing for negligence, gross negligence, breaches of warranties and violations of the Texas Deceptive Trade Practices Act, the clause is inapplicable.

(3) The Court finds as a matter of fact and concludes as a matter of law that: No valid arbitration or agreement exist as to the matters in controversy;

(4) The Court finds as a matter of fact and concludes as a matter of law that: The arbitration clause is not effective after the final closing documents are signed;

(5) The Court finds as a matter of fact and concludes as a matter of law: The issues and dispute do not arise out of or relate to the Earnest Money Contract;

(6) The Court finds as a matter of fact and concludes as a matter of law that: The arbitration clause when entered into by the Peels was unconscionable. The Peels were not told of the clause or its effects on their rights, the contract was presented as a standard earnest money contract, and the Peels did not receive any consideration for foregoing their legal right to a trial. Furthermore, the contract was prepared by the Defendant placing the Peels at a significant disadvantage in the bargaining because they were not represented by counsel and lacked the expertise required in this area. The Texas Arbitration Act, TEX.REV.CIV.STAT.ANN. art. 224 (Vernon Supp.1995), states: "[a] court shall refuse to enforce an agreement or contract provision to submit a controversy to arbitration if the court finds it was unconscionable at the time the agreement or contract was made" and as such, the Court forbids submitting the controversy to arbitration.

(7) The court finds as a matter of fact and concludes as a matter of law that: The arbitration clause is not enforceable because the clause in the contract was a product of fraud. The Peels were not represented by counsel when they entered into the contract and subsequently were not told of the existence of the arbitration clause. The Peels as a result relied on the representations and misrepresentations of the Defendant in the formation of the contract. The Texas Arbitration Act provides an agreement to arbitrate is enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." TEX.REV.CIV.STAT.ANN. art. 224 (Vernon Supp.1995). Based upon this language, the Court finds that the arbitration provision is unenforceable.

(8) The Court finds as a matter of fact and concludes as a matter of law that: There was no showing of a known waiver of the right to a trial by jury;

(9) The Court finds as a matter of fact and concludes as a matter of law that: There was no evidence of a known waiver of statutory rights contained in the applicable Texas Deceptive Trade Practices Act;

(10) The Court finds as a matter of fact and concludes as a matter of law that: The contractual claims are not so interwoven with the tort claims so as to fall within the purview of the arbitration clause contained within the Earnest Money Contract even assuming the arbitration clause to be valid.

In its first point of error, Emerald asserts that the trial court erred in denying its plea in abatement and motion to compel arbitration because there is no evidence that the arbitration provision is unenforceable under the Texas Arbitration Act.

An agreement to arbitrate is valid unless grounds exist at law or in equity for the revocation of any contract, such as fraud or unconscionability. See TEX.CIV.PRAC. & REM.CODE ANN. § 171.001 (Vernon Supp.1996). Texas law favors arbitration; thus, doubts regarding the scope of an arbitration agreement are resolved in favor of arbitration. Texas Private Employment Ass'n v. Lyn-Jay Int'l Inc., 888 S.W.2d 529, 531 (Tex.App.--Houston [1st Dist.] 1994, no writ). Arbitration clauses are interpreted under general contract principles. Belmont Constructors v. Lyondell Petrochemical Co., 896 S.W.2d 352, 357 (Tex.App.--Houston [1st Dist.] 1995, no writ). One who signs a contract is presumed to know its contents. D. Wilson Constr. Co. v. McAllen Ind. Sch. Dist., 848 S.W.2d 226, 230 (Tex.App.--Corpus Christi 1992, writ denied). The best evidence of a signer's intent is the contract. City of Pinehurst v. Spooner, 432 S.W.2d 515, 518 (Tex.1968). Thus, there is nothing unconscionable per se about an arbitration contract. The burden was on the Peels to present evidence of unconscionability.

The sole evidence of unconscionability is the following from Mr. Peel's affidavit:

The contract clause was drafted by Emerald. I was not represented by a lawyer when I entered into this contract. During the discussions about this contract no mention was made concerning the arbitration clause or its alleged relationship to design and building defects. The contract was presented as a standard earnest money contract. I was not informed of the existence of the arbitration clause nor its alleged effect on our rights. I do not have any expertise in the area of homebuilding or negotiating real estate transactions. I did not receive any consideration for allegedly foregoing my legal right to a trial. I purchased the house for $234,072 ... The value of the house is minimal due to the damage caused by Emerald.

The trial court based its conclusion six, that the arbitration agreement was unconscionable, on these facts: (1) the Peels were not told of the clause or its effects on their rights, (2) the contract was presented as a standard earnest money contract, (3) the Peels did not receive any consideration for foregoing their right to a trial, and (4) the contract was prepared by Emerald, placing the Peels at a...