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Bound to Arbitration

Attorney: Anna Greenstin Kudla | Published 3.23.18

In any given sales transaction, there are multiple contracts binding different parties to certain duties. Whether the contract deals with ensuring a commission for a broker or waiving a contingency for a buyer, all the agreements within the transaction are intimately intertwined, affecting different persons involved in the same sales transaction. Inevitably, a contractual dispute arises, often resulting in contemplation of arbitration. Statutory law found in the Code of Civil Procedure, starting with Section 1298, governs real property arbitration provisions, requiring specific advisory language with a space provided for the parties to indicate their acceptance.

An anonymous question posed by a local broker is whether a real estate professional can insist that a party sign an arbitration clause. The short answer is no. No one can demand another party sign a contract; execution must be done of their free will. However, when a contract with an arbitration provision was fully executed and one of the parties is resisting, it is the court’s responsibility to determine whether the parties agreed to arbitrate. If the making of the arbitration agreement is at issue, the court may proceed to trial. However, under  the Code of Civil Procedure Section 1281.2, if the court determines that a valid written agreement to arbitrate a controversy exists, it may order enforcement. Countless cases have debated the enforceability of arbitration clauses.

In Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co., (1998) 68 Cal. App. 4th 83, 88–89, the appellate court pointed to the language of the statutes identified above, holding that a court shall order parties to arbitrate a controversy if it determines that an agreement to arbitrate the controversy exists. When deciphering a right to arbitration, look to see whether the parties signed a binding arbitration clause. In Marcus & Millichap, the court held the arbitration of disputes provision was effective only if both buyers and sellers assented. Since the sellers did not sign this provision, the court concluded that the parties did not agree to binding arbitration.

Conversely, the appellate court in Gravillis v. Coldwell Banker Residential Brokerage Co., (2006) 143 Cal. App. 4th 761, 771, held that arbitration is a matter of contract. The court’s role is strictly limited to a determination of whether the parties agreed to arbitrate. The court went on to state that “[a] heavy presumption weighs the scales in favor of arbitrability; an order directing arbitration should be granted unless it may be said with positive assurance that the arbitration [provision] is not susceptible of an interpretation that covers the asserted dispute.”

Questions related to arbitrability do not typically yield a yes or no answer. Issues of legality, assent, enforceability by third parties, and obligations are the subject matter of many statutes and litigated disputes.

If you have questions about this article, please contact Anna Greenstin Kudla or any member of Walsworth’s Real Estate Team.

This article is for general information purposes and is not intended to be and should not be taken as legal advice, for each specific situation needs to be evaluated based upon the specific facts.