"Your Arbitration Agreement is No Good." This is essentially what the New Jersey Superior Court of Bergen County told the Defendant in a recent decision. In
Winters v. Electronic Merchant Sys., N.J. Super. Law Div. (Wilson, J.S.C.), the Judge ruled that the Defendant could not enforce an arbitration agreement because it did not meet the required elements of an enforceable contract. This is an important lesson for business owners and consumers alike. Let's look at what happened in the case.
Facts of the Case
This case arose from a conflict relating to a contract ("Merchant Agreement") between Defendants Electronic Merchant Systems ("EMS"), Chesapeake Bank and Plaintiff Collective Solutions Inc. The contract contained an arbitration clause which purportedly stated that all disputes relating to the contract must be arbitrated. EMS filed a motion to force the dispute to be arbitrated.
Law and Court's Decision
The Bergen County Court held that there was no enforceable arbitration clause in the agreement because the clause was illegible. The court stated that the clause was in small print and was "dense and indecipherable". The court reasoned that a contract provision with those defects could not be said to be a product of mutual consent or to have the clarity and internal consistency required for an enforceable arbitration agreement.
In order to form an enforceable agreement, it must contain the following elements:
(1) an offer, (2) acceptance of the offer, (3) consideration, (meaning something of value being exchanged), and (4) a meeting of the minds upon all the essential terms of the agreement. Weichert Co. Realtors v. Ryan, 128 N.J. 427,435 (1992). The terms "must be sufficiently definite that performance to be rendered by each party can be ascertained with reasonable certainty." Id. at 435.
Generally, New Jersey Courts have encouraged the arbitration of disputes when contractual agreements contain arbitration clauses. See NAACP of Camden Cty. East v. Foulke Mgmt. Corp. 421 N.J. Super. 404, 424 (App. Div. 2011) (quoting N.J.S.A. 2A:23B-6 that an agreement to arbitrate is "valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract"). The Appellate Division has explained that an agreement to arbitrate must be "the product of mutual assent, as determined under customary principles of contract law." NAACP of Camden Cty. East, 421 N.J. Super. 404,424 (App. Div. 2011). New Jersey Courts have determined that "the clarity and internal consistency of a contract's arbitration provisions are important factors in determining whether a party reasonably understood those provisions and agreed to be bound by them." Id. at 425.
In this case, the Bergen County Court held that there was no enforceable arbitration clause in the Merchant Agreement. As explained above, agreements to arbitrate must meet the basic requirements of contract formation. The Defendants arbitration clause was so defective that it could not be said to have been a product of mutual assent, much less have the clarity and internal consistency needed to be enforceable. Since the Defendant could not show that the clause was a product of mutual assent, the Court held that the arbitration clause did not meet the requisite standard to be an enforceable contract and it denied the Defendants motion.
Lessons to Be Learned
The manner in which a contract is drafted has a huge impact on whether it is legally enforceable. When you download a contract from the Internet you really have no idea if it is enforceable in your jurisdiction or not. The same is true when a business owner relies on a contract that a friend or colleague uses for his/her business. Just because you believe that your contract says one thing doesn't mean that the other side or the court will have the same understanding. If your business is important to you, make sure to hire a qualified attorney to draft a solid contract for you and your business.
If you would like more information about this topic or have general legal questions, please feel free to contact me at (201) 904-2211 or via email at pl@pjlesq.com. We answer legal questions on a daily basis and would be happy to discuss any issues or questions that you have with you. © 2017, Law Offices of Peter J. Lamont & Associates. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between the firm and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.
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