Professional Documents
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A number of factors were weighed by the appellate court, resulting in the overturn
of the lower court’s ruling. One of the first things examined was the initial
conversation between the inspector and client. Most inspectors consider the
initial contact and discussion over price and scope as a simple sales pitch; why
one should choose your firm in favor of another. However, the court considered
this discussion and agreement over price, and a notice to proceed, as an oral
contract. In that initial discussion between the parties, an arbitration clause
was never mentioned to the client. Further complicating the matter was the fact
that the actual inspection agreement was signed after the inspection had been
performed. So, with these initial, but important steps, the notion of
unenforceability reared its ugly head, in that arbitration was neither discussed
during oral negotiations, nor pointed out in an agreement signed after the fact.
An important concept is noted here, in that the court was starting to look at
whether one party lacked the opportunity to study the contract and to inquire
about the contract terms. Considering that the majority of home inspectors meet
their clients immediately before the inspection begins, this situation technically
is the norm, as opposed to the exception. The concept of an oral agreement is also
most interesting, as the court brings another common practice of home inspectors
into the mix.
The court also found that the inspector and client were not in equal standing as
far as knowledge and bargaining power. Indeed, the contract itself may have
contained inconspicuous print (beware the fine print) and complex legalistic
language. Indeed, the “sophistication” of the parties also weighs into a
determination as to whether something may be enforceable. This very argument is
often heard of late as it pertains to sophisticated terms involving the
refinancing industry and the mortgage crisis, which is precisely why such
contracts have a window or time for review and re-consideration. Not so,
typically, when it comes to home inspection agreements.
Beyond these initial findings, other clauses ultimately made the court decide that
the contract was unconscionable. A lynch-pin in the client’s argument, and the
appellate courts findings, was that the arbitration clause, barring all else
decided so far, was one-sided.
How so? Well, on one breath, the Inspector limited the client to binding
arbitration, yet allowed the inspector to utilize the courts to recover money from
the clients in the event of non-payment. This contradiction may be more common
than anyone realizes. The old saying “what’s good for the goose is good for the
gander” had never been heard so loud and decisively. The fact was that the
inspector included a term which offered him certain rights available at law and
equity, while barring his client from seeking relief in a court of law. The
courts found this clause to be oppressive.
In the agreement, the client was compelled to utilize the services of the American
Arbitration Association, which is a fine firm, it also has a specific fee
structure. At the time of the inspection, American
Arbitration Association used a sliding fee schedule, based on the value of the
suit. In this particular case, the fee to arbitrate far exceeded the value of the
inspection. At best, based on a limitation of liability, the client could only
recover $265. The cost to arbitrate at that time was at least $500, which was
undisclosed in the contract clause.
Keep in mind that the case hadn’t even been discussed yet. Whether or not it had
merit was a discussion for another day. The events described were all based on the
applicability and interpretation of contract law as it pertained to clauses
contained within an inspection agreement.
These are starting points for helping to ensure the enforceability of any
inspection agreement.
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