Thomas v. Sloan Homes, LLC
81 So. 3d 309 (2011)
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Rule of Law:
Under the doctrine of merger, an arbitration clause contained within a residential sales contract is considered an independent and collateral agreement that is not extinguished by the subsequent execution and delivery of a deed.
Facts:
- On October 13, 2007, Sammy and Pam Thomas entered into a General Residential Sales Contract with Sloan Homes, LLC for the purchase of a residence.
- The sales contract contained a clause requiring all disputes arising from the contract to be resolved by binding arbitration.
- The contract also included a handwritten note providing for a one-year builder's warranty.
- On November 7, 2007, Sloan Homes executed and delivered a general warranty deed to the Thomases, officially conveying the property.
- The deed contained standard provisions related to the conveyance of title but made no mention of the sales contract or the arbitration clause.
- At closing, the Thomases also received a separate written 'Limited New Home Warranty' which did not contain an arbitration clause.
- After moving in, the Thomases discovered severe water and moisture damage, which they alleged was due to Sloan Homes knowingly building the house on land with pre-existing water problems.
Procedural Posture:
- On November 6, 2009, Sammy and Pam Thomas (plaintiffs) filed an action against Sloan Homes, LLC and its owners (defendants) in the Blount Circuit Court, the trial court of first instance.
- The defendants filed a motion to compel arbitration based on a clause in the original sales contract.
- The plaintiffs opposed the motion, arguing the arbitration clause was nullified by the doctrine of merger because it was not included in the subsequent deed.
- On November 15, 2010, the circuit court granted the defendants' motion to compel arbitration.
- The Thomases (appellants) appealed the trial court's order to the Supreme Court of Alabama, with Sloan Homes and its owners as appellees.
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Issue:
Does the doctrine of merger nullify a binding arbitration clause in an antecedent residential sales contract when the subsequent deed conveying the property does not contain a similar clause?
Opinions:
Majority - Murdock, Justice
No. The doctrine of merger does not nullify an arbitration clause in a residential sales contract because such a clause is a collateral provision independent of the conveyance of title. The court reasoned that the doctrine of merger only extinguishes preliminary agreements that relate directly to the title, possession, and conveyance of property. Agreements that are 'independent and collateral,' such as an agreement to build, repair, or arbitrate disputes, survive the deed because the deed represents only partial performance of the antecedent contract. Citing Holmes v. Worthey, the court explained that where a contract includes an agreement to build as well as an agreement to convey, the delivery of the deed only fulfills the latter, leaving collateral obligations like the arbitration clause intact and enforceable.
Analysis:
This decision clarifies the scope of the merger doctrine in modern real estate transactions, particularly in the context of new construction. By categorizing an arbitration clause as a 'collateral agreement,' the court reinforces the principle that a deed is not a complete substitution for all terms of a sales contract. This holding strengthens the enforceability of arbitration clauses in real estate agreements, ensuring they survive closing even if not reiterated in the deed. The ruling protects both builders' and buyers' bargained-for rights regarding warranties, construction quality, and dispute resolution that are distinct from the transfer of title.
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