Juan and Claudia Gonzalez (“Gonzalezes”) bought a new vehicle from West Suburban Imports (“West Suburban”). The Gonzalezes subsequently filed suit because West Suburban overcharged the Gonzalezes for the new vehicle. In response, West Suburban sought to stay the proceeding pending the arbitration of the Gonzalezes’ claim pursuant to an arbitration agreement (the “arbitration agreement”) executed during the sale transaction. The Gonzalezes argued that the arbitration agreement was unenforceable because there was no mutual obligation to arbitrate claims and, thus, there was no consideration to support the arbitration agreement. West Suburban argued the arbitration agreement was supported by consideration because it was part of a series of agreements which together constituted the sale transaction.
In finding the arbitration agreement unenforceable, the court noted the pertinent section of the arbitration agreement stated as follows:
A “dispute” is any controversy or claim (other than: a claim relating to the buyer’s failure to pay an agreed upon down payment or failure to pay any amount due pursuant to a promissory note executed in lieu of a cash down payment; as to the issuance, by buyer, of a check which is not honored by the buyer’s bank; a buyer’s failure to provide good title to a trade-in vehicle; a misrepresentation, by buyer, concerning the amount remaining due on any loan concerning a trade-in vehicle; any claim relating to the possession, repossession or replevin of the vehicle; or relating to actions to enforce any Retail Installment Contract executed by you in connection with the purchase of the vehicle) arising from or relating to the vehicle you have purchased from us on the date shown above.
Thus, “(t)he express language of the arbitration agreement makes clear that it is intended to require (the Gonzalezes) to arbitrate any claims that they could assert against (West Suburban), but it imposes no such reciprocal obligation upon (West Suburban). Illusory promises of this sort are plainly unenforceable because a party has not obligated itself to do anything.”
The court also rejected West Suburban’s argument that the arbitration agreement was supported by consideration because it was part of the sale transaction because of the arbitration agreement’s survival language stated: “(t)his Arbitration agreement shall, with respect to such dispute, survive the termination or expiration of any purchase order and/or bill of sale or any retail installment contract executed at the time the vehicle is purchased.” Thus, the arbitration agreement was intended to be a separate agreement which survived the sales transaction. As such, it must be supported by separate consideration in order to be enforceable. Accordingly, since the arbitration agreement failed to impose mutual obligations to submit claims to arbitration, the arbitration agreement lacked consideration and was unenforceable.
All contracts must be supported by consideration. If you have a question about whether a contract, including an arbitration agreement, is enforceable, please telephone a member of the firm.