Saturday, August 14, 2010

Unsigned Arbitration Agreements: Can They Be Enforced?

Most lawyers know that a lack of signature on a written agreement does not necessarily negate the existence of a contract. Following the common law, if both parties mutually assent to an agreement then it may be legally enforced. Also, under the common law, if one party performs under the unsigned contract it may be legally enforceable. Logically then, such unsigned agreements are given the full weight of the law. But, does the common law cover unsigned subcontracts that include provisions for mandatory arbitration? According to the Colorado Court of Appeals in E-21 Engineering, Inc. v. Steve Stock & Assoc., Inc., --- P.3d ----, 2010 WL 3035168 (Colo. App. August 5, 2010), the answer is yes.

In E-21, the Colorado Court of Appeals was faced with a matter of first impression in which E-21 Engineering, Inc. sent Steve Stock & Associates, Inc. a letter of intent to enter into a subcontract which included a clause requiring mandatory arbitration. Neither E-21 nor Stock signed the subcontract and Stock began work according to the subcontract. E-21 subsequently wrote stock, rescinding the letter of intent claiming that neither party executed the subcontract and thus no agreement exists. Stock replied, informing E-21 that such rescinding of the letter constituted a breach of contract. Stock then filed a demand for arbitration, as per the subcontract, with the American Arbitration Association. After a few years and following settlement discussions, E -21 filed a response seeking to stay arbitration primarily arguing that there existed no agreement to arbitrate between the parties. The trial court agreed with E-21 and based its decision on the fact that Colorado case law did not support compelling a party to arbitrate if that party did not sign a written agreement.

The Court of Appeals disagreed. First, the Court of Appeals reviewed the agreement to arbitrate de novo. Lane v. Urgitus, 145 P.3d 672, 677 (Colo. 2006). Next, analyzing the Colorado Uniform Arbitration Act (CUAA), the court found that the act, although requiring that an arbitration agreement must be contained in a record, does not specifically require signatures by the parties. C.R.S. § 13-22-206(1); see C.R.S. § 13-22-201 to -230. Since the CUAA is silent on signature requirements, the court determined that the statute is ambiguous and must be interpreted according to legislative objectives. Cork v. Sentry Ins., 194 P.3d 422, 425-26 (Colo. App. 2008). Finally, the court found that state law principles permit contract formation without signatures and govern the “[determination of] whether parties have agreed to arbitrate.” Lane v. Urgitus, 145 P.3d at 677; see Smith v. Multi-Financial Sec. Corp., 171 P.3d 1267, 1272 (Colo. App. 2007) (holding that arbitration agreements may be binding on parties in some circumstances notwithstanding their lack of signature).

The court further noted that under the Federal Arbitration Act (FAA) 9 U.S.C § 2 other courts have held that a signature is not a necessary requirement for a binding arbitration agreement. See, e.g., Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1369 (11th Cir. 2005); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987); Med. Dev. Corp. v. Indus. Molding Corp., 479 F.2d 345, 348 (Colo. App. 2007). The court cited these federal cases despite the fact that they are not controlling because the FAA and CUAA share the substantially similar language. Ingold v. AIMCO/Bluffs, LLC Apartments, 159 P.3d 116, 120 (Colo. 2007).

The court concluded that a mere lack of signature does not nullify an otherwise viable, enforceable agreement to arbitrate. Left up for interpretation in the E-21 case is whether the underlying subcontract was enforceable, but for now any forgetful general contractors may retain the ability to compel arbitration should they miss a signature line. Of course, prudence recommends signing all agreements one wishes to enter into, if only to avoid the courtroom.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at

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The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.