In Sutton v. David Stanley Chevrolet, No. 117587 (Okla. Oct. 13, 2020), the Oklahoma Supreme addressed an unusual fraud argument in the consumer context. (Click here for a copy of the opinion.)
I’ve found that many states tend to have well-established case law about a duty to read, and there is generally no duty to explain contract terms unless special circumstances exist, like a fiduciary relationship between the parties. The Sutton case involved an arm’s length transaction for the purchase of a vehicle, and normally, the car dealership would have no duty to explain or point out the arbitration clause found in the purchase agreement. However, under the circumstances of this case, the court found the dealership had created a false impression about the arbitration clause, and as a result, the clause was invalid under a theory of constructive fraud.
The finance manager at the dealership pointed out several signature lines in the purchase agreement at issue. For example, next to a provision regarding the purchase price, there was a signature line, and the finance manager explained the signature was to confirm the purchase price. However, near a provision regarding trade-in information, there was also an arbitration clause, and then a signature line. When explaining this area of the document, the finance manager described the signature as confirming the trade-in information, without mentioning the arbitration clause.
The Oklahoma Supreme Court found that a false impression was created by both the finance manager’s descriptions and the structure of the purchase agreement itself. Here, a duty to explain the arbitration clause arose, and because no such explanation was given, the court found the arbitration clause to be unenforceable due to constructive fraud.
There were strong dissenting opinions, noting the duty to read contracts in connection with arm’s length transactions.
I stress with my students that the text of an arbitration agreement is very different from the circumstances surrounding the making of an arbitration agreement, and this Oklahoma case shows that these surrounding circumstances can make a difference. For the purpose of finalizing complicated agreements in the consumer or employment context (and to avoid problems like you see in this Sutton case), I believe some parties use e-signing together with explanatory videos to ensure that a contract’s terms are presented consistently and in a proper way.