Baker V Osborne Develpopment Corp

The relationship between builders of new homes and buyers of new homes is a multi-faceted one. In many cases there are exemplary stories of customer service and quality performance. Sometimes, though, there can be tensions and disagreements.

It is reasonable, therefore, that both sides may agree to set some ground rules for the resolution of any future disputes.

The standard purchase contract in California provides the opportunity for both buyer and seller to agree to arbitration, rather than court action, in the event of any future disputes. Moreover, mediation is indicated prior to either arbitration or court proceedings.

The recent California case of Baker v. Osborne Development (Fourth Appellate District Court of Appeal) makes it clear that alternative dispute resolution agreements between buyers and builders must themselves conform to certain ground rules.

The plaintiffs, Thomas Baker and others, filed a complaint against the Osborne Development Corporation in October of 2005. They alleged that the homes they had purchased from Osborne suffered from a variety of construction defects. In response, Osborne filed a motion to compel arbitration. Osborne's motion was supported by evidence regarding a home warranty program in which the company participated. An application for the Home Buyers Warranty program had been signed by both the buyers and the builder. The application form included a statement saying that the buyers had read the Warranty Booklet and that they consented to the binding arbitration provision that was contained therein.

Subsequent testimony showed that the warranty application form was provided to the buyers shortly before the close of escrow or at the closing. They did not receive the warranty booklet which contained the arbitration provision until a few weeks after they had moved in. The provision disclaimed any and all other warranties provided by the builder. It stipulated that the buyers waived all rights to seek damages or...