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Paul v. Timco, Inc.

2002 WL 31840810 (N.J. Super. App. Div. 2002)

ARBITRATION— Where the terms of a warranty are not delivered to a customer until well after the purchase has been made, the warrantor cannot enforce an arbitration provision within the warranty.

The primary issue in this case was whether a buyer who paid money for an extended warranty could be required to submit the warranty claim for arbitration even though the document containing the arbitration provision was not sent to the buyer until after the sale took place. In this case, a consumer purchased a car with an extended warranty. The sales contract listed the extended warranty, but its terms (including a provision requiring all disputes to be resolved through arbitration) were included in a separate service contract that was not sent to the buyer until several years later. When the seller refused to honor a warranty claim, the buyer sued and the seller sought dismissal of the action because of the arbitration provision. The lower court ruled that the buyer was bound to the terms set forth in the form service contract, regardless of whether she received it or agreed to its terms. It then dismissed the complaint on the basis of the arbitration clause in the service contract. The Appellate Division reversed. A party seeking to compel arbitration must show that the other party agreed to arbitration. The Court ruled that, since the sales contract did not contain an arbitration clause, the buyer could not be compelled to arbitrate the dispute unless she signed the service contract and agreed to the arbitration clause. It held that the service contract was not a contract, but an offer to modify the extended warranty provisions of the sales contract. Because arbitration terms are not binding unless a party agrees to them, she could not be compelled to submit her claim for arbitration.

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