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TD Auto Finance v. Reynolds

TD Auto Finance v. Reynolds

Case No. 
Opinion Date: 
Opinion Author: 
Justice Workman

Respondents were shopping for a truck.  On November 14, 2014, they signed a credit application with the dealership, Crossroads Chevrolet, authorizing them to conduct a credit check.  The authorization contained an arbitration clause.  Thereafter, Respondents entered into a purchase agreement with the dealership.  The purchase agreement contained a merger clause reading as follows:

HOW THIS CONTRACT CAN BE CHANGED.  This contract contains the entire agreement between you and us relating to this contract.  Any change to this contract must be in writing and we must sign it.  No oral changes are binding.

The purchase agreement itself did not contain any arbitration language.  Once the purchase agreement was completed, the dealership assigned all of its rights to Petitioner, TD Auto Finance.  When Respondents fell behind in their payments, Petitioner repossessed the truck and began dunning Respondents through telephone calls and letters seeking additional fees and costs.  Respondents sued, alleging violations of West Virginia’s consumer laws and other common-law and statutory claims.  Citing the arbitration language in the credit application, Petitioner moved to compel arbitration.  The trial court denied Petitioner’s motion, finding that the merger clause in the purchase agreement prevented the court from enforcing the arbitration language.  Petitioner appeals.


Does a merger clause in a purchase agreement override arbitration language contained in a separate, previously signed credit application?


The issue boiled down to this:  should the two contracts be read together or separately?  The general rule in West Virginia was set down over 40 years ago:

“Separate written instruments will be construed together and considered to constitute one transaction where the parties and the subject matter are the same, and where there is clearly a relationship between the documents.” Syllabus point 3, McCartney v. Coberly, –––W.Va. ––––, 250 S.E.2d 777 (1978), overruled on other grounds by Syllabus point 2, Overfield v. Collins, 199 W.Va. 27, 483 S.E.2d 27 (1996).

Writing for the majority, Justice Workman cited cases from across the country addressing the effect of a merger clause on arbitration language contained in a separate agreement.  These cases suggest two distinct analytical approaches.  Justice Workman, however, concluded that it was unnecessary for “the Court to cast its lot with one approach or the other.”  Instead, the case could be decided by a straightforward application of the general rule providing that “contemporaneously executed agreements between the same parties and relating to the same subject matter may be construed together as part of one contract or transaction.”  Here, it was undisputed that the credit application was executed before the purchase agreement.  Furthermore, the two agreements did not cover the same subject matter.  The Court explained:

“The credit application is merely an authorization to investigate respondents’ credit score and employment information and present that information to various finance companies to determine which company may wish to extend financing to them. The credit application is not part of the purchase transaction documentation and governs an entirely different subject matter—the credit investigation and approval process. There is nothing about a simple credit application which ostensibly purports to govern any of the terms of the ultimate vehicle purchase or financing.”

Therefore, the merger clause contained in the purchase agreement was controlling:  “[W]e conclude that the arbitration provisions in the credit application did not survive the merger clause of the [purchase agreement], thereby nullifying respondents’ obligation to arbitrate their claims against petitioners.”

Justice Jenkins, joined by Justice Armstead, dissented.  According to the dissent, the Court misapplied the general rule and invented a requirement that the two contracts must be contemporaneously executed—a requirement that did not previously exist.  The dissent also criticized the Court for “splitting hairs” by finding that the contracts were not, in any event, executed contemporaneously.  Furthermore, the language of the arbitration clause was broad enough to reach “any installment sale contract or lease agreement, or any resulting transaction or relationship.”  Because the purchase agreement signed by Respondents was an “installment sale agreement” and, thus, came within the scope of this broad language, Petitioner made a prima facie case for arbitration.

Justice Hutchison concurred, pointing out this was not an arbitration case but was, instead, “a dull, run-of-the-mill, state-law contract interpretation case.”  Here, the issue is really assent.  Respondents could not have assented to an agreement that did not exist.  Justice Hutchison accused Petitioners and the dissenters of arguing for “reverse incorporation.”  As he explained:  “Incorporation by reference pulls existing material into the new, incorporating contract; it does not push material terms into nonexistent, as-yet-unassented-to future contracts.”


This opinion is good news for consumers and others fighting against arbitration provisions.   However, as Justice Hutchison says, the case really doesn’t establish any new law.  It simply applies old, established contract law.  There is no reason why a consumer should be bound by arbitration language in a previously-signed contract.  The doctrine of incorporation is rightly limited to existing documents.    

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