Opinion
Hearing Granted July 3, 1962.
Opinion vacated 25 Cal.Rptr. 556, 375 P.2d 436. Palmer A. Brink and Olive H. Brink, in pro. per.
W. E. Kalbfleisch, Torrance, for respondent.
BALTHIS, Justice.
The petitioners, Palmer A. and Olive H. Brink, contracted with defendant Allegro Builders, Incorporated, for the construction of a house on a lot owned by the Brinks. Clause 15 of the contract contains a provision for arbitration which reads in part as follows:
'As between the parties hereto, all questions as to the rights and obligations arising under the terms of the contract, the plans and specifications are subject to arbitration. In case of dispute either party hereto may make a demand for arbitration by filing such demand in writing with the other. One arbitrator may be agreed upon, otherwise there shall be three, one named in writing by each party within five days after demand is given, and a third chosen by the two appointed. Should either party refuse or neglect to appoint said arbitrator or to furnish the arbitrators with any papers or information demanded he or they are empowered by both parties to proceed ex parte. If there be one arbitrator his decision shall be binding; if there be three the decision of any two shall be binding. Such decision shall be a condition precedent to any right of legal action, and wherever permitted by law it may be filed in Court to carry it into effect.'
The other clause in question is numbered 26:
'The following specified items are the sole responsibility of the Owner, and all charges or costs incurred shall be paid by the Owner over and above the contract price.
'(a) Grading of lot for level building site, removing all trees, debris, and other obstructions prior to start of construction.'
The facts giving rise to the dispute in the instant case are as follows: The job of grading and preparing the lot for construction was done by Mr. Valenzuela of the K Construction Company. The Brinks contended that the work was done in a defective manner in that the lot was not left level, too much dirt was removed leaving the too low, requiring the use of retaining walls which would not have had to be built if the work had been done properly. The Brinks contended that Allegro was responsible for the damages done by Valenzuela in that an agent of Allegro had hired Valenzuela, and because Valenzuela worked under the Allegro building permit. Allegro assumed no responsibility for the work done and denied that its agent hired or had the authority to hire anyone to prepare the land; Allegro relied upon clause 26 which placed the responsibility for grading the lot on On February 8, 1960, Allegro made a written demand for arbitration in order to straighten out the Brinks' various 'claims and accusations, either stated or inferred.'
By a phone call to the Brinks and letter dated February 11, 1960, Allegro rescinded its demand for arbitration of advice of its attorney who felt that clause 26, making the Brinks solely responsible for the lot preparations, did not create an arbitrable issue under the contract. By letter of February 12, 1960, the Brinks appointed LeVane Forsythe as their arbitrator to meet the Allegro demand of February 8. In the Brinks' letter it was stated: 'Since then, Mr. Shook [president and general manager of Allegro], informs me he has mailed a letter rescinding demand for arbitration at advice of his attorneys, since they feel Valenzuela is not a part of their contract. This was done by telephone and we have not yet received the letter so we are appointing our arbitrator to be sure we are covered.'
On February 16, 1960, the Brinks wrote to Allegro: 'Your letter rescinding your demand for arbitration crossed ours in the mail of February 12th, arriving after our written acceptance had been sent you and our arbitrator appointed within the fiveday period allowed in our building contract. As you failed to name your arbitrator within the five-day period, this will inform you that we are prepared to proceed ex parte with one arbitrator under paragraph 15 of our contract.'
Thereafter, on February 20, 1960, before LeVane Forsythe as sole arbiter, the ex parte arbitration was held. Allegro, through its attorney, objected to the proceeding taking place because the dispute sought to be arbitrated was outside the terms of the contract and consequently the scope of the arbitration clause. Forsythe concluded that he had the power to determine the matter and made an 'AWARD BY ARBITRATOR' awarding the Brinks $3,022.00 for the defective grading on the lot, $600.00 attorney fees, $247.50 for court reporter costs, and $350.00 as his fees.
Brinks then made a motion in the Superior Court for an order confirming the award of the arbitrator. Allegro demurred to the motion and also filed a motion for an order vacating the award. The trial court granted Allegro's motion to vacate and denied the Brinks' motion to confirm the award.
The trial court's findings made from the affidavits which accompanied the motions are as follows: 'Mrs. Brink's letter of February 8, 1960, was not, and never became, either a demand for arbitration or a statement of issues to be arbitrated; Allegro's demand for arbitration, dated February 8, 1960, was withdrawn; as of February 11, the Brinks understood that Allegro had withdrawn its arbitration demand, but the Brinks appointed an arbitrator 'to be sure we are covered'; on February 16 the Brinks wrote a letter claiming the right to arbitrate ex parte by reason of Allegro's failure to name an arbitrator. This letter was not a demand for arbitration under the contract between the parties; the proceeding before the Brinks' appointee on February 20 was not an arbitration; Allegro did not at any time waive any of its rights or immunities. Specifically, Allegro did not consent to the proceedings of February 20; the controversy which existed between the parties on February 20 is related to responsibility for unskillful excavation and grading of the Brinks' building site. It does not appear that this controversy arose under the written contract which contains the arbitration clause. The court finds that such controversy was not covered by the contract of May 26, 1959, or by any subsequent submission agreement between the Although the Brinks raise many objections to the trial court's findings, we believe they are supported by the affidavits which were before the court. The major issue presented by this appeal is whether the arbitration proceeding was a valid exparte arbitration binding on Allegro under the terms of the contract.
It is necessary to the validity of an award by arbitration that the interested parties shall have notice of the hearings and a fair opportunity to be heard. Where it appears that parties have appeared and participated fully in the proceedings without objection they cannot afterward attack the award on the ground that no formal notice of the hearings was given.
In the instant case the trial court found that no valid arbitration was held and that Allegro did not waive its rights by appearing and presenting evidence under protest before the sole arbiter. The evidence is clear that both before and after the hearing before Forsythe (the Brinks' arbitrator) Allegro raised objections to the validity of the proceedings on this matter. The fact that the hearing took over six hours and both sides presented evidence could not be construed as a waiver of any of Allegro's rights.
The evidence amply supports the findings of the trial court that there was the lack of a proper demand to comply with the terms of the construction contract and to designate the issues to be submitted to arbitration. The letter written by the Brinks on February 12, 1960, showed that they appointed an arbitrator 'to be sure we are covered' under the Allegro demand for arbitration. Obviously, its purpose was to protect against the possibility that the letter canceling the Allegro demand would not be forthcomming. The Brinks' letter was not a demand for arbitration in their behalf. No items of controversy under the agreement were designated therein to be submitted to arbitration. The subsequent letter from Brinks of February 16, 1960, likewise failed to submit any issue for arbitration. Had either Allegro or the Brinks desired to submit the issue as to whether the controversy concerning the grading was an arbitrable issue under their contract, either one could have notified the other of the desire to do so and if they failed to agree either could have resorted to the courts under section 1282 of the Code of Civil Procedure for an order determining that issue.
As a general rule, the question of the existence of an agreement to arbitrate and of the scope of the arbitration permissible thereunder are issues which, in the first instance, the code refers to judicial action. The question of arbitrability may be submitted to the arbitrators if the parties so agree. (O'Malley v. Petroleum Maintenance Co., 48 Cal.2d 107, 110, 308 P.2d 9; McCarroll v. Los Angeles County, etc., Carpenters, 49 Cal.2d 45, 65, 315 P.2d 322.) As was said in the McCarroll case, pages 65-66, 315 P.2d page 333: 'Of course, even when the parties have conferred upon the arbiter the unusual power of determining his own jurisdiction, the court cannot avoid the necessity of making a certain threshold determination of arbitrability, namely whether the parties have in fact conferred this power on the arbiter. There is no indication in the present contract that the parties intended any such result. * * * Whatever the merits of the procedure, we think it sufficiently outside the usual understanding of the relations of court and arbiter and their respective functions to assume that the parties expected a court determination of arbitrability unless they have clearly stated otherwise.'
There is nothing in the arbitration clause in this construction contract to suggest an intention of the parties here that the question of arbitrability of the alleged dispute should be submitted to the arbitrator. In the absence of a clear showing of In Posner v. Grunwald-Marx, Inc., 56 Cal.2d 169, 14 Cal.Rptr. 297, 363 P.2d 313, the labor union filed a petition under section 1282, Code of Civil Procedure, seeking to compel the defendant employer to arbitrate the question of vacation pay under a collective bargaining agreement. The trial court denied the petition on the basis that the agreement was without ambiguity as to vacation pay and therefore there was no arbitrable issue. The Supreme Court rejected the so-called 'Cutler-Hammer' doctrine that, if the meaning of the provision of the contract sought to be arbitrated is beyond dispute, there cannot be anything to arbitrate and the contract cannot be said to provide for arbitration. Instead the Supreme Court approved the federal rule, saying 'the federal rule to the effect that in such cases all disputes as to the meaning, interpretation and application of any clause of the collective bargaining agreement, even those that prima facie appear to be without merit, are the subject of arbitration, is adopted by this court.' (p. 184, 14 Cal.Rptr. p. 305, 363 P.2d p. 321.)
Applying the Posner rule to the instant case (even though we do not there have a collective bargaining agreement) the question as to the responsibility for the grading of the Brinks' lot may possibly have been an arbitrable issue. However, instead of proceeding by a petition under section 1282, Code of Civil Procedure, to compel arbitration of the issue (as was done in Posner v. Grunwald-Marx, Inc., supra, 56 Cal.2d 169, 14 Cal.Rptr. 297, 363 P.2d 313; in Weiman v. Superior Court, 51 Cal.2d 710, 336 P.2d 489; and in O'Malley v. Petroleum Maintenance Co., 48 Cal.2d 107, 308 P.2d 9), the Brinks attempted to proceed under the ex parte procedure before their solely appointed arbitrator.
When there is an ex parte provision in the contract and there is also a statute available to compel arbitration, the question is raised as to the effectiveness of an ex parte arbitration objected to by one of the parties on the ground that there is no arbitrable issue.
In Drake v. Stein, 116 Cal.App.2d 779, 254 P.2d 613, the order of the trial court confirming an arbitrator's award was reversed where one party had refused to appoint an arbitrator and the other party had failed to proceed under section 1282, Code of Civil Procedure. The arbitration provision in the contract involved was very similar to the one in the instant case. It provided for the use of three arbitrators but stated 'should either party refuse or neglect to appoint said arbitrator or to furnish the arbitrators with any papers or information demanded he or they are empowered by both parties to proceed ex parte.' Upon the refusal of appellants to appoint an arbitrator on the grounds that they had rescinded the entire contract, respondent proceeded to appoint an arbitrator and to obtain an award ex parte. The court held that such award should not be confirmed saying, at page 784, 254 P.2d at page 617: 'In any proceeding for the enforcement of a contract for an arbitration of a dispute arising under it, a claim that the contract is invalid or that it has been rescinded places the controversy on the conscience of the court which must then determine the equitable issues raised by the defendant. It is only after a finding has been made that under a written contract of arbitration a party is in default in the performance thereof, that the court will order the parties to the contract to proceed in accordance therewith. Repudiation by one of the parties does not enable the other to proceed without leave of the court. Pneucrete Corporation v. United States Fidelity & Guaranty Co., 7 Cal.App.2d 733, 741, 46 P.2d 1000. From the foregoing it is apparent that the court below invaded the rights of appellants by its approval of the arbiter's award before it had first determined under section 1282, supra, that a valid, enforceable contract did exist.' [Italics added.]
The usual understanding is that the parties expect a court determination of arbitrability unless they have clearly stated McCarroll v. Los Angeles County, etc., Carpenters,
In Bullard v. Morgan H. Grace Co., 240 N.Y. 388, 148 N.E. 559, after the matter was submitted to arbitration by agreement, a dispute arose as to the right of the arbitrators to arbitrate the question of the quality of merchandise. The respondent and one of three arbitrators withdrew before the proofs of the parties had been presented. The two remaining arbitrators then proceeded to make an award. The New York arbitration law provided that 'A party aggrieved by the failure, neglect, or refusal of another to perform, either under a contract or a submission providing for arbitration, may petition the Supreme Court for an order directing that the arbitration proceed.' (148 N.E. 559, 561.) The Court of Appeals upheld the order made by the lower court vacating the award. The court said (148 N.E. 559. 562): 'Arbitrators must observe their commission and keep within their jurisdiction. If a bona fide question arises as to the proper construction of the submission agreement, a party may raise the question by withdrawing from the arbitration. If the party aggreved then desires to go on with the arbitration, he must apply to the court, and the court will determine whether or not the withdrawing party was in default in refusing to proceed to arbitrate a question covered by the submission agreement. Such construction of the Arbitration Law prevents a party or the arbitrators from proceeding to arbitrate and decide questions which the other party never agreed to submit to arbitration. Arbitrations should be encouraged, but arbitration tribunals may not determine for themselves, over the objection of a party, to include within the scope of the arbitration questions which were never submitted to arbitration.'
The New York law is similar to the former § 1282, California Code of Civil Procedure (as revised, now § 1281.2.)
The rule that a party may not proceed with an ex parte arbitration without first resorting to a petition to the court for an order directing the arbitration is in accord with our California statutes for the following reasons:
(1) The contrary rule permitting an ex parte arbitration, even where the resisting party in good faith has raised questions concerning either the existence of a valid contract or whether an arbitrable issue has been presented, is extremely burdensome and unfair to such resisting party. It compels such party to go through the entire arbitration procedure, including the hearing and introduction of evidence, before there has been any judicial determination that a valid contract is in force or that an arbitrable controversy exists.
See Kentucky River Mills v. Jackson, 6 Cir., 206 F.2d 111, 47 A.L.R.2d 1331.
(2) The ex parte rule usually winds up in an award being made by an arbitrator appointed by one side only and before any judicial determination that there is an arbitrable issue and what such issue is. Such an award is not the result of true arbitration and does not carry with it all the presumptions and intendments of validity usually accorded a real arbitration award.
(3) The rule approved in Drake v. Stein, supra, 116 Cal.App.2d 779, 254 P.2d 613, is not in any way unfair to the party insisting upon arbitration because such party may petition the court under the somewhat summary procedure authorized by section 1282, Code of Civil Procedure (as revised, now section 1281.2) to obtain an order requiring arbitration.
We hold that in the instant case Allegro, in good faith, notified the Brinks of its desire to withdraw and, as the court found, did withdraw from the arbitration on the ground that no arbitrable issue was presented. At that point it was then incumbent upon the Brinks to start a new arbitration effort designating the issues to be arbitrated and, upon the refusal of Allegro to arbitrate, The orders appealed from are affirmed.
BURKE, P.J., and JEFFERSON, J., concur.