Argued January 11, 1960
Decided March 31, 1960
Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, D. ORMONDE RITCHIE, J.
Norman Roth and Max E. Greenberg for appellant. Howard A. Rochford, C. Ellis Schiffmacher and Eugene T. Cullen for respondent.
David H. Moses for Ramapo Central School District No. 2, Clarkstown Central School District No. 1, and Union Free School District No. 8, Town of Clarkstown and Orangetown, amici curiae.
On January 3, 1956, the respondent Board of Education entered into a contract with Heckler Electric Company for the electrical work in the Junior and Senior High Schools which were to be constructed at Great Neck, New York. This contract was made "pursuant to the provisions of the Education Law" and subject to annexed "General Conditions". These "General Conditions" provide that "the Architect shall, within a reasonable time, make decisions on all claims of the Owner or Contractor and on all other matters relating to the execution and progress of the work or the interpretation of the Contract Documents" and that arbitration may be had either upon the architect's decision or upon his failure to make a decision within 10 days after the parties have presented their evidence. Notice of the demand for arbitration must be made within 10 days after receipt of the architect's decision, or, if the architect fails to make a decision, within a reasonable time after the dispute has arisen.
According to its contract, Heckler was required to perform its work "as construction progresses and not later than — in accordance with the progress of the General Contractor". And under the general construction contract, reference to which is made in Heckler's contract, July 31, 1957 was established as the completion date. Furthermore, Heckler's contract, as well as those of all the other contractors, requires that the contractor for general construction and all other contractors and subcontractors "coordinate their work with adjacent work and coordinate with other trades so as to facilitate general progress of work"; it also provides that, "in event of any dispute arising as to possible or alleged interference among various Contractors which may retard progress of work, same shall be adjusted by Architects whose decision as to parties at fault and as to manner in which matter may be adjusted shall be binding and conclusive on all parties". The final relevant contractual provision binding on all of the contractors is that under which the Board of Education is empowered to compel progress toward timely completion through the exercise of a termination clause against any contractor who fails "to prosecute the work or any part thereof with [sufficient] * * * diligence" or otherwise substantially violates any of its contractual obligations.
In April of 1957, Heckler wrote a letter to the board in which it complained that the work of the general contractors was "slow, sporadic and lax" and had been "permitted [by the Board of Education] to lag" and requested an extension of time under their contract. In July of 1958, and again in August of 1958, Heckler wrote letters, this time addressed to the Board of Education as well as to the contract architects, claiming that it had "been substantially delayed in the performance and completion" of its work as a result of "the failure of [the board] to coordinate the work of the several contractors and by acts of the other contractors"; it estimated its damages as a result of this delay as $312,477.28 and made a claim against the board in that amount invoking the contractual provision for a determination of its claim by the architects.
No decision having been made by the architects, Heckler, in early September, 1958, made a demand for arbitration in which it advanced two claims: (1) $312,477.28 as damages sustained by reason of "delays of and interferences in the performance of work * * * by reason of acts of the Board of Education, the failure of the Board of Education to coordinate the work of the several contractors performing work at the site of the project involved and the acts of the other contractors" and (2) $11,979.67 for extra work. About two weeks later, the board moved for a stay of arbitration, alleging that, first, there had not been compliance with the notice provisions of section 3813 of the Education Law; second, the primary claim set forth in the demand for arbitration is not arbitrable under the contract between the board and Heckler; and, third, the primary claim in the demand for arbitration is "so indefinite, uncertain and vague as to make it an improper submission for arbitration". The court at Special Term denied the requested stay, but the Appellate Division, two justices dissenting, reversed and granted it, assigning as the primary ground for reversal Heckler's failure to comply with section 3813.
Section 3813 of the Education Law, insofar as relevant, reads as follows:
"1. No action or special proceeding, for any cause whatever, except as hereinafter provided, relating to district property or claim against the district, or involving its rights or interests shall be prosecuted or maintained against any school district, board of education, or any officer of a school district or board of education, unless it shall appear by and as an allegation in the complaint or necessary moving papers that a written verified claim upon which such action or special proceeding is founded was presented to the governing body of said district within three months after the accrual of such claim, and that the officer or body having the power to adjust or pay said claim has neglected or refused to make an adjustment or payment thereof for thirty days after such presentment."
Before considering whether section 3813 is applicable to arbitration proceedings and, if it is, whether it bars Heckler's right to arbitration in this case, we must determine whether the applicability of the section is to be decided by the court or by the arbitrators. In our opinion, it is clearly the kind of issue for the court to pass upon, involving as it does a condition precedent to Heckler's very right to arbitration and the arbitrator's very jurisdiction.
Although, on occasion, this court has used very broad language to the effect that "the only issues a court may deal with on * * * [an application for a stay of arbitration] are as to `the making of the contract or submission or the failure to comply therewith'" ( Matter of Paloma Frocks [ Shamokin Sportswear Corp.], 3 N.Y.2d 572, 574; see, also, Matter of Lipman [ Haeuser Shellac Co.], 289 N.Y. 76, 80), we did not mean thereby to suggest that the arbitrator possesses the power to decide whether the conditions precedent to the institution of the arbitration proceeding itself had been fulfilled. In fact, in Matter of Lipman ( Haeuser Shellac Co.) ( 289 N.Y. 76, supra), where the matter of the cancellation of a contract of arbitration was held to be an issue for the arbitrators rather than the court, we expressly noted that "a different question would be here * * * if there were any conditions precedent" (p. 79). And in Matter of Cauldwell-Wingate Co. ( New York City Housing Auth.) ( 287 N.Y. 853), in which an application to compel arbitration was denied on the ground that the petitioner had failed to demand arbitration within the time prescribed by the contract, it was this court's view that the contract itself made compliance with its "time" provisions a condition precedent to arbitration, with the consequence that failure to act within the specified time deprived the petitioner of its right to arbitration. (See, also, Matter of Levine Bros. Iron Works Corp. [ Constitution Sq.], 279 App. Div. 912, motion for leave to appeal denied 304 N.Y. 986; Matter of Ketchum Co. [ Allied Trades Council], 20 Misc.2d 736; Matter of Shine's Restaurant [ Waiters Waitresses Union], 20 Misc.2d 737; Matter of Mark Cross Co. [ Ellis], 15 Misc.2d 947, 949-950; Boston Mut. Life Ins. Co. v. Insurance Agents' Int. Union, 258 F.2d 516, 522.)
Section 3813 of the Education Law provides, in effect, that no action or special proceeding may be maintained against a school district or board of education "unless it shall appear * * * that a written verified claim upon which such action or special proceeding is founded was presented" to the district's governing body "within three months after the accrual of such claim". This unquestionably constitutes the making of a claim to the school district within three months after its accrual a condition precedent to an action or special proceeding. Accordingly, if section 3813 applies to arbitration proceedings, it establishes a condition precedent to arbitration and, therefore, whether or no the condition was satisfied is for the court, not the arbitrators.
As we have already noted, section 3813 explicitly and broadly refers to any "action or special proceeding", and section 1459 of the Civil Practice Act in so many words provides that "Arbitration of a controversy under a contract * * * shall be deemed a special proceeding". The enactment of section 1459 was motivated by the desire to overcome the effect of Matter of Interocean Mercantile Corp. ( Hoops) ( 204 App. Div. 284, 286, affd. 236 N.Y. 587) — holding that arbitration was not a special proceeding under section 308 of the Civil Practice Act which sanctioned the taking of testimony by deposition "in a special proceeding" (see Matter of Hosiery Mfrs. Corp. v. Goldston, 238 N.Y. 22, 26; Matter of Interocean Mercantile Corp. [ Buell], 207 App. Div. 164, 165) — but that does not mean that the Legislature denominated arbitration a "special proceeding" solely for the purpose of sanctioning the taking of depositions under section 308. In the light of the language adopted by the Legislature, broad and unlimited as it is, there is no warrant for saying that the salutary purpose of section 3813 of the Education Law — to give a school district prompt notice of claims "so that investigation may be made before it is too late for investigation to be efficient" ( Winbush v. City of Mt. Vernon, 306 N.Y. 327, 333) — applies any less to arbitration of claims asserted against a school district than to actions brought against it.
Nor does any provision of the particular contract before us indicate that section 3813 was not intended to be applicable to the present case.
Under the statute, the contractor must present his claim to the Board of Education within three months after its accrual, and the board is given 30 days in which to arrive at a decision. Under the contract, if the decision of the board is adverse to the contractor, he may submit the dispute to the architect (art. 39). And, if he is dissatisfied with the architect's decision, he is privileged to seek arbitration, but "the demand therefor shall be made within ten days" of the receipt of the decision (art. 40). As is manifest, neither the provision of the contract for the architect's decision of disputes nor the provision for an "appeal" therefrom to arbitration comes into effect until the contractor first presents his basic claim to the board pursuant to section 3813. This being so, Heckler is mistaken in urging that it is impossible to comply with the contractual requirement that arbitration be demanded within 10 days after the architect's decision as well as with the statutory demand that the board have 30 days in which to consider any claim. The 30-day period afforded the board for consideration of the claim occurs before the matter is presented to the architect for decision, while the 10-day period within which arbitration must be demanded begins to run only after the architect's decision. Thus, the supposed conflict between the provisions of the statute and the provisions of the contract simply does not exist.
Since, therefore, section 3813 applies to the present arbitration proceeding, and since Heckler has concededly failed to comply with its provisions, the stay of arbitration granted to the Board of Education by the Appellate Division was proper.
The order of the Appellate Division should be affirmed, with costs.
We agree with the views expressed in the dissenting opinions below. Appellant Heckler's claim is clearly an arbitrable one under article 11 of the contract, which expressly provides for arbitration of "any disagreement [which] shall arise between the parties hereto" ( De Lillo Constr. Co. v. Lizza Sons, 7 N.Y.2d 102; Matter of Lipman [ Haeuser Shellac Co.], 289 N.Y. 76). Article 11 embraced disputes with regard to delays attributable to "the failure of the Board of Education to coordinate the work of the several contractors performing work at the site of the project involved", and claims for damages resulting therefrom.
As to the principal ground upon which the majority of the Appellate Division reversed Special Term, namely, the failure of appellant to comply with section 3813 of the Education Law, we are of the opinion that this is a matter to be determined by the arbitrators. As Judge FULD wrote for a unanimous court in Matter of Terminal Auxiliar Maritima ( Winkler Credit Corp.) ( 6 N.Y.2d 294, 298), "It is settled that under a broad provision for arbitration, such as we have here, arbitration may be had as to all issues arising subsequent to the making of the contract. [Citing cases]". In Matter of Paloma Frocks ( Shamokin Sportswear Corp.) ( 3 N.Y.2d 572, 574), we expressly held that the "only issues a court may deal with on such a stay application are as to `the making of the contract or submission or the failure to comply therewith' (Civ. Prac. Act, § 1458; Matter of Kramer Uchitelle, Inc., 288 N.Y. 467, 472; Matter of Western Union Co. [ American Communications Assn.], 299 N.Y. 177) and `all acts of the parties subsequent to the making of the contract which raise issues of fact or law, lie exclusively within the jurisdiction of the arbitrators' ( Matter of Lipman [ Haeuser Shellac Co.], 289 N.Y. 76, 80)." And in Matter of Lipman ( Haeuser Shellac Co.) ( supra) we added (p. 79): "A different question would be here if the issue was whether the contract never came into existence and hence was void, or if, although the contract was made, there arose an issue of fraud, duress or other impediment which rendered the contract voidable, or if there were any conditions precedent." The language just quoted clearly indicates that the words "if there were any conditions precedent", in association with the language preceding, relate to the inception of the contract — not to an act or omission occurring after a valid contract came into existence.
Thus, in Matter of Uraga Dock Co. ( Mediterranean Oriental S.S. Corp.) ( 6 A.D.2d 443, affd. 6 N.Y.2d 773), where written contracts for the construction and purchase of tankers provided they were not to "become effective" until the buyer made timely payment of the first installment, we held that an issue as to the timeliness of the first payment was for the appropriate arbitration tribunal, not for the courts, to decide, since timely payment of the first installment was a condition precedent, not to the formation of valid and binding contracts, but to the duty of subsequent performance by the builder, i.e., its obligation to commence construction of the vessels. Here, section 3813 of the Education Law is at most a provision relating to the presenting of a claim under an admittedly valid contract, and hence the issue as to the applicability of section 3813 is for the arbitrators, not the courts, to decide.
In Matter of Cauldwell-Wingate Co. ( New York City Housing Auth.) ( 262 App. Div. 829), where the contract expressly provided that the timely filing of a notice of claim, as well as other notices, were conditions precedent to the right of arbitration, it was held that the issue of timely compliance was for the courts, not for the arbitrators, to decide. We denied leave to appeal ( 287 N.Y. 853). That case was not followed in Matter of Tugee Laces ( Mary Muffet, Inc.) ( 273 App. Div. 756, affd. 297 N.Y. 914); Matter of Hatzel Buehler ( Fuller Co.) ( 278 App. Div. 647, affd. 303 N.Y. 836), or Matter of Levine Bros. Iron Works Corp. ( Constitution Sq.) ( 279 App. Div. 912, motion for leave to appeal denied 304 N.Y. 986), all of which cases held that the question of the timeliness of the demand for arbitration was for the arbitrators, not the courts, to decide. Given a broad arbitration clause such as we have here, the modern rule, as heretofore indicated, is that all issues of fact or law arising subsequent to the making of the contract are for the appropriate arbitration tribunal, not for the courts, to decide.
We see no distinction whatever between the case at bar and cases such as Lipman ( supra); Paloma ( supra); Matter of Terminal Auxiliar ( supra), and Uraga Dock Co. ( supra) relating to the cancellation or termination of a contract, or conditions precedent to performance. All relate to matters — whether of omission or commission — arising "subsequent to the making of the contract", and, whether "issues of fact or law", they "lie exclusively within the jurisdiction of the arbitrators".
Moreover, we do not think that section 3813 of the Education Law was intended to apply to arbitration proceedings. That statute provides that "No action or special proceeding * * * shall be prosecuted or maintained against any school district * * * unless it shall appear by and as an allegation in the complaint or necessary moving papers that a written verified claim upon which such action or special proceeding is founded was presented" (emphasis supplied). It is clear from the italicized words that this section has no reference to an arbitration proceeding but refers to the conventional action or special proceeding.
Section 11-a of the General Construction Law provides: "`Action' when applied to judicial proceedings, signifies an ordinary prosecution in a court of justice, by a party against another party, for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense. Actions are of two kinds: civil and criminal." (Emphasis supplied.) (See, also, Civ. Prac. Act, § 4.) Section 46-a of the General Construction Law provides: "Every prosecution by a party against another party in a court of justice which is not an action is a special proceeding." (Emphasis supplied.) (See, also, Civ. Prac. Act, § 5.) An arbitration proceeding is not had "in a court of justice"; it is not founded on a complaint or moving papers as those words are generally understood. The very purpose of arbitration is to avoid the courts insofar as resolution of the controversy is concerned.
It is true that section 1459 of the Civil Practice Act provides that arbitration "shall be deemed a special proceeding, of which the court * * * shall have jurisdiction", but, as we said in Matter of Hosiery Mfrs. Corp. v. Goldston ( 238 N.Y. 22, 26), "The new section merely makes the arbitration a special proceeding to meet our decision to the contrary. ( 204 A D 284; affd., 236 N.Y. 587.)" The last-cited case had held that arbitration was not a special proceeding so as to permit the grant of an order under section 308 of the Civil Practice Act to examine a party outside the State, which is itself a court proceeding.
Respondent's contention that section 3813 is applicable here leads to an absurd result. Appellant gave respondent timely notice of the delays in April, 1957. In July and August, 1958 it wrote both respondent and the architects of its claims by reason of such delays, amounting to the sum of upwards of $300,000, and requested a hearing before and ruling by the architects. The latter having failed to comply, demand for arbitration followed. Assuming a prompt adverse decision by the architects, article 40 of the contract requires that "if the arbitration is an appeal from the Architect's decision, the demand therefor shall be made within ten days of its receipt". It follows that it would be impossible under such circumstances for appellant to serve a notice of claim under section 3813 thirty days before serving a demand for arbitration, when the demand for arbitration had to be served ten days after the architects' decision.
To overcome this impossible result, respondent maintains that section 3813 requires that a written verified claim must be served even before presentation of the dispute to the architects, but we simply cannot find any language in the statute that even remotely suggests this requirement. Indeed, such a result would require that the statute be rewritten. Under the contract, appellant is first required to exhaust its remedy before the architects, and until then it has no claim against respondent. If the majority were correct, and the architects in their decision adjusted and modified the claim in various respects, how could a new modified claim be filed 30 days before demand for arbitration when the demand must be served within 10 days after the architects' decision? As Judge CARDOZO pointed out in Outlet Embroidery Co. v. Derwent Mills ( 254 N.Y. 179, 183), "If literalness is sheer absurdity, we are to seek some other meaning whereby reason will be instilled and absurdity avoided".
The order of the Appellate Division should be reversed and the order of Special Term reinstated, with costs.
Chief Judge DESMOND and Judges BURKE and FOSTER concur with Judge FULD; Judge FROESSEL dissents in an opinion in which Judge DYE concurs; Judge VAN VOORHIS dissents and votes to reverse and to reinstate the order of Special Term upon the ground that section 3813 of the Education Law does not apply to this situation.