Argued February 9, 1914
Decided June 2, 1914
Arnold L. Davis and Oscar B. Frazer for appellant. Edward A. Foote, F.J. Jerome and Alexander S. Lyman for respondent.
The trial justice held that the contract in question was to be wholly performed in the state of Pennsylvania, and the law of that state holding the contract valid and enforceable governed its operation and effect, consequently the plaintiff could not succeed in this action for the reason that submission to arbitration was a valid condition precedent which had not been complied with.
The clause of the contract, quoted in the statement of facts, confers upon the engineer, the arbitrator, power to determine the effect of any stipulation of the contract and whether or not there has been a performance of the same by either party, and to decide " all matters in dispute arising or growing out of the contract." It further provides not only that the decision of the engineer as arbitrator shall be final and conclusive between the parties, but each party " waives all right of action, suit or suits or other remedy in law or otherwise under this contract or arising out of the same to enforce any claim except as the same shall have been determined by said arbitrator."
Numerous cases involving contracts containing clauses relating to arbitration have been before this court for consideration. In Prest., etc., Delaware Hudson Canal Co. v. Pennsylvania Coal Company ( 50 N.Y. 250) the question was fully considered, and a distinction made between the provisions of a contract providing that before a right of action shall accrue certain facts shall be determined, or amounts or values ascertained, and an independent covenant or agreement to provide for the adjustment and settlement of all disputes and differences by arbitration to the exclusion of the courts. In subsequent decisions the distinction thus pointed out had been recognized and approved. ( Seward v. City of Rochester, 109 N.Y. 164; Sweet v. Morrison, 116 N.Y. 19; National Contracting Co. v. H.R.W.P. Co., 170 N.Y. 439; id. 192 N.Y. 209.)
In Guaranty Trust S.D. Co. v. Green Cove S. M.R.R. Co. ( 139 U.S. 137-142), an action brought to foreclose a mortgage which provided therein that the mode of sale set forth "shall be exclusive of all others," the court held that such clause was invalid, as tending to oust the jurisdiction of the courts. In Sanford v. Accident Association ( 147 N.Y. 326) the action was brought to recover on a certificate of insurance which contained the following clause:
"It is hereby stipulated and agreed, by and between this association and the member named herein and his beneficiary, that the issues in any action brought against it under this certificate shall, on the demand of this association or its attorney, be referred for trial to a referee to be appointed by the court in which such action is brought."
An order of reference made against the objection of plaintiff was reversed by the General Term, and the latter order was affirmed by this court, which held that the clause of the contract above quoted was contrary to public policy and not binding on the parties thereto.
Tested by the principles of the cases cited, we conclude that the language employed in the contract in question is susceptible of but one construction, namely, an attempt on the part of the parties to the same to enter into an independent covenant or agreement to provide for an adjustment of all questions of difference arising between the parties by arbitration to the exclusion of jurisdiction by the courts.
Notwithstanding the decisions of the courts of Pennsylvania that the contract as to arbitration was valid and enforceable in that state, judicial comity does not require us to hold that such provision of a contract which is contrary to a declared policy of our courts ( White v. Howard, 46 N.Y. 144; Despard v. Churchill, 53 N.Y. 192; Faulkner v. Hart, 82 N.Y. 413; St. Nicholas Bank v. State Nat. Bank, 128 N.Y. 26; Marshall v. Sherman, 148 N.Y. 9; Dearing v. McKinnon D. H. Co., 165 N.Y. 78; Hutchinson v. Ward, 192 N.Y. 375) shall be enforced as between non-residents of our jurisdiction in cases where the contract is executed and to be performed without this state, and denied enforcement when made and performed within our state.
As a new trial must be ordered in this case, we conclude that the engineer mentioned in the contract in controversy between the parties had reference to the engineer at the time that the several acts were to be performed by such officer, and that the decease of the first engineer did not prevent his successor from performing all of the obligations of the contract to be performed by him.
The judgment should be reversed and a new trial ordered, costs to abide the event.
An agreement that all differences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the law that governs remedies is the law of the forum. In applying this rule, regard must be had not so much to the form of the agreement as to its substance. If an agreement that a foreign court shall have exclusive jurisdiction is to be condemned ( Benson v. Eastern B. L. Assn., 174 N.Y. 83; Nute v. H.M. Ins. Co., 6 Gray, 174, 180; Slocum v. Western Assur. Co., 42 Fed. Rep. 235; Gough v. Hamburg Am. Co., 158 Fed. Rep. 174), it is not saved by a declaration that resort to the foreign court shall be deemed a condition precedent to the accrual of a cause of action. A rule would not long survive if it were subject to be avoided by so facile a device. Such a contract, whatever form it may assume, affects in its operation the remedy alone. When resort is had to the foreign tribunal for the purpose of determining whether certain things do or do not constitute a breach, the cause of action must in the nature of things be complete before jurisdiction is invoked, and cannot be postponed by the declaration that it shall not be deemed to have matured until after judgment has been rendered. This must be so whether the tribunal is a court or a board of arbitrators. Indeed, the considerations adverse to the validity of the contract are more potent in the latter circumstances, for in the one case we yield to regular and duly organized agencies of the state and in the other to informal and in a sense irregular tribunals. ( Mittenthal v. Mascagni, 183 Mass. 19, 23.) In each case, however, the fundamental purpose of the contract is the same: to submit the rights and wrongs of litigants to the arbitrament of foreign judges to the exclusion of our own. Whether such a contract is always invalid where the tribunal is a foreign court, we do not need to determine. There may conceivably be exceptional circumstances where resort to the courts of another state is so obviously convenient and reasonable as to justify our own courts in yielding to the agreement of the parties and declining jurisdiction. ( Mittenthal v. Mascagni, supra.) If any exceptions to the general rule are to be admitted, we ought not to extend them to a contract where the exclusive jurisdiction has been bestowed, not on the regular courts of another sovereignty, but on private arbitrators. Whether the attempt to bring about this result takes the form of a condition precedent or a covenant, it is equally ineffective.
A very similar question was involved in Benson v. Eastern Bldg. L. Assn. ( 174 N.Y. 83, 86). It was there argued that a provision requiring a trial in a certain county was intended, not as a limitation of the remedy, but as a condition precedent to a cause of action. CULLEN, J., writing for this court, disposed of the point in a few words:
"We think this argument proves too much. It is difficult to see why it would not uphold an agreement that all claims against the parties should be determined by arbitrators and not by the courts. It might be said with as much force in such a case as in the one now before us that the cause of action could, under the agreement, accrue only on the decision of the arbitrators. Yet nothing is better settled than that agreements of the character mentioned are void. ( Greason v. Keteltas, 17 N.Y. 491; Prest., etc., D. H. Canal Co. v. Pennsylvania Coal Co., 50 N.Y. 250.) We think the doctrine of the Nute Case (6 Gray, 174) is the true one, that the stipulation affects the remedy, not the cause of action."
Building contracts are made in New York to be performed all over the United States. If the judgment of the court below is to stand, jurisdiction over controversies arising under such contracts may be withdrawn from our courts and the litigation remitted to arbitrators in distant states. The presence of the parties here, the ownership of property in this jurisdiction, these and other circumstances may make resort to our courts essential to the attainment of justice. If jurisdiction is to be ousted by contract, we must submit to the failure of justice that may result from these and like causes. It is true that some judges have expressed the belief that parties ought to be free to contract about such matters as they please. In this state the law has long been settled to the contrary. ( Sanford v. Commercial Travelers' Mut. Acc. Assn., 86 Hun, 380; 147 N.Y. 326; Nat. Contracting Co. v. Hudson R.W.P. Co., 192 N.Y. 209. See also; Miles v. Schmidt, 168 Mass. 339; Fisher v. Merchants' Ins. Co., 95 Me. 486.) The jurisdiction of our courts is established by law, and it is not to be diminished, any more than it is to be increased, by the convention of the parties.
I concur with Judge HOGAN and vote for reversal.
HISCOCK, CHASE and CUDDEBACK, JJ., concur; WILLARD BARTLETT, Ch. J., dissents; MILLER, J., not sitting.
Judgment reversed, etc.