Case ID: ny_211/html/0342-01.html
Source: Caselaw Access Project
Author: {"author": "Hogan, J. Cardozo, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Harry W. Meacham, Appellant, v. Jamestown, Franklin and Clearfield Railroad Company, Respondent.
    Contract—arbitration — when provision of contract conferring upon a designated person power to decide all matters in dispute arising or growing out of the contract is invalid in this state — when judicial comity does not require that such provision be enforced in this state although valid in state where contract is made.
    1. A provision in a contract for construction of a railroad conferring upon the chief engineer of the railroad company power to decide “all matters in dispute arising or growing out of the contract,” and by which 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,” is.open to the objection that it is 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, and is invalid.
    2. An agreement that all differences arising under a contract shall be submitted to arbitration relates to the law of remedies. The law that governs remedies is the law of the forum, and although defendant is a corporation organized under the laws of Pennsylvania, and the contract was to be performed in that state, judicial comity does not require in this case that such provisions of the contract shall be enforced by our courts in accordance with the laws of another state in opposition to our settled policy. The jurisdiction of our courts is established by law, and is not to be diminished, any more than it is to be increased, by the convention of the parties.
    3. The engineer mentioned in the contract in question had reference to the engineer at the time that the several acts were to be performed by such officer, and the decease of the engineer who signed the contract did not prevent his successor from performing all of the obligations of the contract to be performed by him.
    
      Meacham v. Jamestown, F. & C. JR. JR. Co., 151 App. Div. 941, reversed.
    (Argued February 9, 1914;
    decided June 2, 1914.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered July 2, 1912, affirming a judgment in favor of defendant entered upon a decision of the court at a Trial Term by which two issues of law were determined, as to which issues the action was severed under the provisions of section 973 of the Code of Civil Procedure.
    This action Was brought by the plaintiff to recover of defendant the sum of $30,079.29, claimed to be due plaintiff as assignee for certain work performed, and materials furnished, by the Thomas McNally Company, a corporation organized under and by virtue of the laws of the state of Pennsylvania.
    The Franklin and Clearfield Railroad Company was a corporation organized under the laws of the state of Pennsylvania, and, together with other railroad corporations, was consolidated under the name of the present defendant, respondent, a corporation organized under the laws of Pennsylvania, which assumed all of the debts, liabilities and obligations of the Franklin and Clearfield Railroad Company, including the claim in suit.
    In August, 1905, the Franklin and Clearfield Railroad Company and the Thomas McNally Company made a contract in writing for the construction of a section of the Franklin and Clearfield Company’s road in the state of Pennsylvania, and thereafter, as alleged by the plaintiff, the Thomas McNally Company performed work and furnished materials under said contract.
    The contract in question was executed on behalf of the railroad company by its chief engineer, and on the part of the McNally Company by its president and general manager. It was conceded in the case that the contract was executed in the state of Ohio.
    The contract contained the following provisions:
    “ In order- to prevent all disputes and misunderstandings between them in relation to any of the stipulations contained in this agreement, or their performance by either of said parties, it is mutually understood and agreed that the said Chief Engineer shall be and hereby is made arbitrator to decide all matters in dispute arising or growing out of this contract between them, and the decision of said Chief Engineer on any point or matter touching this contract shall be final and conclusive between the parties hereto, and each and every of said parties hereby 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.”
    The trial justice before whom the issue was submitted determined as matter of law that submission to the arbitrator named in the contract, the chief engineer, and an award by him was and is a valid condition precedent to the plaintiff’s right to sue.
    The chief engineer of the railroad company at the time of the making of the contract subsequently died and another engineer assumed the duties of his office. The trial justice held as matter of law that the person who held the office of chief engineer at the time the submission should have been made was the proper person to whom such submission should have been made, and such submission 'to and award by him, or offer and tender of such submission on the part of the plaintiff, was and is a valid condition precedent to plaintiff’s right to sue and dismissed the plaintiff’s complaint.
    The judgment entered was unanimously affirmed by the Appellate Division and plaintiff appealed to this court.
    
      Arnold L. Davis and Oscar B. Frazer for appellant.
    A submission to the arbitrator named in the contract annexed to the complaint and award by him was not a condition precedent to the commencement of this action because this arbitration clause is void. (Anson on Cont. [4th ed.] 243; Edwards v. A. Ins. Society, L. R. [1 Q. B. D.] 596; Clarke on Cont. 432; Myers v. Jenkins, 63 Ohio St. 101; B. & O. R. R. Co. v. Stankard, 56 Ohio St. 224; Tilden v. Bernard, 12 C. C. N. S. [Ohio] 193; 
      D. & H. C. Co. v. Penn. Coal Co., 50 N. Y. 250; Holmes v. Richet, 56 Cal. 307; Nat. Cont. Co. v. H. R. W. P. Co., 34 Misc. Rep. 652; 67 App. Div. 620; Sanford v. Accident Assn., 147 N. Y. 326; Mitchell v. Dougherty, 90 Fed. Rep. 639; Mentz v. A. F. Ins. Co., 79 Penn. St. 480.) The construction of the arbitration clause in question is to be governed by the' law as interpreted by the courts in the state of New York. (Rousillon v. Rousillon, L. R. [14 Ch. Div.] 351; Dickenson v. Edwards, 77 N. Y. 573; Frazier v. Fredericks, 24 N. J. L. 162; Kanagar v. Taylor, 7 Ohio St. 134; Mumford v. Canty, 50 Ill. 370; Milliken v. Pratt, 125 Mass. 374.)
    
      Edward A. Foote, F. J. Jerome and Alexander S. Hyman for respondent.
    The law of the place of performance governs in the determination of all questions relating to matters connected with the performance of the contract and the right to insist upon performance of the stipulation requiring arbitration in this case will be determined by the law of the state of Pennsylvania, the place of performance. (Jewel v. Wright, 30 N. Y. 259; Wilson v. L. M. Co., 150 N. Y. 314; U. Nat. Bank v. Chapman, 169 N. Y. 538; Stumf v. Hallahan, 111 App. Div. 383.) The right to stipulate for an award by an arbitrator as to such matters as are involved in this controversy is upheld by the laws of the states of New York, Pennsylvania and Ohio, and a submission of such matters to the arbitrator named in the contract and an award by him is a condition precedent to the commencement of this action. (D. & H. C. Co. v. Penn. Coal Co., 50 N. Y. 250; Seward v. City of Rochester, 109 N. Y. 168; Sweet v. Morrison, 116 N. Y. 19; Nat. Cont. Co. v. H. R. W. P. Co., 170 N. Y. 439; 192 N. Y. 209; Wykoff v. Woarms, 118 App. Div. 699; Logan Council v. Boneherger, 66 Ohio St. 644; M. N. Co. v. Fenlon, 4 Y. W. & S. [Penn.] 205; Lanman v. Young, 31 Penn. St. 306; N. L. R. R. Co. v. McGrann, 33 Penn. St. 530; O'Reilly v. Kerns, 
      52 Penn. St. 214.) If the arbitration clause be enforced the arbitrator to whom submission should be made is the individual who held the office of chief engineer at the time the disputes between the parties arose. (N. L. R. R. Co. v. McGrann, 33 Penn. St. 530; Nuneberg v. Pittsburg, 210 Penn. St. 267.)
   Hogan, J.

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 contractIt further provides not only that the decision of the engineer as arbitrator shall be final and conclusive between the parties, hut 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; Bearing 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.

Cardozo, J.

(concurring). 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; Cough 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 tha 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 ia 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 Hew 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 con-' trary. (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.

Hiscook, Chase and Ouddebacic, JJ., concur; Willard Bartlett, Oh. J., dissents; Miller, J., not sitting.

Judgment reversed, etc.