Opinion ID: 2612656
Heading Depth: 1
Heading Rank: 2

Heading: A Meeting of the Minds

Text: In district court Cudahy pursued her claim against Smith based upon the written contract with him to supervise the construction of her home. Following a district court evidentiary hearing [4] she found herself out of court and thrown into arbitration, the court below concluding that she was bound to separately arbitrate her claim against Smith, although both parties could nonetheless utilize the discovery process of the district court in preparing for their arbitration hearing. In urging that Cudahy's claim should not be taken out of the court system, her attorney made explicit his contention that there had not been any meeting of the minds regarding the arbitration provision found in the agreement, and that the governing rules, not being attached to the contract or available to his client at the time the contract was signed should not be binding: MR. ROLZITTO: I understand that position. But I am just stating that this arbitration provision essentially does have serious impact upon the rights of the owner. And the contract law is pretty clear even in Idaho that the person entering into an agreement has to have an understanding what that agreement is. And in fact the arbitration provision in the contract provides for arbitration pursuant to the construction industry arbitration rules of the American Arbitration Association. It's our position these Rules were never indicated to the owner what these Rules are. In fact when I tried to get a copy of them from the State Law Library, they didn't have a copy of them. They got one from the Arbitration Association. There is no knowledge of what the arbitration procedures or rules were. Essentially for that reason we feel that the arbitration provision in the contract is too vague to enforce. A few minutes later the trial court explained to counsel his view of the issue before him: THE COURT: Well, the question before me is, and under the statutes is, whether or not an agreement to arbitrate has been entered into between these parties. The statute is quite clear. It says on application of a party showing an agreement and the opposing party refusal to arbitrate, the Court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the Court shall proceed summarily to the determination of the issues so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied. The statute says that's my function is to determine whether there is an agreement to arbitrate. ... . THE COURT: Well, and I think again that comes if he didn't comply with the agreement, that maybe comes into a matter if I order arbitration for the arbitrators to consider. But you are saying again that your position is that there isn't a contract, an agreement to arbitrate. Now, I will hear evidence on that point of whether there is an agreement to arbitrate. After Cudahy's testimony was concluded, the trial court announced his ruling from the bench: THE COURT: Well, let the record show, Madam Clerk and Mr. Reporter, that I am going to order arbitration in this matter. Idaho Code 7-902 seems to me to make that an almost a mandatory obligation on my part. I am finding that there is an agreement to arbitrate, that this matter comes under the Uniform Arbitration Act of the State of Idaho. I believe under that Act that if the arbitrators do not act in a proper manner or there are some other matters that Miss Cudahy desires to bring to the Court, she has the right to do it as I understand the Uniform Arbitration Act. It seems to me that the matters to which she has testified are matters of whether or not the contract was performed and have nothing basically to do at this point with whether or not the agreement is void. Now, with respect to pre-trial discovery, I am concerned about that as Mr. Rolzitto points up, there are some problems in connection with that. And he advises me that there is some pre-trial discovery to be done yet. Now, it would seem to me I can take one of two actions. I can order in the arbitration that pre-trial discovery be permitted because this action is not  certainly not dismissed, it's only stayed until the arbitrators move. Or I can stay the arbitration until such time as the pre-trial discovery is completed. But I choose to order the arbitration, but, in the order direct that the pre-trial discovery is not stayed. The order compelling arbitration was patterned as directed by the trial court and was entered on December 13, 1977. The court did not make any findings of fact or conclusions of law on the issue which it had tried, but made an order that it found the existence of a valid agreement to arbitrate in the form of Article 8 of the Standard A.I.A. Owner-Architect Agreement dated February 2, 1976. Said article 8 provides in full as follows: All claims, disputes and other matters in question between the parties to this Agreement, arising out of, or relating to this Agreement or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. No arbitration, arising out of, or relating to this Agreement shall include, by consolidation, joinder or in any other manner, any additional party not a party to this Agreement except by written consent containing a specific reference to this Agreement and signed by all the parties hereto. Any consent to arbitration involving an additional party or parties shall not constitute consent to arbitration of any dispute not described therein or with any party not named or described therein. This Agreement to arbitrate and any agreement to arbitrate with an additional party or parties duly consented to by the parties hereto shall be specifically enforceable under the prevailing arbitration law. In no event shall the demand for arbitration be made after the date when such dispute would be barred by the applicable statute of limitations. The award rendered by the arbitrators shall be final. The trial court failed to discuss the contention that the Construction Industry Arbitration Rules of the AAA mentioned in article 8 were not attached to the Cudahy-Smith agreement, or that Cudahy (and likely Smith as well) had never seen them, and for certain had not discussed them. [5] That Cudahy can be obligated by the arbitration clause which attempted to incorporate by reference rules promulgated by the AAA without ever having seen those rules or having had them made available to her is a questionable proposition in itself. The practice of incorporation of a document by reference to it in another document has encountered sporadic appellate review in Idaho. See Hoffman v. S.V. Co., 102 Idaho 187, 628 P.2d 218 (1981); Blumauer-Frank Drug Co. v. Young, 30 Idaho 501, 167 P. 21 (1917). That doctrine generally allows the supplementation of one document by another in order to provide essential terms necessary for a valid contract. The case at bar, however, presents an atypical situation involving the incorporation of a document unnecessary for the determination of an otherwise valid contract. The reference to arbitration proceedings in article 8 of the A.I.A. standard form contract between Cudahy and Smith was obviously designed as an architect's unilateral form  in which respect it is much like the ancient and now nearly totally discarded provision for obtaining a confessed judgment on a promissory note based upon the acquiescing statement of a person appointed solely for that purpose. If it is upheld, the clause would bind both parties to submit any dispute to the American Arbitration Association for resolution in accord with its construction industry rules. But the clause introduces extraneous terms unknown and unavailable to Cudahy, and more than likely to Smith as well. The validity of such a provision, also akin to an agreement that venue shall be in Florida, and applicable law shall be that of Massachusetts, is at least doubtful. A recent California case involved substantially similar issues. In a dispute between two realtors regarding a real estate commission the parties apparently had agreed to abide by the by-laws of a local board of realtors. The by-laws, unattached, incorporated a provision imposing a duty to arbitrate. The court stated that [a] secondary document becomes part of a contract as though recited verbatim when it is incorporated into the contract by reference provided that the terms of the incorporated document are readily available to the other party.  King v. Larsen Realty, Inc., 121 Cal. App.3d 349, 358, 175 Cal. Rptr. 226, 231 (Ct.App. 1981) (emphasis added); e.g., Williams Construction Co. v. Standard-Pacific Corp., 254 Cal. App.2d 442, 61 Cal. Rptr. 912, (Ct.App. 1967); 17A C.J.S. Contracts § 299 (1963). In Scotts Valley Fruit Exchange v. Growers Refrigeration Co., 81 Cal. App.2d 437, 184 P.2d 183, 189 (1947) (overruled on other grounds by Hischemoeller v. National Ice & Cold Storage Co., 46 Cal.2d 318, 294 P.2d 433, 439 (1956)), the California Court of Appeals clarified the prerequisites for incorporation by reference of an extraneous document: For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.  The California decisions are sound. The incorporated document must be known or easily available to the parties. In this case it was not. Cudahy's testimony at the December 2, 1977 evidentiary hearing establishes that she had no knowledge of the construction industry arbitration rules nor had Smith or anyone else attempted to explain them to her, or provide her with a copy. Furthermore, the unconflicting record demonstrates that the vast state law library did not possess a copy of the rules until Cudahy's counsel requested them sometime subsequent to the beginning of this litigation. It is a travesty to obligate Cudahy to arbitrate in accordance with certain procedures of which she had no knowledge. Architects who foist upon their clients arbitration rules of the American Arbitration Association through an American Institute of Architects Standard Form Agreement should be, at the least, required to attach those rules to the contract.