Opinion ID: 1650561
Heading Depth: 1
Heading Rank: 3

Heading: Complaining Party Must Properly Avoid the Contract.

Text: In order to stay arbitration proceedings on the grounds of fraud in the inducement of the contract, we hold that the party seeking such relief must properly proceed to avoid the agreement; that is, he must seek rescission but not damages, and he cannot rescind in part and affirm in part. His rescission of the contract must be in toto. 3. Defendant contends that plaintiffs have not sufficiently pleaded a cause of action of fraud. Rule 9.02, Rules of Civil Procedure, requires: In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally. Defendant argues that plaintiffs have failed to allege actual knowledge of the facts concealed and the duty to disclose the facts or deliberate concealment thereof. Upon an examination of plaintiffs' complaint, particularly paragraphs V to IX, the following elements of fraud are pleaded: (1) False representations; (2) made with the intent to deceive; (3) plaintiffs took action or refrained from taking action in reliance on these misstatements; (4) resulting in damages; (5) which are proximately caused by the misstatements. We hold that the complaint adequately pleads a cause of action in fraud. See, Royal Realty Co. v. Levin, 244 Minn. 288, 69 N.W.2d 667 (1955). 4. Concerning the issue of severability of the various provisions of the agreement, particularly the clause providing for arbitration, if that were the sole or crucial issue, defendant would prevail in this appeal. In reviewing the record, and in keeping with our previous decisions, we find that the arbitration clause is severable. The language of the clause providing for severability is clear, and the parties' intent to make the arbitration clause, and all other clauses, severable is equally clear. The intent of the parties is controlling. See, Henry Simons Lbr. Co. v. Simons, 232 Minn. 187, 44 N.W.2d 726 (1950); Mulcahy v. Dieudonne, 103 Minn. 352, 115 N.W. 636 (1908); E. Edelman & Co. v. Queen Stove Works, Inc. 205 Minn. 7, 284 N.W. 838 (1939). However, since we hold that fraud in the inducement goes to vitiate the entire contract for the reasons herein given, it is immaterial for the purpose of this appeal whether the arbitration clause is determined to be severable or inseverable. In passing, we do not intend to depart from our previous decisions relative to encouraging or discouraging arbitration, nor do we intend to revive or encourage the historical-common-law animosity toward arbitration in general. We adhere to the holding of Layne-Minnesota Co. v. Regents of the University, supra. However, in resolving issues of fraud in the inducement of an agreement containing a clause to arbitrate, whether the clause is severable or inseverable, we conclude that the better approach is as outlined herein. We recognize that by asserting fraud in the inducement parties might attempt to litigate what amounts to a breach of part or parts of the agreement which might more properly be the subject of arbitration. We are confident that when those occasions arise the trial courts will be cognizant of abortive attempts to negate arbitration and will speedily and summarily refer such matters to arbitration. Equally important are the words of the pertinent statute, Minn.St. 572.08, which expressly exempts from arbitration those issues where the grounds are the same as exist in law or equity for the revocation of any contract. When the making of the agreement itself is put in issue, as is the result of a claim of fraud in the inducement, that issue is more properly determined by those trained in the law. Issues involving a breach or violation of the agreement, which are primarily issues of fact, can be more properly left to the expertise of those trained in the respective fields of arbitration. There is ample encouragement for both approaches within the terminology of the statute. Affirmed. TODD, J., not having been a member of this court at the time of the argument and submission, took no part in the consideration or decision of this case.