Beacon Construction Co. of Mass. v. Prepakt Concrete Co., 6815

• Decision Date: 12 April 1967
• Docket Number: 6817.,No. 6815,6815
• Citation: 375 F.2d 977
• Parties: BEACON CONSTRUCTION COMPANY OF MASSACHUSETTS, Inc., et al., Defendants, Appellants, v. PREPAKT CONCRETE COMPANY et al., Appellees. PREPAKT CONCRETE COMPANY, Plaintiff, Appellant, v. BEACON CONSTRUCTION COMPANY OF MASSACHUSETTS, Inc., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

375 F.2d 977 (1967)

BEACON CONSTRUCTION COMPANY OF MASSACHUSETTS, Inc., et al., Defendants, Appellants, v. PREPAKT CONCRETE COMPANY et al., Appellees.

PREPAKT CONCRETE COMPANY, Plaintiff, Appellant, v. BEACON CONSTRUCTION COMPANY OF MASSACHUSETTS, Inc., et al., Defendants, Appellees.

Nos. 6815, 6817.

United States Court of Appeals First Circuit.

April 12, 1967.

Robert J. Sherer, Boston, Mass., with whom Joseph T. Wynne, San Juan, P. R., Roche & Leen, Boston, Mass., and McConnell, Valdes & Kelley, San Juan, P. R., were on brief, for Beacon Construction Co. of Massachusetts, Inc., and others.

Leslie A. Hynes, New York City, with whom Jorge Souss, San Juan, P. R., was on brief, for Prepakt Concrete Co.

Luis E. Dubon, Jr., with whom Dubon & Dubon, Santurce, P. R., was on brief, for Augusto Menendez Construction Corp. and others, appellees.

Before ALDRICH, Chief Judge, McENTEE and COFFIN, Circuit Judges.

COFFIN, Circuit Judge.

These appeals arise from a diversity action brought by a subcontractor (Prepakt) which performed piling work in connection with the construction of a United States postal facility at San Juan, Puerto Rico, against the original general contractor (Beacon) and its assignee (Ameco) to recover the contract price and the value of additional work requested.¹ Beacon moved that the proceedings be stayed pending either (a) pursuit of an administrative remedy under a Post Office disputes clause allegedly incorporated by reference in the subcontract or (b) arbitration under a contract of assignment between Beacon and Ameco, by which Prepakt was allegedly bound. The district court granted the motion, finding that the arbitration clause was binding and that it was not necessary to consider whether the disputes clause procedure was applicable. Prepakt and Beacon both appealed, the latter assigning error in the court's refusal to rule on the applicability of the disputes clause.

THE ARBITRATION CLAUSE

The subcontract between Beacon and Prepakt was executed on July 6, 1964. It contained no reference to arbitration as a procedure to resolve disputes. Attached to and part of this contract were fifteen paragraphs of "terms and conditions". Paragraph 14 stated:

"14. It is contemplated that the Contractor may desire to assign its rights and delegate its obligations under the subcontract to another general contractor. If such assignment is made, the assignee will stand in the position of the Contractor under this subcontract and the Sub-Contractor will assume toward such assignee, all the obligations which it has by this subcontract, assumed toward the Contractor and will look solely to the assignee for payment. In the event of such an assignment, the general contract to be entered into between the Contractor and the assignee shall be treated as the general contract referred to in this subcontract."

On August 20, 1964, Beacon and Ameco entered into their contract, under which Ameco took on the obligation of prime contractor for the Post Office facility. Appendix A of this contract contained an arbitration clause providing, in pertinent part:

"I. — Excepting those which are controlled by the Dispute Sections or other applicable sections of the Post Office Department and General Conditions, as aforesaid, all disputes, claims or questions subject to arbitration under the contract shall be submitted to arbitration in accordance with the provisions, then obtaining, of the Standard Form of Arbitration Procedure of The American Institute of Architects * * *. It is mutually agreed that the decision of the arbitrators shall be a condition precedent to any right of legal action that either party may have against the other * * *."

The district judge placed dominant emphasis on the closing sentence of paragraph 14 of the subcontract: "In the event of * * * an assignment, the general contract to be entered into between the Contractor and the assignee shall be treated as the general contract referred to in this subcontract." Reasoning from "the clear import" of this language that Prepakt intended to be bound by a later contract, the notice of the Ameco contract which was given Prepakt, and the likelihood that Prepakt could have obtained a copy had it asked, the court concluded that Prepakt should not be allowed to benefit from its own failure to act diligently. It held that the arbitration clause in the Ameco contract was incorporated by reference in the subcontract and was binding on Prepakt.

We are forced to a different conclusion. Paragraph 14 put Prepakt on notice only that Beacon might assign its rights to another general contractor. It did not intimate that those rights might be enlarged. Rather, it assured Prepakt that any assignee would stand in Beacon's shoes and that Prepakt would only "assume toward such assignee, all of the obligations which it has, by this subcontract, assumed toward the Contractor". Were we to say that the concluding sentence, treating the new contract with an assignee as the general contract, committed Prepakt to a series of additional obligations, we would be reading into oblivion the rest of the paragraph. We grant that Prepakt's fears that price or character of work might be altered by Ameco are extreme, but we cannot say that a provision requiring arbitration with an unknown party, as a precondition to suit, is so inconsequential a change in obligation as to be ignored. When we search the briefs for a reason why Prepakt should be bound by this additional requirement, we read only that "mutual confidence of the parties in each other * * * warrants the mandatory conclusion that Prepakt expected to assume * * * other obligations" and that "Prepakt can hardly be heard to argue that it could not reasonably have expected to undertake additional liabilities". But saying so does not make it so.

Even were we to hold the Beacon-Ameco arbitration provision applicable to Prepakt, we should find ourselves in a dead end street. For the provision, after excepting matters controlled by the disputes clause procedure, defines what shall be subject to arbitration as "all disputes, claims or questions subject to arbitration under the Contract". Unfortunately the contract is silent as to what matters shall be subject to arbitration. While we might try to construe such a clause sympathetically, were we dealing with two signatories, we feel no such mandate in this case.

THE DISPUTES CLAUSE

The district court having ordered a stay on the erroneous ground that the arbitration clause in the Ameco contract governed, it could be argued that we should simply remand for consideration of the applicability of the disputes clause. This would be a disservice to both district court and counsel. The issue has been fully briefed and argued. We conclude that this clause is not applicable to Prepakt.

The basis for arguing that Prepakt agreed to submit itself to the administrative disputes procedures established by the Post Office Department is that (a) it agreed to do its work "in accordance with said general contract, and all documents, plans, specifications and addenda * * * including Advertisement for Bids; Agreement to Lease * * *; Post Office Department General Conditions * * * everyone of the aforesaid being a part hereof as fully as if reproduced herein"; and that (b) it agreed "to assume to said Contractor Beacon all the obligations and responsibilities that said Contractor, by said general contract and other instruments, has assumed to the Owner the United States."²

The Post Office Department General Conditions comprised forty-four detailed provisions, taking up thirty-eight typed pages, many of which are obviously irrelevant to relations between Beacon and Prepakt. Condition number eleven was the disputes clause, reproduced in the margin.³ Despite this prepossessing bulk of rather dreary reading material, Prepakt can hardly claim that the conditions were foisted upon it unawares. The incorporating description in the subcontract is specific; and it would be a naive subcontractor indeed who would be surprised to find a disputes clause in a government construction contract. This is not a case like Matter of Riverdale Fabrics Corp., 1954, 306 N.Y. 288, 118 N.E.2d 104, 41 A.L.R.2d 867, where, by simple reference to "The Cotton Yarn Rules of 1938 as amended", sales contracts were sought to be...