Blackstone Valley Gas & Electric Co. v. R.I. Power Transimssion Co., 1429.

• Decision Date: 09 March 1940
• Docket Number: No. 1429.,1429.
• Parties: BLACKSTONE VALLEY GAS & ELECTRIC CO. v. RHODE ISLAND POWER TRANSIMSSION CO.
• Court: Rhode Island Supreme Court

12 A.2d 739

BLACKSTONE VALLEY GAS & ELECTRIC CO.

v. RHODE ISLAND POWER TRANSIMSSION CO.

No. 1429.

Supreme Court of Rhode Island.

March 9, 1940.

Reargument Denied April 27, 1940.

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Appeal from Superior Court, Providence and Bristol Counties; Charles A. Walsh, Judge.

Suit in equity by the Blackstone Valley Gas & Electric Company against the Rhode Island Power Transmission Company, to set aside an arbitrator's award. From a decree of dismissal, the complainant appeals.

Award set aside and decree reversed.

Tillinghast, Morrissey & Flynn, Daniel H. Morrissey, Robert J. Conley, John M. Dunn, and William A. Graham, all of Providence, and Gaston, Snow, Hunt, Rice & Boyd and James C. Reilly, all of Boston, Mass., for complainant.

Ira Lloyd Letts and Hogan & Hogan, all of Providence, and Damon E. Hall, of Boston, Mass., for respondent.

FLYNN, Chief Justice.

This is a bill in equity to set aside an arbitrator's award, and for other incidental and general relief. It was heard on bill, answer, replication and proof before a justice of the superior court who decided, on the evidence introduced before him, that the bill of complaint be denied and dismissed because of one particular reason. A decree was entered accordingly and the cause is before us on the complainant's appeal from that decree.

The principal facts material to the instant cause may be grouped within three main divisions, viz.: (1) The pre-arbitration period; (2) the arbitration proceeding; (3) the superior court proceeding.

The pre-arbitration period began with the contract between the complainant, hereinafter generally referred to as the "lighting company", and the respondent, hereinafter referred to as the "power company". This contract was entered into under date of May 26, 1914. It provided, among other things, that the power company should sell and furnish, and the lighting company should purchase and receive certain electricity for the period from July 1, 1914, and other electricity from January 1, 1915, until the contract should be terminated on a fixed date after July 1, 1950 by either party giving to the other at least one year's written notice specifying the date of termination.

That contract also provided for an arbitration in accordance with the first paragraph of Article XVI, which reads: "The prices for electricity (including service charges for primary electricity), except resale secondary electricity, may, at the request of either party made in writing six (6) months before July 1, 1925, July 1, 1935, and July 1, 1945, be readjusted on said dates, and if the parties fail to agree upon a readjustment three (3) months prior to a readjustment date, then said prices shall be readjusted by arbitration in the manner provided in Article XXI."

The other paragraph of Article XVI, which is controlling in this cause, reads: "Any readjustment in price shall be based solely upon an increase or decrease in the cost of fuel or changes in the art and methods of generating electricity which would result in an increase or decrease of efficiencies or cost."

The provisions of these two paragraphs gave rise at the very outset to at least three preliminary and vital questions, before the readjusted prices of electricity could be properly determined in accordance with the contract. These questions were: First, what interpretation would the arbitrator place upon the contract, particularly Article XVI? Such an interpretation of Article XVI by the arbitrator was admitted by the parties and the arbitrator to be a primary question, which materially affected the cost and readjusted prices of electricity to be fixed by arbitration in accordance with the contract. Second, what method or theory, as the parties refer to it, that is, what standard, would the arbitrator use under his interpretation of the contract in order to determine the readjusted prices for electricity, according to the "changes in the art and methods of generating electricity which would result in an increase or decrease of efficiencies or cost"? Third, what procedure should be agreed upon and followed by the parties in the arbitration proceeding in furnishing evidence to assist the arbitrator in determining the cost, efficiencies and readjusted prices under his interpretation of Article XVI?

Confronted with these preliminary and vital questions, which arose from the terms of Article XVI, the attorney for the lighting company, hereinafter called Reilly, and the attorney for the power company, hereinafter called Hall, held a meeting with the selected arbitrator, Henry G. Wells, Esq., on October 25, 1935. This conference was designed to obtain: (1) An understanding between the parties and the arbitrator concerning a proper interpretation of the contract; (2) the making of some procedural agreement to govern the submission of evidence in the arbitration proceeding; and (3) the deciding of other incidental matters.

At this conference Reilly, Hall and the arbitrator all apparently recognized the necessity of interpreting Article XVI of the contract, and particularly the second paragraph thereof. It was then stated and was not denied that this paragraph "was a hard nut to crack." Moreover, the arbitrator, after reading this paragraph, told Reilly and Hall that "it was quite evident that there were a lot of different ways of showing how changes in the art and methods of generating electricity would affect increases or decreases in costs." Reilly urged this very difficulty to the arbitrator as a reason for requesting him to make his own interpretation of the contract at the outset, thus making it possible to restrict the evidence to the costs, efficiencies and prices under whatever interpretation and "theory" the arbitrator would make and decide to use.

Because the arbitrator did not feel that he could or would interpret Article XVI at that time, and because the lighting company had to open the arbitration proceeding, Reilly took the precaution to seek some understanding or agreement as to the procedure which would govern the submission of evidence in the arbitration proceeding. Some understanding in that regard was apparently reached by the parties and the arbitrator at this conference. But the complete effect of that understanding upon the minds of Hall and the arbitrator was subsequently disputed by them, not however in the arbitration proceeding itself, but at the later hearing of this cause in the superior court, as will appear in dealing with the pleadings and hearing there.

Immediately after this conference of October 25, 1935, Hall made a written memorandum of his recollection of the agreement reached at that time, and he mailed to Reilly a copy thereof, expressing the hope that Reilly would find it accurate. Reilly also made a written memorandum of his own understanding of this substantial agreement. He did not mail a copy thereof to Hall, nor did he reply to Hall's letter.

The second division of important facts begins on December 2, 1935, when the arbitration proceeding opened. The lighting company, pursuant to Reilly's understanding of the procedural agreement reached on October 25, opened its case through its other attorney, Thomas Hunt, Esq. He referred to the agreement for submission, as apparently reached on October 25, and to the necessity for an interpretation of the contract before the arbitrator could determine, upon evidence to be submitted, the cost, efficiencies and readjusted prices in accordance with the second paragraph of Article XVI.

Reilly followed Hunt and elaborated upon Hunt's reference to the necessity for the arbitrator to interpret the contract; and he also expounded in greater detail what the lighting company contended was the only proper interpretation of Article XVI, particularly in view of the construction placed thereon by the letter of July 9, 1920, written by Malcolm G. Chace, president of the power company, who had signed the original contract. The pertinent part of this letter, which was written during earlier negotiations, concerning this Article, reads in part: "The theory of the contract which we originally made with you was that we would sell you power at a price slightly less than that at which you could make it. * * * What are your own costs in your present steam station and what would your costs be if you build a new station at the present time at the present construction costs and using the present price of fuel?"

Reilly further gave what he contended was the only proper theory or method of fixing costs, efficiencies and readjusted prices under the second paragraph of Article XVI. He then introduced evidence, apparently pursuant to the agreement of October 25th, which was confined solely to support his own theory and interpretation of the contract. At the end of what Reilly called the lighting company's prima facie case, he stated for the record on December 2, 1935, apparently after a conference with Hall, the substance of the procedural agreement made at the conference of October 25. The pertinent part of that statement reads: "* * * our desire naturally is that we shall ultimately have before you the strongest interpretation and all that can be said in regard thereto, of this contract; and secondly all the evidence bearing upon our interpretation, as long as it holds before your Honor, and such evidence as we may see fit to produce upon an interpretation of the contract, if it varies from either that of ourselves or Mr. Hall." (italics ours) No objection to that understanding or statement was made by Hall at that time. Nor did the arbitrator indicate any objection, or difference in his own understanding of the procedural agreement.

On December 30, 1935, just before the conclusion of all the evidence submitted by the lighting company under its own theory, Reilly made a further statement, as a memorial of their understanding, and as part of the submission. Because of its...