Board of Ed. of Berkeley County v. W. Harley Miller, Inc.

• Decision Date: 18 November 1975
• Docket Number: No. 13608,13608
• Citation: 159 W.Va. 120,221 S.E.2d 882
• Court: West Virginia Supreme Court
• Parties: The BOARD OF EDUCATION OF COUNTY OF BERKELEY v. W. HARLEY MILLER, INC.

Page 882

221 S.E.2d 882

159 W.Va. 120

The BOARD OF EDUCATION OF COUNTY OF BERKELEY v. W. HARLEY MILLER, INC.

No. 13608.

Supreme Court of Appeals of West Virginia.

Nov. 18, 1975.

Syllabus by the Court

1. By their contract, parties may lawfully make the decision of arbitrators or any third person a condition precedent to a right of action upon the contract.

2. A contract providing a procedure for arbitration of disputes, and providing that: (1) all claims, disputes or other matters in question arising out of, or relating to the contract shall be decided by arbitration, unless the parties mutually agree otherwise; (2) the arbitration agreement shall be specifically enforceable under the prevailing arbitration law; (3) the arbitration award shall be final; and (4) the judgment may be entered upon the award in accordance with applicable law in any court having jurisdiction thereof--, creates a condition precedent to any right of action arising under the contract.

Rice, Hannis & Douglas, Lacy I. Rice, Jr. and Charles F. Printz, Jr., Martinsburg, for appellant.

Robert M. Steptoe, Martinsburg, Herbert G. Underwood, Clarksburg, for appellee.

HADEN, Chief Justice:

This is an appeal from an order of the Circuit Court of Berkeley County in which that court refused to dissolve a preliminary injunction obtained by appellee, The Berkeley County Board of Education, against the appellant, W. Harley Miller, Inc. See W.Va.Code 1931, 58--5--1(g). The injunction was issued to restrain the appellant from invoking and proceeding with arbitration procedures, provided in a construction contract between the parties, pending the outcome of a declaratory judgment action. The Board of Education commenced the civil action against Miller to seek a judicial resolution of a dispute involving rock excavation incident to the construction project and to block Miller's efforts to resolve the conflict by arbitration.

Miller, a contractor in Berkeley County, entered into a general contract with the Board of Education on December 30, 1974, for the construction of a new school known as North Berkeley High School. The contract documents incorporated Specifications dated November 15, 1974. A dispute arose over removal of an unanticipated quantity of rock by Miller's subcontractor, Heiden, Inc. The contract called for the architect to compute the rock in place before removal. On February 21, 1975, based upon work performed by Heiden to that date, Miller submitted to the architect a demand for $410,160.00 based upon the aggregate removal of 25,635 cubic yards of rock computed at the rate of $16.00 per cubic yard. The Board of Education immediately complained that its architect had not been notified nor given an opportunity to measure the rock in place. The architect then directed Miller to terminate excavation until he could ascertain the rock in place. After measuring the rock in place, the architect determined that there remained only 6,573 cubic yards to be excavated; and consequently, that Miller was entitled to a pay order fo $105,168.00 for rock removal. Accordingly, Miller's claim for $304,992.00 remains outstanding and unresolved.

Miller seasonably demanded that the dispute be submitted to arbitration in accordance with Paragraph 7.10.1 of the Specifications, which comprises what is known as a standard arbitration clause.

On March 21, 1975, Miller filed a Demand For Arbitration on a form provided by the American Arbitration Association. On April 2, 1975, the Board of Education rejected Miller's Demand For Arbitration and filed this litigation to enjoin Miller from proceeding with its demand to settle the dispute by arbitration and to seek a judicial declaration. Following a hearing on this matter before the Circuit Court of Berkeley County on April 23, 1975, the circuit court granted the assailed injunction, basing its decision on Hughes v. National Fuel Co., 121 W.Va. 392, 3 S.E.2d 621 (1939).

Miller submits that the sole issue in this proceeding is whether, under the laws of the State of West Virginia, a party to a contract which contains a standard arbitration clause, has the right to reject a demand for arbitration by the other party to the contract up to the time of an award, or does such contract, by the execution thereof, compel submission to arbitration by right of mutual promise. The Board, on the other hand, asserts that the only issue raised is whether a party to an executory contract has the right to demand enforcement of an agreement to arbitrate a future difference between the parties. Perhaps a less conclusory description of the issue is, simply, whether the parties have a contractual obligation to submit the dispute to arbitration before either may resort to court action.

The use of arbitration as a mechanism for settling contractual disputes was permitted at common law and even favored because of its potential to terminate controversies speedily and cheaply. At common law, however, any agreement to submit to arbitration was merely voidable. In other words, as a general rule, a party could revoke its promise to submit to arbitration at any time before award. Hughes v. National Fuel Co., supra. As explained in Riley v. Jarvis, 43 W.Va. 43, 26 S.E. 366 (1896):

'The reason why the agreement was revocable under common law was, not that arbitration was not favored by it as tending to end litigation, and not for want of consideration, as the ending of litigation was strong consideration, but because of that principle of law that parties could not, by agreement, oust the courts of their jurisdiction assigned them by law, and could not debar themselves from appealing to the law and tribunals of the land; . . ..' Id. at 48, 26 S.E. at 367.

The Riley Court went on to explain that the judicial apprehensions that courts would lose jurisdiction to arbitrators were, if not eliminated, lessened measurably by the enactment of statutes--specifically, W.Va.Code 1931, 55--10--1 and 55--10--2, which legitimated arbitration agreements. Id. Such statutes, however, have been construed to be merely supplementary to the common law. Consequently, statutory arbitration in West Virginia is not to be considered as having supplanted common-law arbitration. Hughes v. National Fuel Co., supra; Columbian Fuel Corp. v. Warfield Natural Gas Co., 72 F.Supp. 839 (S.D.W.Va.1947).

W.Va.Code 1931, 55--10--1 and 55--10--2 provide in pertinent part:

'Persons desiring to end any controversy, whether there be a suit pending therefor or not, may submit the same to arbitration, and agree that such submission may be entered of record in any court. . . .'

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'No such submission, entered or agreed to be entered of record, in any other, shall be revocable by any party to such submission, without the leave of such court; . . ..'

See Stiringer v. Toy, 33 W.Va. 86, 10 S.E. 26 (1889). The language, '(p) ersons desiring to end any controversy,' employed in the opening sentence in W.Va.Code 1931, 55--10--1, appears to imply that the provision applies only to existing controversies and furnishes a basis for the conclusion that the statutory remedy merely supplements the common law. This co-existence of viable statutory and common-law principles regarding the same subject matter, seemingly, is responsible for the rule fashioned in Turner v. Stewart, 51 W.Va. 493, 41 S.E. 924 (1902). Respecting statutory law in the first sentence and the common law in the next one, the Court held that:

'A submission to arbitration of an existing controversy entered in court, or by agreement out of court, providing that the award shall be entered as the judgment or decree of the court, is not revocable, except by the court, and will bar a suit upon the demand submitted. But a provision in a contract that any future controversy under it shall be arbitrated will not prevent an action.' Syllabus point 3., Id.

A similar common-law rule was recognized earlier in Kinney v. Balt. & Ohio Emp. Rel. Ass'n, 35 W.Va. 385, 14 S.E. 8 (1891), which stated:

'A provision in a contract that all differences arising under it shall be submitted to arbitrators, thereafter to be chosen, will not prevent a party from maintaining a suit, in the first instance, in a court to enforce his rights under it.' Syllabus point 1., Id.

Yet, the Kinney Court also recognized an exception to the foregoing principle, which was fashioned in an older Virginia case, Condon v. South Side Railroad Co., 55 Va. (14 Grat.) 302 (1858). This common-law exception provides that an agreement to arbitrate future controversies is not revocable where it has been made a condition precedent to a right of action. By the following quote, the Condon Court explained the compatibility of this exception with the general common-law rule:

'(P)arties by their contract may lawfully make the decision of arbitrators or of any third person a condition precedent to a right of action upon the contract. In that case such decision is a part of the cause of action. Until the decision is made and the cause of action thus becomes complete, the courts have no jurisdiction of the case, and therefore cannot be said to be ousted of their jurisdiction by the contract. Id. at 314.

In its conclusion, the Condon Court quoted from what at that time was a recent case, Scott v. Avery, 36 Eng.L. & E.R. 1, 15 (1856), which noted "a safe distinction between an agreement which would close entirely he access to the courts of law, and that which only imposes, as a condition precedent to the appeal to them, that the parties shall have first settled, by an agreed on mode, the precise amount to be recovered there." Id. at 316.

This Court has applied the exception several times since Kinney. See, Lawson v. Williamson Coal & Coke Co., 61 W.Va. 669, 57 S.E. 258 (1907); Moore v. Hope Natural Gas Co., 76 W.Va. 649, 86 S.E. 564 (1915); Flavelle v. Red Jacket Con. Coal & Coke Co., 82 W.Va. 295, 96 S.E. 600 (1918); Kohlsaat v. Main Island Creek Coal Co., 90 W.Va....