Bolo Corp. v. Homes & Son Const. Co.

• Decision Date: 16 January 1970
• Docket Number: No. 9674,9674
• Citation: 464 P.2d 788,105 Ariz. 343
• Parties: BOLO CORPORATION, a California corporation, Appellant, v. HOMES & SON CONSTRUCTION CO., Inc., an Arizona corporation, Appellee.
• Court: Arizona Supreme Court

Page 788

464 P.2d 788

105 Ariz. 343

BOLO CORPORATION, a California corporation, Appellant, v. HOMES & SON CONSTRUCTION CO., Inc., an Arizona corporation, Appellee.

No. 9674.

Supreme Court of Arizona, In Division.

Jan. 16, 1970.

Rehearing Denied Feb. 17, 1970.

Shimmel, Hill & Bishop, Phoenix, for appellant.

Moore, Romley, Kaplan, Robbins & Green, Phoenix, for appellee.

HAYS, Justice.

The appellant, Bolo Corporation, has appealed an order of the Superior Court granting the plaintiff-appellee's motion to compel arbitration. The argument raised in opposition is that the plaintiff, by its actions had waived its right to compel arbitration and must therefore proceed with the civil action originally brought. We agree with the position taken by the appellant for the reasons stated below.

The parties entered into a written contract, executed on the 27th day of December, 1963, wherein the appellee, Homes and Son Construction Co., Inc., agreed to construct for the appellant a shopping center building to be known as 'Mesa Plaza Shopping Center,' and to be located at Main Street and Lazona Drive, Mesa, Arizona.

The contract contained a 'General Conditions' provision which required that any dispute arising out of the contract or the performance of the contractor be settled by arbitration.

CONTRACT EXHIBIT NUMBER 2: GENERAL CONDITIONS

'I. Arbitration.--If at any time any controversy should arise between the Owner and the Contractor regarding anything pertaining to this Agreement and which the parties hereto do not promptly adjust and determine, or which the Owner cannot decide to the satisfaction of both parties, the written orders of the Owner to the Contractor shall be followed. The controversy existing between the parties shall be submitted to and determined by arbitration. Each of the parties hereto shall select an arbitrator and the arbitrators so selected by them shall select a third person to serve as arbitrator with them. The parties hereto agree to be bound by the award in such arbitration.' Abstract of the Record at p. 217.

Construction under the contract began in early 1964. In september of that year, with the structure nearing completion, a dispute arose between the parties as to variances between the quality of the performance and the plans and specifications referred to in the contract. At that point there was a balance of $87,000.00 owing and unpaid under the agreement, which the appellant withheld pending satisfactory completion of the project in accordance with the specifications.

The correspondence between the parties during this period is summarized in the affidavit of W. E. Homes, Jr., an officer of the plaintiff corporation; which affidavit is attached to plaintiff's motion for leave to amend the complaint. It is therein stated that in September of 1964, the project having been substantially completed, Homes & Son sent its final billing to Bolo. Bolo, in response, indicated that it was withholding the final payment because of various questions regarding cost charges. On October 12, 1964, plaintiff requested arbitration and named one arbitrator. Homes alleges that on December 26, 1964, Bolo made an expression that arbitration was acceptable, but declined to appoint an arbitrator or to enter into formal negotiations until there could be an audit of plaintiff's books. According to Homes, an audit was done, but Bolo continued to postpone arbitration pending 'more information on additional matters.' Finally, on November 12, 1964, or thereabouts, the defendant corporation indicated its unwillingness to arbitrate.

The first formal action taken by either party in an attempt to resolve the dispute was the filing by Homes & Son of a complaint at law charging Bolo with a breach of the contract and seeking a money judgment. In conjunction with the filing of the complaint, plaintiff commenced garnishment proceedings against several tenants of the defendant, said garnishees being lessees of the premises in question.

Bolo answered the complaint on January 14, 1965, attaching thereto a counterclaim alleging failure, negligence and refusal on the part of Homes & Son to perform its obligations under the contract and praying judgment in the sum of $10,200.00, plus such additional sums as might thereafter be determined to be the result of the plaintiff's failure to perform the contract. Plaintiff filed a reply on January 29, 1965.

Correlatively and simultaneous therewith, writs of garnishment directed toward tenants of the shopping center were issued, answers were filed thereto by the respective garnishees and there was tender of issue.

It was not until the 24th day of June, 1965, or thereabouts, nealy six months after the original filing of the lawsuit, that the appellee filed a motion for leave to amend the complaint and for an order to compel arbitration as is provided for under the Uniform Arbitration Act, A.R.S. § 12--1502, subsec. A ¹.

The order of the trial court directing that arbitration be commenced was objected to by the appellant and it is the correctness of the trial court's ruling which we are called upon to decide.

The question thus presented is whether or not there has been a waiver, mutual rescission, repudiation, laches or estoppel by or on behalf of the plaintiff in the enforcement of the arbitration clause.

One need only look at the Arizona Statutes to discover that the express language of the Arbitration Act as adopted by the legislature acknowledges revocability. The statute, A.R.S. § 12--1501, Validity of Arbitration Agreement, is couched in these terms:

'A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, Save upon such grounds as exist at law or in equity for the revocation of any contract.' (Emphasis added).

The general rule governing the waiver or repudiation of such agreements when combined with the public policy which favors the enforcement of arbitration is well stated in the opinion of United Paper Machinery Corp. v. DiCarlo, 19 A.D.2d 663, 241 N.Y.S.2d 711 (1963):

'Arbitration is by consent and those who agree to arbitrate should be made to keep their solemn, written promises. Such is New York's public policy, plainly written in article 84 of the Civil Procedure Act. The courts should follow a 'liberal policy of promoting arbitration both to accord with the original intention of the parties and to ease the congestion of court calendars."

'There is, however, nothing irrevocable about an agreement to arbitrate. Both of the parties may abandon this method of settling their differences, and under a variety of circumstances one party may waive or destroy by his conduct his right to insist upon arbitration.'

A further explanation of the rule is found in the case of In re Aller's Petition, 47 Cal.2d 189, 302 P.2d 294 (1956), in which the California Supreme Court quoted from Drake v. Stein, 116 Cal.App.2d 779, 254 P.2d 613, and Dessert Seed Co. v. Garbus, 66 Cal.App.2d 838, 847, 153 P.2d 184, 189, respectively:

'Although one party may not by himself 'rescind' a contract, he can wrongfully 'repudiate' it. What is the effect of his repudiation? To answer this, we must first interpret his expressions and determine the coverage of his repudiation. Suppose first that he repudiates the agreement to arbitrate itself. By such a repudiation he does not deprive the other party of his right to arbitration; and if the repudiator brings an action in breach of his valid arbitration agreement the defendant can defend on the ground that arbitration is a condition precedent, or under a statute can obtain a stay or an order to arbitrate, or can counterclaim for damages. But such a repudiator has himself no right to arbitration. The other party can now bring his action in reliance on the repudiation, or otherwise change his position in reliance. Thereafter, the repudiator has no power of retraction and cannot insist on the remedy of arbitration.' 302 P.2d at 297.

'It is well settled that an abandonment of a contract may be implied from the acts of the parties and this may be accomplished by the repudiation of the contract by one of the parties and by the acquiescence of the other party in such repudiation.' 302 P.2d at 299.

See also, Galion Iron Works & Mfg. Co. v. J. D. Adams Mfg. Co., 128 F.2d 411 (7th Cir., 1942) and Brunzell Const. Co. v. Harrah's Club, 253 Cal.App.2d 764, 62 Cal.Rptr. 505 (1967).

The Arizona Uniform Arbitration Act provides for the specific enforceability of an agreement to arbitrate, ² and it is clear that such enforcement may be prayed for by either party upon the refusal of the other to honor that contract provision. However, if either party, by his conduct can be said to have waived his right to arbitrate, the other party is placed in a position of choice: Either to compel arbitration under the contract, ³ or to acquiesce in the waiver thereby making the revocation complete and binding on both.

The issue thus becomes whether an election to litigate is a waiver of arbitration within the above rule, and if so, was it too late under the facts of this case for the appellee to amend its complaint and attempt to compel arbitration under the agreement.

The case of the 'Belize,' 25 F.Supp. 663 (D.C.S.D. N.Y. 1938), clearly parallels our instant case on this particular issue. The facts in the 'Belize' are simply that the libellant (plaintiff), chartered a vessel to the respondent (defendant). Under the terms of the contract the defendant was to return the vessel in good condition. Despite the fact that the contract contained an arbitration clause, the plaintiff commenced a suit in admiralty against the defendant alleging damages to the vessel and seeking an award of money damages. The defendant answered the libel (complaint); entered a general denial; and proposed...