Fagnani v. Integrity Finance Corp.

• Decision Date: 30 November 1960
• Citation: 167 A.2d 67,3 Storey 193,53 Del. 193
• Parties: , 53 Del. 193 Leon N. FAGNANI, Plaintiff, v. INTEGRITY FINANCE CORPORATION, a Delaware corporation, Defendant.
• Court: Delaware Superior Court

Page 67

167 A.2d 67

3 Storey 193, 53 Del. 193

Leon N. FAGNANI, Plaintiff, v. INTEGRITY FINANCE CORPORATION, a Delaware corporation, Defendant.

Superior Court of Delaware, New Castle County.

Nov. 30, 1960.

H. Albert Young, of Morford, Young & Conaway, Wilmington, Del., for plaintiff.

Joseph A. L. Errigo, Wilmington, Del., for defendant.

STIFTEL, Judge.

Plaintiff, Leon N. Fagnani, a registered architect, licensed in Delaware, filed this action against the defendant, Integrity Finance Corporation, a corporation of the State of Delaware, because of its refusal to comply with an award of the board of arbitrators rendered 18 days after the expiration of the 30- day limit set forth in the standard form of arbitration procedure.

Fagnani agreed in writing with the defendant to furnish his services in connection with the erection by the defendant of a four-story bank and office building for an agree-upon commission of 5% on the cost of the work. The plaintiff drew plans and specifications for the proposed building and was paid an advance of $5,600 by defendant. On August 26, 1959, Fagnani was dismissed by the defendant, which claimed that he failed to design a building in accordance with its instructions to limit the cost of the building to a sum not to exceed $500,000. Fagnani disputed defendant's contention; whereupon, the parties agreed that plaintiff's claim be submitted to arbitration in accordance with paragraph 12 of the standard form of agreement executed by plaintiff and defendant, which reads as follows:

'12. Arbitration--All questions in dispute under this agreement shall be submitted to arbitration at the choice of either party, in accordance with the provisions, then obtaining, of the Standard Form of Arbitration Procedure of The American Institute of Architects.'

Pursuant to paragraph 12 of the agreement, each party selected one arbitrator and mutually agreed on a third arbitrator, the selection of whom was approved by the other two arbitrators.

Soon after the appointment of the arbitrators, the attorney for the defendant, Joseph A. L. Errigo, Esquire, sent a letter to the arbitrators which contained the following statements:

'Mr. Young has already informed you that we will proceed with our hearing on a rather informal basis. Technical rules will not apply nor will there be any technical objections. We want the Board to consider all the facts as they are presented in an atmosphere which will be free of technicalities and objections.'

The board of arbitrators met on December 16 and 21, 1959, and terminated its hearing on January 11, 1960.

The transcript, consisting of some 535 pages, was delivered to the board by the reporter three days after the last day of the hearing, and the board delivered its award on February 29, 1960, which was 48 days after the last day of the hearing, and 45 days after the official transcript was delivered to the members of the board on January 14, 1960.

The Standard Form of Arbitration Procedure, issued by The American Institute of Architects, for the arbitration of controversies arising out of contracts entered into by the parties thereto, and which was to be used in accordance with the provisions of paragraph 12 of the agreement between the parties, provides in paragraph 14 as follows:

'14 Awards

'The arbitrators shall decide, by a majority vote, any issue presented to them within the scope of the controversy, including the making of the award. The award shall be made in writing and shall be signed by all or by a majority of the arbitrators, and shall be acknowledged when the prevailing law so requires. The award shall be made within a period of thirty days from the closing of the proceedings and shall be delivered or mailed simultaneously to each party, and a copy thereof to the Architect.

'Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.'

Paragraph 15 provides:

'15 Extensions of Time

'Any time limitations set forth in this Standard Form of Arbitration Procedure may be extended by the mutual written agreement of the parties. See articles 1, 2, 3 and 4.'

There was neither an oral nor written request made of the defendant by any person for an extension of the 30-day period provided by paragraph 14, nor was the period extended by mutual written agreement of the parties, as provided by paragraph 15 of the Standard Form of Arbitration Procedure. At no time prior to the delay of the award did the defendant make any objection to the right of the board to continue its deliberations. On March 7, 1960, a week after the award was delivered, defendant's attorney for the first time advised plaintiff's attorney that defendant would refuse to abide by the award of the arbitrators, setting forth as a reason for its refusal:

'The final hearing of the arbitration proceedings was held on January 11, 1960 (Transcript Page 372). The official transcript was delivered to the members of the Board on January 14, 1960. The award of the Arbitration Board was not made until February 29, 1960 and is therefore a nullity and void.'

In its award, the arbitrators allowed Fagnani 75% of the 5% of the estimated low cost of the building, which amounted to the sum of $23,279.40, from which was deducted the sum of $5,600, which had already been paid by the defendant to Fagnani, and in addition, defendant was to reimburse Fagnani for the cost of extra sets of plans and specifications in accordance with the terms of the contract. Further, the award required the defendant to reimburse Fagnani for all legal expenses involved in the arbitration proceedings.

Shortly after the award was rendered and before the defendant refused to comply with the award, H. Albert Young, Esquire, attorney for the plaintiff, and Joseph A. L. Errigo, Esquire, attorney for the defendant, discussed the problem of 'a reasonable fee' in relation to the award of the arbitrators ordering an allowance of such figure. The exact conversations which took place between counsel do not appear clearly in the pleadings.

This suit is brought in the amount of $17,198.27, which amount includes $16,779.40 which was awarded by the board for services rendered plus $418.87 for the cost of the plans and specifications, plus legal expenses involved in the arbitration proceedings and the reasonable legal fees of this action.

Defendant first contends that the award of the board of arbitrators was null and void because of the failure of the board to make the award within the 30-day period provided by paragraph 14 of the rules set forth in the Standard Form of Arbitration Procedure adopted in the contract for use by the parties in the event arbitration was agreed to by the parties.

A common-law arbitration agreement, such as that with which we are concerned, consists of two elements: (1) A contract between the parties whereby they mutually agree to submit their controversy to named arbitrators, and (2) a grant of power by each party authorizing the arbitrators to act in his behalf and to settle and determine the matter in controversy. King v. Beale, 198 Va. 802, 96 S.E.2d 765, 63 A.L.R.2d 746, 750.

Without doubt, the parties to an arbitration agreement may limit the time within which the arbitrators shall render their award. See Sturges, Commercial Arbitration and Awards, 1930 Ed., Sec. 222, p. 523. And, where the agreement, or the rules of procedure adopted by the parties in their agreement, require that an award be made within a specified time, it is generally recognized that such award must be signed and executed within that time unless the parties, in writing, have mutually agreed to an extension of time. Goerke Kirch Co. v. Goerke Kirch Holding Co., 118 N.J.Eq. 1, 176 A. 902; 3 Am.Jur., Arbitration and Award, § 116, p. 940; Kellor, Arbitration in Action, 2d Ed.1941, p. 114.

Apparently, this was the rule at common law and the law recognized in this jurisdiction in 1835 in Stevens v. Gray, 2 Har. 347, when this Court had before it a submission to arbitration which contained a proviso that the award should be made under the hands and seals of the arbitrators ready to be delivered on or before the 20th day of November. The case was tried and agreed upon on the 19th day of November, but it was not signed until after the 20th of November. Since the award was not signed and ready for delivery until after the 20th of November, it was the impression of the Court that this failure constituted a fatal objection to the award. Cited in Sturges, Commercial Arbitration and Awards, ¹ supra.

The majority of cases decided in this country hold that the failure to comply with the time limitation as set forth in an agreement, a rule of court or a statute pertaining to arbitration proceedings is considered fatal since it is generally understood that after the expiration of the time allowed, the arbitrators no longer have any power to act, and an award made by them after the time fixed is considered void. Public Utility Construction and Gas Appliance Workers of State of New Jersey Local No. 274 v. Public Service E. & G. Co., 35 N.J.Super. 414, 114 A.2d 443; 154 A.L.R. 1392, 1394; 6 Williston on Contracts, Rev.Ed.Sec. 1929.

The plaintiff, Leon N. Fagnani, is aware of the general rule, but argues against it. He stresses that the tardy filing of the award in this case was an irregularity that did not go to the substance of the agreement but was instead merely a procedural matter, which was a mere direction or instruction, of no obligatory force, and involving no invalidating consequences for its disregard. In other words, the plaintiff argues that the time requirement is not an imperative or mandatory provision which must be followed, but was prescribed with a view to the orderly conduct of the business. In support of his contention that the time provision set forth in the rules is directory rather than mandatory, the plaintiff cites several cases: Pingree v. State Court of Mediation and...