Godwin v. Stanley Smith & Sons

• Decision Date: 10 October 1989
• Docket Number: No. 1406,1406
• Citation: 386 S.E.2d 464,300 S.C. 90
• Court: South Carolina Court of Appeals
• Parties: Joey GODWIN, d/b/a Godwin Builders, Respondent, v. STANLEY SMITH & SONS, Appellant. . Heard

Page 464

386 S.E.2d 464

300 S.C. 90

Joey GODWIN, d/b/a Godwin Builders, Respondent, v. STANLEY SMITH & SONS, Appellant.

No. 1406.

Court of Appeals of South Carolina.

Heard Oct. 10, 1989.

Decided Oct. 30, 1989.

Russell H. Putnam, Jr. of Austin Law Firm, Columbia, for appellant.

Johnathan W. Bryan and Howard P. King of Bryan Bahnmuller, King, Goldman & McElveen, Sumter, for respondent.

SANDERS, Chief Judge:

Respondent Joey Godwin, d/b/a Godwin Builders, sued appellant Stanley Smith and Sons, for breach of contract. Godwin also purported to assert separate causes of action for fraud and for a violation of the South Carolina Unfair Trade Practices Act. Stanley Smith moved to stay the proceeding and compel arbitration, to dismiss the suit for lack of proper venue, or to change the venue, and to dismiss the cause of action asserting a violation of the Unfair Trade Practices Act. The Circuit Court granted the motion to dismiss the cause of action asserting a violation of the Unfair Trade Practices Act, denied the motion to dismiss the suit for lack of proper venue, or to change the venue, and denied the motion to stay the proceedings and compel arbitration. Stanley Smith appeals the denial of the motion to stay the proceedings and compel arbitration. We reverse and remand.

Godwin and Stanley Smith entered into a contract, by the terms of which Godwin agreed to furnish all labor and equipment necessary to hang wallpaper in parts of two buildings, and Stanley Smith agreed to pay Godwin a specified amount of money. Godwin alleges that Stanley Smith breached the contract by failing to pay the agreed amount. Godwin alleges further that Stanley Smith made a false representation in connection with the performance of the contract. (This allegation is set out in a separate cause of action which Godwin characterizes as a "cause of action for fraud.")

The contract between Godwin and Stanley Smith is captioned "Subcontract." Stanley Smith is referred to as "the Contractor." Godwin is referred to as "the Subcontractor." The contract does not expressly require arbitration. It does, however, refer to a contract between Stanley Smith and the owner of the buildings which requires arbitration.

Section 1 of the contract between Godwin and Stanley Smith provides that Godwin "agrees to furnish all materials and perform all work ... in accordance with the General Conditions of the Contract between the Owner and the Contractor ... which General Conditions ... hereby become a part of this contract."

Included among the Contract Documents, which form the contract between Stanley Smith and the owner, is a document captioned "General Conditions of the Contract for Construction." Section 7.9.1 of the document provides:

All claims, disputes and other matters in question between the Contractor and the Owner arising out of, or relating to, the Contract Documents or the breach thereof ... shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise.

Section 12, subsection 1, of the contract between Godwin and Stanley Smith further provides that Godwin is "bound to the Contractor by the terms of the Contractor Documents and this Agreement, and assume[s] toward the Contractor all the obligations and responsibilities that the Contractor, by those documents, assumes toward the Owner as applicable to this Subcontract."

Stanley Smith seeks to require arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 to 208 (1970). Section 2 of the Act provides:

A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

Godwin does not dispute that the contract evidences a transaction involving interstate commerce. (In his brief he says: "The Respondent concedes that the subcontract is 'commerce' within the meaning of 9 U.S.C.A. §§ 1 and 2.")

"The United States Supreme Court recently held that the Federal Arbitration Act declares a liberal policy favoring arbitration." Circle S. Enterprises, Inc. v. Stanley Smith & Sons, 288 S.C. 428, 430, 343 S.E.2d 45, 46 (Ct.App.1986), citing Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). "Even more recently, the United States Court of Appeals held the requirement of the Act that a contract evidence a transaction involving commerce must be broadly construed to promote arbitration." Circle S., 288 S.C. at 430, 343 S.E.2d at 46, citing Snyder v. Smith, 736 F.2d 409 (7th Cir.1984).

"It is well settled that, under the Federal Arbitration Act, an agreement to arbitrate may be validly incorporated into a subcontract by reference to an arbitration provision in a general contract." Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 978 (4th Cir.1985), citing J.S. & H. Constr. Co. v. Richmond County Hosp. Auth., 473 F.2d 212 (5th Cir.1973); Starr Elec. Co. v. Basic Constr. Co., 586 F.Supp. 964 (M.D.N.C.1982); Vespe Contracting Co. v. Anvan Corp., 399 F.Supp. 516 (E.D.Pa.1975); Bigge Crane & Rigging Co. v. Docutel Corp., 371 F.Supp. 240 (E.D.N.Y.1973). See First Baptist Church of Timmonsville v. George A. Creed & Son, Inc., 276 S.C. 597, 599, 281 S.E.2d 121, 122 (1981) ("Arbitration of disputes arising under a contract may be provided for by reference to outside documents."); Twiggs v. Williams, 98 S.C. 431, 456, 82 S.E. 676, 679 (1914) ("[O]ne contract may be made part of another by reference.").

At least one of these cases, J.S. & H. Construction Co. v. Richmond County Hospital Authority, involved facts virtually identical to the facts in the instant case. There, the Court summarized the essential facts as follows:

George A. Fuller Company, a Maryland corporation with its principal place of business in New York, contracted as prime contractor with Richmond County Hospital Authority, Augusta, Georgia, to build a university hospital. The "General Conditions" of the prime contract included a provision that the parties would submit contract disputes to arbitration and that neither party had "a right of legal action" based on the contract until the arbitrators reached a decision. Fuller then entered into a subcontract with J.S. & H. Construction Company, a legal entity of New Mexico, under which J.S. & H. was to furnish labor and materials for the construction of the hospital. The subcontract contained no express arbitration provision, but it incorporated by reference the "General Conditions" of the prime contract and explicitly provided that the subcontractor assumed toward the prime contractor those responsibilities and obligations which the prime contractor assumed toward the Hospital Authority in the prime contract.

473 F.2d at 213. The Court, in footnotes, quoted the prime contract and the subcontract. The language quoted by the Court is essentially the same as the language of Article 1 of the contract between Stanley Smith and the owner, Section 12, subsection 1, of the contract between Godwin and Stanley Smith and Section 7.9.1 of the "General Conditions of the Contract for Construction."

Based on these facts, the Court held that "the prime contract arbitration provision was incorporated by reference into the subcontract and is binding on appellant J.S. & H." Id. at 216. Cases decided by state courts have reached similar results based on similar facts. ADC Const. Co. v. McDaniel Grading, Inc., 177 Ga.App. 223, 338 S.E.2d 733 (1985); Frank J. Rooney, Inc. v. Charles W. Ackerman of Florida, Inc., 219 So.2d 110 (Fla.App.1969). We find these cases persuasive.

Accordingly, we hold that the arbitration provision contained in the contract between Stanley Smith and the owner was incorporated, by reference, into the contract between Godwin and ...