Lesser Towers, Inc. v. Roscoe-Ajax Const. Co.

• Decision Date: 11 April 1969
• Docket Number: ROSCOE-AJAX
• Citation: 77 Cal.Rptr. 100,271 Cal.App.2d 675
• Court: California Court of Appeals Court of Appeals
• Parties: LESSER TOWERS, INC., a California corporation, Petitioner and Respondent, v.CONSTRUCTION CO., Inc., a Maryland corporation, Defendant and Appellant.CONSTRUCTION CO., Inc., a Maryland corporation, Plaintiff and Appellant, v. LESSER TOWERS, INC., a California corporation, Defendant and Respondent. Civ. 32023.

Page 100

77 Cal.Rptr. 100

271 Cal.App.2d 675

LESSER TOWERS, INC., a California corporation, Petitioner and Respondent, v. ROSCOE-AJAX CONSTRUCTION CO., Inc., a Maryland corporation, Defendant and Appellant.

ROSCOE-AJAX CONSTRUCTION CO., Inc., a Maryland corporation, Plaintiff and Appellant, v. LESSER TOWERS, INC., a California corporation, Defendant and Respondent.

Civ. 32023.

Court of Appeal, Second District, Division 5, California.

April 11, 1969.

Hearing Denied June 25, 1969.

[271 Cal.App.2d 677] Beardsley, Hufstedler & Kemble, Charles E. Beardsley, Seth M. Hufstedler, and Samuel L. Williams, Los Angeles, for appellant.

Charles J. Katz, Los Angeles, and Louis C. Hoyt, Studio City, for respondent.

ALSO, Associate Justice.

This case illustrates that unfortunately arbitration is not always a simple, expeditious,

or inexpensive method of adjudicating commercial controversies. ¹

[271 Cal.App.2d 678] Roscoe-Ajax Construction Co., Inc., a Maryland corporation ('Roscoe-Ajax'), appeals from the judgment entered December 14, 1966, confirming an arbitration award in favor of the respondent Lesser Towers, Inc., a California corporation ('Lesser'), in two consolidated cases ² and from the order of November 15, 1966, confirming the award and denying a motion to vacate the award. ³

The judgment ordered, adjudged and decreed, Inter alia, that: (1) the arbitrators' award be confirmed in all respects; (2) Lesser recover from Roscoe-Ajax $884,947.00, together with $25,795.92 interest, thus totalling $910,742.92; (3) the claims and counterclaims filed by Roscoe-Ajax against Lesser in the arbitration be dismissed and Roscoe-Ajax take nothing by reason thereof; (4) Roscoe-Ajax is not entitled to any liens on the property; (5) Roscoe-Ajax clear the property involved of all liens, outstanding or thereafter recorded, for work, labor, services, or materials furnished to Roscoe-Ajax; (6) (reserved an item for future arbitration, which does not concern us); and (7) Lesser recover $6,031.75 costs from Roscoe-Ajax.

I.

On this appeal, Roscoe-Ajax contends that: (1) the arbitrators in deciding who terminated the contract and what damages flowed therefrom exceeded their powers because Roscoe-Ajax did not agree to arbitrate those issues, and (2) the award should be vacated because the arbitrators committed 'gross errors.' After having considered carefully the claimed errors, we conclude that the judgment confirming the award should be affirmed.

[271 Cal.App.2d 679]

II.

Lesser, as owner, and Roscoe-Ajax, as contractor, entered into a written agreement on October 25, 1961, for the construction of a 20-story apartment in the Wilshire District of Los Angeles for a guaranteed maximum cost of $5,350,380.00. Roscoe-Ajax's fee was 5% Of the cost. Should the actual cost exceed that guaranteed maximum, Roscoe-Ajax was to absorb the excess. However, for certain kinds of changes or delays attributable to Lesser, the maximum guaranteed cost was to be increased to compensate Roscoe-Ajax for increased costs resulting from such changes or delays. Plans and specifications were to be provided by Lesser through the architectural firm of Daniel, Mann, Johnson and Mendenhall. Roscoe-Ajax was to execute its work in conformity

with the architect's drawings and instructions. It was to 'do no work without proper drawings and instructions.'

Roscoe-Ajax undertook to complete construction by 'no later than 18 months following the notice to proceed,' which it received on December 21, 1961. Barring intervening excusable delays, completion was scheduled for June 20, 1963.

Controversies arose between Lesser and Roscoe-Ajax shortly after construction was begun. Roscoe-Ajax claimed that Lesser decided upon making extensive changes in the lay-out of the kitchens and bathrooms, heating and air conditioning systems, fireproofing, cabinet work, fixtures, and electrical work. It claimed further that the architect did not provide proper specifications and drawings to enable it to proceed with the construction through its subcontractors. Lesser charged Roscoe-Ajax with refusal to sign change requests needed for obtaining necessary Federal Housing Administration approvals. Roscoe-Ajax contended that it was entitled to an increase in the guaranteed maximum cost because of the changes which necessitated long delays. Roscoe-Ajax also claimed that Lesser's stop order compelling it to cease application of fireproofing to the structural frame prevented completion of its work. At any rate the work came to a virtual standstill in April 1963. ⁴

[271 Cal.App.2d 680] On July 20, 1964, Roscoe-Ajax walked off the job and refused to further perform under the construction agreement. It had up to that time completed less than 40% Of its work contracted, but had demanded and received payment of $3,316,913.29, approximating 60% Of the contract price.

Other relevant facts will be mentioned when they become pertinent to the discussion which follows.

III.

Consideration of some of the arguments advanced by the parties necessitates a cognizance of the procedural steps, taken by the parties and the court below, which culminated in the arbitration award and its confirmation.

On June 19, 1964, Lesser by letter, invoking Article 39 of the General Conditions ⁵ of the contract, requested the architect to determine seven specific items of dispute. It read in part:

'We have a number of claims against (Roscoe-Ajax). Said contractor, on the other hand, made certain claims against us.

'We desire to proceed to obtain, in accordance with Article 39, a determination of the following specific claims against the contractor:

* * *

* * *

'6. The owner desires you to direct the Contractor to sign Change Request No. 19, dated June 4, 1964; Change Request No. 21, dated June 4, 1964; and Change Request No. 22, dated June 4, 1964. The Contractor has failed and refused to sign said Change Requests and has failed and refused to do the work contemplated thereof.

'7. In addition to the foregoing claims, the owner calls upon the Architect to give an interpretation of the contract documents in the following particulars:

'The Contractor claims that Article 26 of the General Conditions of the contract for the construction of the building is ineffective

and is not binding upon the Contractor because the Contractor claims said Article 26 to be in conflict with Article V of the contract itself. In this regard, the Contractor asserts [271 Cal.App.2d 681] that Article 26 of the General Conditions is inconsistent with Article V of the contract, and that therefore, says the Contractor, Article V must govern. The owner contends contrariwise; the owner contends that Article 26 of the General Conditions must be read together with Article V, and that, when read together, there is no inconsistency between the two

'The owner desires your interpretation of the contracts in the regard set forth hereinabove.' ⁶

The refusal of Roscoe-Ajax to sign the change requests enumerated in paragraph 6 was an integral part of the dispute between the parties; approval of the contractor was needed before the changes could be submitted to the Federal Housing Administration for approval as required by Article IX of the Agreement. Change Request No. 19, related to revisions in the plastering and fireproofing for which Roscoe-Ajax was claiming an additional $310,659.00 under Article IV subdivision (4) of the Agreement.

Roscoe-Ajax refused to present any evidence or argument to the architect. It denied the architect's authority to render any decision. It informed Lesser that it considered Articles 26, 28, 39 and 40, among others, to be of no effect; that it did not consider itself required to follow the procedures outlined therein; and that it refused to arbitrate any disputes or controversies of the nature listed in Lesser's letter to the architect of June 19, 1964.

The architect rendered its decision on July 22, 1964. It ruled as to item 6 that the change requests had been reviewed, that they were ready for submission to the Federal Housing Administration, and that Roscoe-Ajax should sign them. As to claim No. 7, it ruled that Article 26 of the General Conditions and Article V of the Contract should be read together, and as so read, they were not inconsistent. Its interpretation, it added, was not intended as a legal interpretation and suggested[271 Cal.App.2d 682] that the parties 'consult their own respective lawyers concerning (the) decision' as to this issue.

On the same date of July 22, 1964, Lesser made its formal demand for arbitration, alleging in part: 'Because of improper and defective construction, undue and improper delays in the performance of its obligations by Contractor, because of work stoppages caused by Contractor, because the Contractor unjustifiably ceased work upon the job on at least two occasions (sic) and has shut down the work, because the Contractor failed to properly follow plans and specifications, because the Contractor failed to furnish proper superintendence and supervision, because the Contractor has failed to remedy, or cause to be remedied, defects in the work and construction, and because the Contractor failed to complete said project and construction, Lesser has been caused to suffer great and irreparable damage.'

The demand also set forth 14 specific claims:

1. 'That because of the actions and conduct of Roscoe-Ajax and its failure to properly perform its obligations in connection with the construction and erection

of the said building and project as required by the Contract of Oct. 25, 1961, and the Contract Documents, Roscoe-Ajax is liable to lesser for all loss and damage occasioned thereby; and, that, in order to mitigate such damages and without terminating the Contract, that lesser may, for the account of Roscoe-Ajax, proceed either itself, or by another general Contractor to cause said building to be constructed.'

2. Lesser sought damages sustained from Roscoe-Ajax's unjustified...