Loomis, Inc. v. Cudahy

• Decision Date: 01 October 1982
• Docket Number: No. 13291,13291
• Court: Idaho Supreme Court
• Parties: LOOMIS, INC., Plaintiff, v. Audrie B. CUDAHY, Defendant, Counter-Claimant, Third Party Plaintiff-Appellant, v. John R. SMITH, Third Party Defendant-Respondent, and Ronald W. Liese; Liese & Associates Insurance, Inc., an Idaho Corporation; and United Pacific Insurance Co., a Washington Corporation, Third Party Defendants. Ronald W. LIESE and Liese & Associates Insurance, Inc., an Idaho Corporation, Cross-Claimants, v. John R. SMITH and United Pacific Insurance Co., a Washington Corporation, Cross-Defendants.

Page 1359

656 P.2d 1359

104 Idaho 106

LOOMIS, INC., Plaintiff, v. Audrie B. CUDAHY, Defendant, Counter-Claimant, Third Party Plaintiff-Appellant, v. John R. SMITH, Third Party Defendant-Respondent, and Ronald W. Liese; Liese & Associates Insurance, Inc., an Idaho Corporation; and United Pacific Insurance Co., a Washington Corporation, Third Party Defendants.

Ronald W. LIESE and Liese & Associates Insurance, Inc., an Idaho Corporation, Cross-Claimants, v. John R. SMITH and United Pacific Insurance Co., a Washington Corporation, Cross-Defendants.

No. 13291.

Supreme Court of Idaho.

Oct. 1, 1982.

Rehearing Denied Feb. 3, 1983.

Edward A. Lawson, Ketchum, and Robert Nord, Chicago, Ill., for defendant, counter claimant, third party plaintiff-appellant.

Terry G. Hogue, Ketchum, for third party defendant-respondent.

DONALDSON, Justice.

A contract was entered into between the appellant-third party plaintiff Audrie B. Cudahy and the respondent-third party defendant John R. Smith on February 2, 1976. Smith was to perform for compensation by Cudahy services as an architect in the construction of a single-family dwelling. The contract contained an arbitration clause. ¹ It also recited that the house would be built on a particular lot, but in fact the house was built on a different lot. Upon Smith's recommendation, Cudahy entered into a construction contract with a contractor. A performance bond was issued by Ronald W. Liese and Liese & Associates Insurance, Inc. purportedly as agents for United Pacific Insurance Company. The contractor defaulted and another contractor Loomis came in and contracted with Liese to complete the house on a time and materials basis. When his final bill of approximately $14,000.00 was not paid, Loomis filed a mechanic's lien against the property and later filed an action to foreclose on the claim of lien against Cudahy. In turn, Cudahy filed a third-party complaint against Smith and others. A default judgment was entered against Smith which later was set aside.

Pursuant to the provisions of I.C. § 7-902(a) an evidentiary hearing was held on December 2, 1977, before the district court to determine whether a valid agreement to arbitrate existed between the parties. After reviewing briefs and considering the oral testimony presented by Cudahy, the district court ordered the parties to proceed to arbitration. Cudahy sought certified interlocutory review of this order which was denied by this Court on February 3, 1978.

Pursuant to a district court order, the American Arbitration Association (AAA) was appointed to arbitrate the dispute. In August 1978, Cudahy filed a motion to dismiss arbitration with the AAA which was forwarded to the arbitrator. The AAA gave notice dated October 10, 1978, that the arbitration hearing would be held on December 4, 1978. The arbitrator by letter dated November 14, 1978, informed the AAA that the parties had agreed to reschedule the hearing to December 5, 1978. The AAA gave notice dated November 17, 1978, of the new hearing date. Cudahy's counsel sought by letter dated November 16, 1978, a continuance until February 1979 due to alleged personal problems which made Cudahy unavailable for the scheduled After receiving cross-motions to confirm or vacate, the district court confirmed the arbitration award and later denied Cudahy's motion for reconsideration of the confirming order. Cudahy appeals. We affirm.

[104 Idaho 108] hearing. Later, Cudahy's counsel made a formal request for postponement dated December 4, 1978, which was mailed and also hand delivered to the arbitrator and Smith's counsel. On December 5, 1978, after reviewing the request, the arbitrator denied it and proceeded with the hearing. After the denial, Cudahy's counsel left the hearing without presenting any evidence. The arbitrator rendered an award on December 20, 1978, which denied the claims of both parties. ²

Appellant Cudahy first contends that no ruling was ever made on the question of whether or not the agreement to arbitrate was valid and enforceable. This contention is without merit as the record clearly reveals that after a hearing was conducted pursuant to I.C. § 7-902(a), the district court found a valid and enforceable agreement to arbitrate.

Under I.C. § 7-901 "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." This provision together with the following sections comprises the Idaho Uniform Arbitration Act as enacted by our legislature in 1975. By passage of the act, our legislature has aligned Idaho with the majority of jurisdictions which have adopted the Uniform Arbitration Act. Under the act arbitration and agreements to arbitrate are encouraged and given explicit recognition as effective means to resolve disputed issues. ³ Arbitration generally offers an inexpensive and rapid alternative to prolonged litigation. ⁴ It also serves to alleviate crowded court dockets. Since our own sparse array of arbitration caselaw evolved before our legislature enacted the Uniform Arbitration Act as promulgated by the National Conference of Commissioners on Uniform State laws, it is necessary for us to look for possible edification and guidance among the courts of our sister states and the federal system.

I.C. § 7-901 and Section 1 of the Uniform Arbitration Act closely parallel Section 2 of the Federal Arbitration Act. ⁵ In County of Middlesex v. Gevyn Construction Corp., 450 F.2d 53, 56 (1st Cir.1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1176, 31 L.Ed.2d 232 (1972), the court held "that the only grounds for revocation which meet the requirement of 9 U.S.C. § 2 are mutual agreement or a condition which vitiates "[t]he word 'revocation,' when used in a contractual context, ordinarily refers to revocation of an offer or an option; but it is used in Section 2 of the Arbitration Act to apply to a contract and in that connotation obviously is intended to be synonymous with 'rescission.' Rescission is an appropriate remedy when, for example, a contract is induced by fraud, mistake or duress, and is 'used chiefly where the termination of the contractual relation is by mutual consent.' 5 Williston, Contracts § 1454A, page 4063 (Rev.Ed., 1937). 'Revocation' and 'cancellation' are closely synonymous; to revoke means 'to annul, repeal, rescind, cancel.' Glenram Wine & Liquor Corp. v. O'Connell, 295 N.Y. 336, 67 N.E.2d 570 (1946).

                [104 Idaho 109] agreement ab initio, i.e., fraud, mistake, or duress."   In Halcon International, Inc. v. Monsanto Australia Limited, 446 F.2d 156 (7th Cir.), cert. denied, 404 U.S. 949, 92 S.Ct. 286, 30 L.Ed.2d 266 (1971), reh'g denied, 404 U.S. 1026, 92 S.Ct. 672, 30 L.Ed.2d 677 (1972), the court stated with regard to revocation under § 2 that
                

"Since the savings clause of Section 2 is limited to 'revocation,' this is clearly the only type of 'unmaking' contemplated by the act--that is, an unmaking resulting from the mutual cancellation of the contract by the parties or the voiding of the transaction due to fraud, mistake or duress." Id. at 159.

In World Brilliance Corp. v. Bethlehem Steel Co., 342 F.2d 362, 364 (2d Cir.1965), the court held that " '[r]evocation' ... [under § 2 of the act] applies only to cases in which the courts will step in and rescind the agreement, for reasons such as fraud, duress, or undue influence."

In Bernalillo County Medical Center Employees' Association Local Union No. 2370 of Southwestern Council of Industrial Workers, United Brotherhood of Carpenters, AFL-CIO v. Cancelosi, 92 N.M. 307, 587 P.2d 960 (1978), the court examined their statute which parallels our Section 7-902(a) and stated:

"Under this Act it is the court's duty to order arbitration where provision for it is clear. Where provision for arbitration is disputed, the court's function is to determine whether there is an agreement to arbitrate and to order arbitration where an agreement to arbitrate is found." Id. at 961; see also School District No. 46, Kane, Cook, and DuPage Counties v. Del Bianco, , 215 N.E.2d 25, 31 (Ill.App.1966); Bel Pre Medical Center, Inc. v. Frederick Contractors, Inc., , 320 A.2d 558 (Md.Ct.Spec.App.1974), aff'd on other grounds, , 334 A.2d 526 (Md.1975).

This is our first opportunity under the Idaho Uniform Arbitration Act to consider the task confronting a district court judge when entertaining cross-motions to compel or stay arbitration under I.C. § 7-902. By the language of I.C. § 7-902(a) when

"[o]n application of a party showing an [arbitration] agreement ... and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied."

Faced with the issue of determining the proper scope of inquiry required under I.C. § 7-902 and being mindful of the objectives of the arbitration mechanism, we hold that the inquiry must be limited in scope--is there an agreement to arbitrate or is there not. It would be inappropriate to review the merits of the dispute as such would in many instances emasculate the benefits of arbitration.

Appellant contends that the district court's finding in his order on arbitration that a valid agreement was in existence was based upon a severely restricted hearing. In appellant's brief, it is alleged that the appellant was not permitted to introduce proof on issues such as rescission, fraud in the inducement, adhesion contract, vagueness, mutual revocation, waiver, estoppel, fraud or misrepresentation, and "On appeal the appellant must carry the burden of showing that the district court committed error. Error will not be presumed on appeal but...