P. R. Post Corp. v. Maryland Cas. Co.

• Decision Date: 24 March 1976
• Docket Number: Docket No. 23495--6
• Parties: P.R. POST CORPORATION, a California Corporation, Plaintiff-Appellant, v. MARYLAND CASUALTY COMPANY, a Maryland Corporation, Defendant-Appellee. 68 Mich.App. 182, 242 N.W.2d 62
• Court: Court of Appeal of Michigan — District of US

Page 62

242 N.W.2d 62

P.R. POST CORPORATION, a California Corporation Plaintiff-Appellant, v. MARYLAND CASUALTY COMPANY, a Maryland Corporation Defendant-Appellee.

Docket No. 23495--6.

68 Mich.App. 182, 242 N.W.2d 62

Court of Appeals of Michigan.

March 24, 1976.

Rehearing Denied May 4, 1976.

Released for Publication June 4, 1976.

[68 MICHAPP 184] Grant, Schon, Wise & Grant by Paul R. Grant, Southfield, for plaintiff-appellant.

Chris M. Parfitt, Southfield, for defendant-appellee.

Before BRONSON, P.J., and R. B. BURNS and D. E. HOLBROOK, Jr., JJ.

[68 MICHAPP 185] D. E. HOLBROOK, Jr., Judge.

Plaintiff ¹ entered into a contract with McDe Construction in August, 1969, to construct a building which the plaintiff was to lease to the federal government for use as a post office. Pursuant to the contract, on June 30, 1970, McDe secured a performance bond and a payment bond from the defendant in favor of the plaintiff. The contract also included a provision requiring all disputes between the plaintiff and McDe to be submitted to arbitration.

During late 1969 and early 1970 the City of Roseville stopped work on the project due to a dispute about the elevation of the building. In order to recover some of its additional costs, McDe filed a request for arbitration against the plaintiff pursuant to the contract. Subsequently, the plaintiff filed a counter request for arbitration to recover damages resulting from McDe's delays. After the arbitration hearing was completed, but before the arbitrator rendered his decision, the plaintiff notified the defendant that McDe was in default on the construction contract. ² The arbitrator's net award was confirmed by the Macomb County Circuit Court and affirmed by this Court. ³

The plaintiff instituted the present suit to recover the damages it suffered when McDe defaulted on the construction contract. The damages the plaintiff seeks to recover specifically include those found by the arbitrator to be due to the plaintiff from McDe. In response the defendant filed a motion to strike any reference to the arbitration proceedings in the plaintiff's complaint. [68 MICHAPP 186] The trial court denied the motion without prejudice, and the defendant filed its answer. Subsequently, the plaintiff filed a motion for summary judgment and the defendant renewed its motion to strike. Following a hearing the trial court granted defendant's motion to strike and denied plaintiff's motion for summary judgment. From this action by the trial court the plaintiff appeals by leave granted.

The resolution of this appeal turns on the amount of weight we determine that the arbitration award is entitled to. If the award is entitled to no weight, the motion to strike was properly granted since any references to the arbitration award in the plaintiff's pleading would be immaterial. GCR 1963, 115.2, Accord, Stevens v. Stevens, 266 Mich. 446, 450, 254 N.W. 162 (1934); Grist v. The Upjohn Co., 1 Mich.App. 72, 86, 134 N.W.2d 358 (1965); see Forstmann Woolen Co. v. Murray Sices Corp., 10 F.R.D. 367, 369 (S.D.N.Y.1950). If, on the other hand, the arbitration award is entitled to at least some weight, the trial court improperly granted defendant's motion.

Conversely, the trial court improperly denied the plaintiff's motion for summary judgment if the arbitration award is admissible and either the defendant failed to plead a valid defense or it is determined that no genuine issue of material fact is in dispute. GCR 1963, 117.2(2), 117.2(3). The summary judgment motion was properly denied otherwise.

The parties initially differ on the significance of the fact that the dispute between the plaintiff and McDe was submitted to an arbitrator rather than to a court. We agree with the plaintiff that the award of the arbitrator is equivalent in this case to the judgment of a court. It has long been the [68 MICHAPP 187] policy of this state to encourage the settling of disputes through arbitration rather than through resort to the courts. Detroit v. A. W. Kutsche & Co., 309 Mich. 700, 703, 16 N.W.2d 128 (1944); The Alpena Lumber Co. v. Fletcher, 48 Mich. 555, 569, 12 N.W. 849 (1882); Chippewa Valley Schools v. Hill, 62 Mich.App. 116, 120, 233 N.W.2d 208 (1975).

In spite of this the defendant argues that the arbitration award is entitled to no weight because it never agreed to submit any of its claims or defenses to arbitration. M.C.L.A. § 600.5001(1); M.S.A. § 27A.5001(1), Grosse Pointe Farms Police Officers Ass'n v. Chairman of the Michigan Employment Relations Commission, 53 Mich.App. 173, 176, 218 N.W.2d 801 (1974), Lv. den. However, both the performance and labor and material payment bonds state that the construction 'contract is by reference made a part hereof * * *.' Since the bond was written on a form furnished by the defendant we strictly construe any provisions of the bond against the defendant. Stark v. Kent Products, Inc., 62 Mich.App. 546, 548, 233 N.W.2d 643 (1975). We view this provision as the defendant's agreement to be bound by the arbitration clause in the contract between the plaintiff and McDe.

Having eliminated the defendant's secondary arguments in support of its motion to strike, we turn to the defendant's primary argument. The defendant claims that it should not be bound by the arbitration award against McDe because it had no notice of the arbitration hearing. However, in making this argument the defendant misconstrues the rule on what weight the arbitration award is entitled to. The rule only makes the award against McDe prima facie evidence against the defendant in the present suit. Sauer v. Detroit Fidelity &[68 MICHAPP 188] Surety Co., 237 Mich. 697, 702, 213 N.W. 98, 51 A.L.R. 1485 (1927); Norris v. Mersereau, 74 Mich. 687, 690, 42 N.W. 153 (1889), Accord, Restatement Security, § 139(2), p. 372. The rule is subject to qualification though, in that there can be no fraud or collusion between the plaintiff and McDe. Sauer v. Detroit Fidelity & Surety Co., supra, 237 Mich. at 701, 213 N.W. 98. This procedure specifically reserves for the defendant the opportunity to present any special defenses that it might have as to its liability. Kent Probate Judge v. American Employers Insurance Co.,283 Mich. 328, 334--335, 278 N.W. 85 (1938).

The defendant retains the right to prove that it should not be held liable for damages awarded by the arbitrator. The defendant remains free to prove that the damages awarded actually occurred prior to the issuance of the bonds in question. It can also show that certain items of damage included by the arbitrator in the award are not covered by the bonds and therefore the defendant has no liability on those items. Accord, Kent Probate Judge v. American Employers Insurance Co., supra at 334, 278 N.W. 85.

Even so, the defendant argues that cases such as those cited in the preceding paragraphs do not reflect modern due process thinking. See, E.g., Lindsey v. Normet, 405 U.S. 56, 66, 92 S.Ct. 862, 31 L.Ed.2d 36 (1972); Gonzales v. United States, 348 U.S. 407, 412, 75 S.Ct. 409, 99 L.Ed. 467 (1955); Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 319, 70 S.Ct. 652, 94 L.Ed. 865 (1950). This argument would be very...