Smith v. Cumberland Group, Ltd.

Decision Date21 January 1997
Citation687 A.2d 1167,455 Pa.Super. 276
PartiesVictor P. SMITH, Jr., t/d/b/a Smith Management Group, Appellee, v. CUMBERLAND GROUP, LIMITED, a corporation, and Mass Construction Group, Inc., a corporation, Appellants.
CourtPennsylvania Superior Court

Francis M. Socha, Harrisburg, for appellants.

Stephen J. Jurman, Pittsburgh, for appellee.

Before KELLY, JOHNSON and OLSZEWSKI, JJ.

KELLY, Judge:

In this appeal, we have been asked to decide whether the trial court properly denied the appellants' preliminary objections and permanently stayed arbitration. Specifically, we must determine whether the arbitration clause contained in a construction contract between an owner and a general contractor who then assigned the contract to another contractor is invoked in a contract dispute between the owner and the assignee-contractor. For the reasons set forth below, we hold that the arbitration clause is assignable and is therefore invoked in this dispute. Accordingly, we reverse and remand for arbitration proceedings.

The facts and procedural history underlying this appeal may be summarized as follows. Smith Management Group (hereinafter "Smith") as owner and Cumberland Group, Limited (hereinafter "Cumberland") as contractor entered into a contract for renovations and improvements to the "Italian Oven" restaurant in Lancaster, Pennsylvania. 1 Victor P. Smith, Jr. for Smith returned the signed contract, dated August 19, 1994, to Cumberland with a cover letter dated October 28, 1994. According to the terms of the contract, the substantial completion date was to be November 28, 1994. The contract also contained an arbitration clause wherein the parties agreed to arbitrate any disputes between the contractor and the owner arising out of or relating to the contract documents. 2

On or about January 1, 1995, Cumberland assigned the contract to Mass Construction Group, Inc. (hereinafter "Mass") as part of the sale of Cumberland's assets to Mass. 3 Mass commenced construction on the Italian Oven project shortly thereafter and substantially completed the project on April 24, 1995. During construction, Mass held weekly construction job conferences at the job site at which Victor P. Smith, Jr. or a Smith representative as well as representatives from Mass were present. Notes from these conferences were sent to Mr. Smith on Mass letterhead. Mr. Smith corresponded directly to Mass concerning construction progress and Mr. Smith signed five progress payment checks made payable to Mass. Mr. Smith withheld payment of the balance to Mass, however, when a dispute arose over the substantial completion date for the project.

On July 17, 1995, Mass filed a demand for arbitration against Smith with the American Arbitration Association pursuant to the terms of the assigned contract. On July 28, 1995, Smith filed a civil complaint against Cumberland and Mass. In Count I of the complaint, Smith averred that Cumberland breached the contract by failing to complete the work within the time provided. In Count II, Smith averred that if Mass performed the contract for Cumberland, then Mass is liable to Smith for damages. On August 30, 1995, Smith filed an application to stay arbitration pursuant to 42 Pa.C.S.A. § 7304(b) 4 claiming Mass was not a party to the contract and that Smith never agreed to arbitrate any claim or dispute with Mass.

Also on August 30, 1995, Cumberland and Mass filed their preliminary objections alleging, inter alia, that the trial court should dismiss Smith's complaint because the court lacked jurisdiction due to the contract's arbitration clause voluntarily entered into by the parties and Smith's failure to comply with those mandatory provisions. On the same day, the trial court granted Smith's application to stay arbitration pending argument on the preliminary objections scheduled for November 30, 1995. On February 1, 1996, the trial court filed its opinion and order denying the preliminary objections and continuing the stay granted on August 30, 1995. Cumberland and Mass then filed this timely appeal.

On appeal, appellants raise the following question for our review:

WHETHER THE [TRIAL] COURT ERRED IN DENYING THE PRELIMINARY OBJECTIONS OF THE APPELLANTS SEEKING THE DISMISSAL OF THE APPELLEE'S COMPLAINT FOR FAILURE OF THE APPELLEE TO SUBMIT THE DISPUTE TO COMPULSORY

ARBITRATION AS REQUIRED IN THE CONTRACT BETWEEN THE PARTIES?

(Appellants' Brief at 6).

As a matter of public policy, the courts of this Commonwealth strongly favor the settlement of disputes by arbitration. Langston v. National Media Corporation, 420 Pa.Super. 611, 615-16, 617 A.2d 354, 356 (1992) (citations omitted); Dickler v. Shearson Lehman Hutton, 408 Pa.Super. 286, 294, 596 A.2d 860, 864 (1991), allocatur denied, 532 Pa. 663, 616 A.2d 984 (1992). "[W]hen parties agree to arbitration in a clear and unmistakable manner, the court will make every reasonable effort to favor such agreements." DiLucente Corporation v. Pennsylvania Roofing Co., Inc., 440 Pa.Super. 450, 456-57, 655 A.2d 1035, 1038 (1995), allocatur denied, 542 Pa. 647, 666 A.2d 1056 (1995) (citing Hassler v. Columbia Gas Transmission Corporation, 318 Pa.Super. 302, 307, 464 A.2d 1354, 1357 (1983)). When one party to an agreement seeks to prevent another from proceeding to arbitration, judicial inquiry is limited to determining (1) whether a valid agreement to arbitrate exists between the parties and, if so, 5 (2) whether the dispute involved is within the scope of the arbitration provision. Messa v. State Farm Insurance Company, 433 Pa.Super. 594, 597, 641 A.2d 1167, 1168 (1994) (citations omitted); PBS Coal, Inc. v. Hardhat Mining, Inc., 429 Pa.Super. 372, 376-77, 632 A.2d 903, 905 (1993)(citations omitted). "If a valid arbitration agreement exists between the parties and appellants' claim is within the scope of the agreement, the controversy must be submitted to arbitration." Messa v. State Farm Insurance Company, supra at 600, 641 A.2d at 1170. An agreement to arbitrate a dispute is an agreement to submit oneself as well as one's dispute to the arbitrators' jurisdiction. Therefore, a party who can establish that he did not agree to arbitrate may be entitled to enjoin an arbitration proceeding. Gaslin, Inc. v. L.G.C. Exports, Inc., 334 Pa.Super. 132, 141, 482 A.2d 1117, 1122 (1984) (quoting Hoffman v. Gekoski, 250 Pa.Super. 49, 53, 378 A.2d 447, 448 (1977) (en banc ), citing Flightways Corporation v. Keystone Helicopter Corporation, 459 Pa. 660, 331 A.2d 184 (1975)).

Arbitration is a matter of contract and, as such, it is for the court to determine whether an express agreement between the parties to arbitrate exits. Emlenton Area Municipal Authority v. Miles, 378 Pa.Super. 303, 307, 548 A.2d 623, 625 (1988), allocatur denied, 522 Pa. 613, 563 A.2d 498 (1989) (citing Utica Mutual Insurance Company v. Contrisciane, 504 Pa. 328, 334, 473 A.2d 1005, 1008 (1984)); Gaslin, Inc. v. L.G.C. Exports, Inc., supra at 139, 482 A.2d at 1121. Because the construction and interpretation of contracts is a question of law, the trial court's conclusion as to whether the parties have agreed to arbitrate is reviewable by this Court. Emlenton Area Municipal Authority v. Miles, supra. Moreover, the threshold question of whether a party agreed to arbitrate a dispute is a jurisdictional question that must be decided by a court. Patton v. Hanover Insurance Company, 417 Pa.Super. 351, 356, 612 A.2d 517, 520 (1992); Gaslin, Inc. v. L.G.C. Exports, Inc., supra.

Preliminarily, we note that Smith does not argue that he is not a party to the underlying contract, that he did not agree to arbitrate, or that the dispute over the substantial completion date is not within the scope of the arbitration provision. Furthermore, Smith does not claim that the contract with Cumberland was one for personal services and, therefore, was not assignable. The validity of the contract remains unquestioned. Rather, Smith asserts only that the agreement to arbitrate was not assignable without his consent, which consent he would not have given considering that performance under the contract was already in default when the contract was assigned.

Appellants counter that the contract as a whole as well as the arbitration clause was assignable without Smith's consent and, moreover, that Smith's subsequent actions ratified the assignment. We agree with appellants.

Absent an express provision against assignment, the rights and duties under an executory bilateral contract which does not involve personal skill, 6 trust, or confidence may be assigned without the consent of the other party so long as it does not materially alter the other party's duties and responsibilities. Walker v. Mason, 272 Pa. 315, 318-19, 116 A. 305, 306 (1922); Galey v. Mellon, 172 Pa. 443, 446, 33 A. 560, 560 (1896); 6A C.J.S. Assignments §§ 29, 31 (1975); Restatement (Second) of Contracts §§ 317, 318, 323 cmt. a (1981). Where an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of his rights. See Walker v. Mason, supra; Galey v. Mellon, supra; 6A C.J.S. Assignments §§ 73, 88, 89. See also Wilcox v. Regester, 417 Pa. 475, 207 A.2d 817 (1965) (assignor's right to performance by obligor is extinguished and assignee acquires similar right to such performance, making assignee real party in interest within Rule of Civil Procedure requiring all actions be prosecuted by real party in interest); Melnick v. Pennsylvania Company for Banking and Trusts, 180 Pa.Super. 441, 119 A.2d 825 (1956) (assignor's right to performance extinguished and transferred to assignee). Among these rights are the remedies the assignor once possessed. See Robert Lamb Hart Planners and Architects v. Evergreen, Ltd., 787 F.Supp. 753, 757 (S.D.Ohio 1992) (after valid assignment, assignee possesses same rights, benefits, and remedies as assignor once possessed). See generally Black's Law Dictionary, 1294 (6th ed....

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