Park Construction Co. v. Independent School District No. 32 , 209 Minn. 182 ( 1941 )

¹ Reported in 296 N.W. 475. Plaintiff appeals from an order sustaining defendant's general demurrer to the complaint.

In December, 1938, defendant contracted with plaintiff to grade an athletic field. The contract required that "all questions" subject to arbitration thereunder "shall be submitted to arbitration at the choice of either party." Another provision was that "such decision [of the arbitrators] shall be a condition precedent to any right of legal action." The contract did not name the arbitrators but provided for their selection in the event that arbitration was demanded by either party.

Work under the contract progressed until August of 1939, when, dispute having arisen, plaintiff demanded arbitration of five issues. An arbitration resulted, the three arbitrators having been selected pursuant to the contract. Defendant objected to any arbitration on the grounds that there was "no foundation laid for arbitration" and that four of the stated issues were "not matters proper for arbitration" under the specifications.

Notwithstanding such objection, there was a completed arbitration with an award to plaintiff, for the recovery of which this action is brought. All matters designated in plaintiff's demand "were fully tried and submitted to the arbitrators." So we consider that there was no revocation of the agreement to arbitrate.

1. There is much argument whether this arbitration was intended to be under statute or common law. If the former, the award is summarily reviewable and enforceable under 2 Mason Minn. St. 1927, § 9516, rather than by suit on the award. But if the proceeding was under the common law, this action lies on the award. From the complaint, we have difficulty in saying what was the original intention. On that point the contract is not clear. There is material for argument either way. But some months after the contract was signed came the submission. It was executed by a full hearing before the arbitrators and their decision. The decisive thing is that in the submission, hearing, and award the parties intended and accomplished what was a common-law arbitration. The agreement for arbitration and the proceedings in pursuance to it failed in so many respects to meet the requirements for statutory arbitration under 2 Mason Minn. St. 1927, § 9513, et seq., that it is impossible to suppose an intention to proceed thereunder. In what the parties did finally, as distinguished from what at the outset they agreed to do, there was plainly no thought of statutory as distinguished from common-law, arbitration.

The statute authorizing arbitration, 2 Mason Minn. St. 1927, § 9513, declares that "nothing herein shall preclude the arbitration of controversies according to the common law." So the case comes to just this. There was actual submission, full hearing, and award. All was the action of competent parties. They got the result intended and for which they had the right to contract. Because of their competence and the lawful nature of both means and end, it would be sheer caprice for us to nullify the whole proceeding.

In Holdridge v. Stowell, 39 Minn. 360, 40 N.W. 259, it was held that where a controversy has been submitted to arbitrators and it is clear that a statutory arbitration was the thing intended, but the statute has not been obeyed, the proceeding cannot have effect as a common-law submission. That proposition has had the best reconsideration of which we are capable.

This is a problem concerning which there has been much judicial disagreement. The then leading cases on both sides were considered in the Holdridge case. The reasoning adopted in that decision was taken from Sargent v. Inhabitants of Hampden,32 Me. 78. The gist of it is this. The report (of the arbitrators) "cannot be treated as an award at common law, without annulling the agreement of the parties, and substituting in its place a new and different contract."

At that determinative point we disagree with the thesis that a completed arbitration, not complying with the applicable statute, cannot be sustained under the common law, where, as here, the statute so plainly preserves the common-law right of arbitration. Our deferential submission is that even though the initial agreement of the parties contemplated a statutory arbitration, they have not thereby lost their right later to proceed under the common law.

So, even though first intention was to stick to the statute, if later they have set up a common-law arbitration, the parties themselves have annulled their first agreement for a statutory proceeding. Their own effective action has substituted one at common law. We just cannot discover why we have any right to thwart such a legitimate purpose so lawfully accomplished. Insofar as Holdridge v. Stowell, 39 Minn. 360, 40 N.W. 259, runs counter to the foregoing, it is overruled.

2. The question has been raised whether the determinative contract, insofar as it provides for arbitration of all disputes, is void as against public policy. Possibly by a restrictive construction of the provision for arbitration, we might avoid decision of the question of law. We elect not to do so.

The historical and only basis for the opinion that executory agreements to arbitrate all issues to arise under a contract are void, as against public policy, is open to serious question. There is eminent authority (Lord Campbell, in Scott v. Avery, 25 L. J. [N. S. Exch.] 308, 313), that the rule was the product of judicial jealousy rather than judicial reasoning. He said that it arose in the time when "the emoluments of the Judges depended mainly, or almost entirely, upon fees." In those days they had no fixed salary and so "there was great competition to get as much as possible of litigation into Westminster Hall, and a great scramble * * * for the division of the spoil." In consequence, "they had great jealousy of arbitrations * * * Therefore they said that the Courts ought not to be ousted of their jurisdiction, and that it was contrary to the policy of the law to do so."

To that doctrine, its questionable origin aside, there are two destructive objections.

First, there appears never to have been any factual basis for holding that an agreement to arbitrate "ousted" jurisdiction. It has no effect upon the jurisdiction of any court. Arbitration simply removes a controversy from the arena of litigation. It is no more an ouster of judicial jurisdiction than is compromise and settlement or that peculiar offspring of legal ingenuity known as the covenant not to sue. Each disposes of issues without litigation. One no more than the other ousts the courts of jurisdiction. The right to a jury trial, even in a criminal case, may be waived. So, also, may the right to litigate be waived. Such waiver may be the result of contract or unilateral action.

"The decision by arbitration is the decision of a tribunal of the parties' own choice and erection." Daniels v. Willis,7 Minn. 295, 303 (374). The tribunal is one that they have a legal right to erect. That being so, what self-justification can judges assert for nullifying such rightful choice? In the field of industry, a chorus of deserved derision would silence declaration that a collective bargaining agreement for arbitration of future issues was violative of public policy.

Second, if there ever was public policy against agreements to arbitrate, it has disappeared. Now the policy of this state, as declared by the legislature, 2 Mason Minn. St. 1927, § 9513, etseq., and applied by this court, Daniels v. Willis, 7 Minn. 295 (374), and Larson v. Nygaard, 148 Minn. 104, 108,180 N.W. 1002, favors arbitration.

Public policy, where the legislature has spoken, is what it has declared that policy to be. So far as the question of policy is concerned, our statute settles the matter. It not only establishes the process of statutory, but confirms that of common-law, arbitration.

Here again our conclusion opposes that of many earlier decisions of this court. Insofar as they have ruled that a general agreement to arbitrate all differences to arise under a contract is contrary to public policy and therefore void, they are overruled. They include: Gasser v. Sun Fire Office, 42 Minn. 315,44 N.W. 252; Whitney v. National Masonic Acc. Assn.52 Minn. 378, 54 N.W. 184; Aaberg v. Minnesota Com'l Men's Assn.152 Minn. 478, 189 N.W. 434; Abramowitz v. Continental Ins. Co. 170 Minn. 215, 212 N.W. 449; Glidden Co. v. Retail Hdwe. Mut. F. Ins. Co. 181 Minn. 518, 233 N.W. 310, 77 A.L.R. 616. They are disapproved notwithstanding their accord with a prevailing view of decision law elsewhere. Restatement, Contracts, § 551.

For this departure from a doctrine of long standing, we make no apology. To us, the reasons assigned are so compelling as to allow no other course. It is enough that the legislature has declared for arbitration, both statutory and common-law. That fixes the policy of this state for, rather than against, arbitration. The apology should be rather for the regrettable fact that our decision law did not promptly reflect the legislative declaration.

3. No rights of property involved, nor rule of practice, the American doctrine of stare decisis is guiding policy, not inflexible rule.² 14 Am. Jur., Courts, § 124, et seq. It is no shield for plain error. Neither does it bar coördination of legal philosophy with that of new and commanding facts. Such coördination is necessary in order to satisfy the imperative demand for realistic judicial treatment of issues in their own actual environment rather than a synthetic one made from the materials of discarded doctrine. Particularly, it can have no restraining effect when, as here, an earlier policy of decision law is opposed to a later rule declared by statute.

The sound conservatism of our regard for judicial precedents has done much in the promotion of what democracy knows as civil liberty. To its frank recognition of the fallibility of judges, to the fact that it does not so shackle the judicial mind as to prevent self-criticism, with resulting disclosure and correction of error, decision law owes its forward view and much of its progress. Not only have judges sought out and corrected their own errors; also, and on occasion, their criticism or suggestions have resulted in the repeal or amendment of an outmoded or incongruous statute. For such reasons, the policy of stare decisis is not only of "the tissue of our law," Melin v. Aronson, 205 Minn. 353, 357,285 N.W. 830, 832, but also that element of its life blood which assures continued vigor and growth.

4. So long as an award of arbitrators is enforceable by action, it is automatically subject to enough of court review. In a proper case, there is no reason why an award should not be sustained in part and rejected in part. 3 Am. Jur., Arbitration and Award, § 134. This may be such a case, for the award of the arbitrators to themselves of what seems to be excessive compensation,³ is so obviously severable from the award as between the litigants that it may be subject to separate consideration and correction. This feature illustrates a danger to which parties may subject themselves by arbitration. If so, it is their concern. It is for them, by appropriate action, to protect against such abuse, either before or after the fact. It is not for the courts to destroy the whole structure of their lawful agreement and conduct in order to rid it of one minor, severable, and objectionable result.

For the stated reasons, we conclude that the complaint set forth a cause of action on the award. Therefore we reverse the order sustaining the demurrer.

Order reversed.

² Therein it differs somewhat from the more inexorable English rule. See Gardner, "A Comparison of the Doctrine of Judicial Precedent in American Law and in Scots Law," 26 Am. Bar Assn. Journal, 774. This searching review shows how, of necessity, from the very nature of the judicial process, decisions tend to become law. Even in civil law, the inescapable force of precedent, as law, is felt and recognized. "In modern French law there is now a very considerable body of jurisprudenceconstante, or case law, which is observed in practice, although it seems theoretically opposed to the intention of the code."Id. 776.

³ The self-determined fees of the arbitrators were $300 each, a total of $900. The award was $1,544.74.