Horsey v. Horsey

McAULIFFE, Judge,

concurring in part and dissenting in part.

I agree with the Court’s opinion in every respect except as to Section IIIB and the conclusion that the trial court is powerless to give effect to the intention of the parties as expressed by their contract. I believe the parties made it clear in the separation agreement that the spousal support Mr. Horsey agreed to pay was based upon the assumption that Mrs. Horsey had no income at the time the agreement was executed; that the spousal support payments would continue unchanged for at least 11 years, no matter how much income Mrs. Horsey might have during that period; and, that if at the conclusion of the 11 year moratorium Mrs. Horsey had a source of income and the financial circumstances required a reduction in the spousal support payments, a reduction would be made. The agreement contemplated that the parties would first make a good faith effort to agree upon an appropriate reduction, and if they could not agree, they would proceed to arbitration.

Although the Court seems to assume that the parties established sufficient criteria to allow an arbitrator to carry out their intent, it here decides there were no criteria sufficient to permit a court to grant relief if the parties waived arbitration. I disagree. There was in existence at the time these parties entered into the agreement an entire body of law establishing the factors to be considered by a chancellor in determining whether permanent alimony should be adjusted because of a change in the financial circumstances of the parties. It is this body of law, and its clearly sufficient criteria, that I believe the parties intended to incorporate in their agreement when they spoke of the wife being required to “notify the husband of any change in her financial circumstances requiring an adjustment in the alimony payments.” This is consistent with the general rule of contract interpretation that the parties are presumed to know the existing law and to have “had such law in contemplation when the contract was made.” Shell Oil Co. v. Ryckman, 43 Md.App. 1, 8-9, 403 A.2d 379 (1979). In short, although the provision for spousal support was not technical alimony and therefore could not be adjusted by a chancellor in the exercise of equitable powers, the parties intended to provide for modification under the same criteria that would be used if it were technical alimony, with the single exception that the adjustment, if indeed any was required by the changed circumstances, could only be downward. These are the criteria that an arbitrator would have applied, and if arbitration were waived would guide a court.

This is the only interpretation of the contract that makes sense to me; it is certainly the only interpretation that can give efficacy to the obvious joint intent of the parties that any significant income on the part of Mrs. Horsey would warrant a reappraisal of the circumstances and possibly a reduction in spousal support.

[I]t is very commonly stated that when the terms of agreement have two possible interpretations, by one of which the agreement would create a valid contract and by the other it would be void or illegal, the former will be preferred. This is an advisory rule of interpretation, since it is believed that the parties intend their agreement to be valid rather than invalid, lawful rather than unlawful, and honest and effective rather than fraudulent and voidable.

3 Corbin on Contracts, § 546, 170-71 (1960) (footnotes omitted). Giving force to the contract as so interpreted does not create a new contract for the parties, nor does it fix a price or amount where no standards were established to reasonably permit that to be done—it simply embraces the then existing law relating to modification of alimony that I believe the parties intended to incorporate and gives meaning and effect to their agreement.

The majority seems troubled by the fact that a court considering relevant changes in the financial circumstances of the parties will be required to exercise a certain amount of judgment, as opposed to merely applying a precise schedule fixed by the parties, or applying a readily ascertainable factor such as the Consumer Price Index. Certainly the task of the court would be easier if it were called upon only to mechanically apply known or readily ascertainable multipliers, but the requirement that the court exercise discretion, as it would in considering a claim for reduction of technical alimony, should not invalidate the contract or preclude judicial relief.

Courts and juries are frequently called upon to make judgment calls, and even to place a value upon such intangible matters as pain and suffering, in order to give force to a contract. Perhaps a prime example would be a contract for uninsured motorist insurance coverage. The insurer and insured enter into a contract which provides that if the insured suffers damage because of the negligence of an uninsured motorist, the insurer will pay to the insured the amount that the uninsured tort feasor would be legally obligated to pay. We have held that this contract may be enforced by a direct action against the insurer even though the court or jury in that action must determine such questions as negligence, contributory negligence, and the amount of damages that will fairly and reasonably compensate the insured for injuries caused by another, in order to determine the amount due under the contract. See Lane v. Nationwide Mutual Ins. Co., 321 Md. 165, 169-70, 582 A.2d 501 (1990); Nationwide Mut. Ins. v. Webb, 291 Md. 721, 736, 436 A.2d 465 (1981); Reese v. State Farm Mut. Auto. Ins., 285 Md. 548, 554, 403 A.2d 1229 (1979). In effect, a tort action must be tried within the contract action. Even though that procedure involves the exercise of judgment and determinations of fairness, it is appropriate because: 1) it gives force to a valid contract between the parties, and 2) an existing body of tort law is available to permit the trier of fact in the contract action to determine the amount which would have been awarded had such a tort suit been prosecuted. The situation here is analogous.

Alternatively, if the Court is correct in its holding that this contract may be enforced only by arbitration and not by the courts, we should not hold that Mr. Horsey waived his right to arbitration by seeking judicial relief. We addressed the question of waiver of arbitration by participation in judicial proceedings in Chas. J. Frank, Inc. v. Assoc. Jewish Ch., 294 Md. 443, 450 A.2d 1304 (1982). We there reiterated the criteria applicable to the waiver of a contractual right:

A waiver is the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from circumstances. ‘[A]cts relied upon as constituting a waiver of the provisions’ of a contract must be inconsistent with an intention to insist upon enforcing such provisions.

Id. at 449, 450 A.2d 1304 (quoting BarGale Indus., Inc. v. Robert Realty, 275 Md. 638, 643, 343 A.2d 529 (1975)). We further stated:

The intention to waive must be clearly established and will not be inferred from equivocal acts or language---Thus, whether there has been a waiver of a contractual right involves a matter of intent that ordinarily turns on the factual circumstances of each case.

Id. (citations omitted). We concluded that:

[W]hen a party waives the right to arbitrate an issue by participation in a judicial proceeding, the waiver is limited to those issues raised and/or decided in the judicial proceeding and, absent additional evidence of intent, the waiver does not extend to any unrelated issues arising under the contract. Our conclusion that waiver of the right to arbitrate cannot be inferred in the absence of a clear expression of intent is consonant with Maryland’s legislative policy favoring enforcement of executory agreements to arbitrate.

Id. 294 Md. at 454, 450 A.2d 1304. Where, as here, the Court holds that the issues cannot be “raised and/or decided in the judicial proceeding,” we should not find waiver.

The intentional relinquishment of a known right occurs when a party entitled to arbitration elects instead to have the issues decided by a court. As the majority points out, Mr. Horsey clearly intended to give up his right to arbitration if the issues he raised could be determined by the court. Implicitly, he did not intend to give up his right to arbitrate if the court was powerless to assist in resolving the legitimate controversy existing between the parties. Not only is the record devoid of any indication of such an illogical choice on his part, it expressly reveals the contrary. During the hearing below, Mr. Horsey’s attorney stated:

If your honor decides you don’t have jurisdiction, you are going to send [the parties] away to arbitrate.

Mr. Horsey intended to waive arbitration in favor of judicial action—his attorney repeatedly made that clear throughout the hearing. The intent to waive arbitration was, however, clearly contingent upon the ability of the court to resolve the issues, and if this Court finds that the lower court could not resolve those issues, it should not find an “intentional relinquishment of a known right,” but should instead leave the parties free to arbitrate.¹

Mr. Horsey’s attorney also advanced the argument that arbitration was not available in this case because the parties had not included in their agreement any method for selection of an arbitrator. As the trial judge pointed out, that argument was simply wrong—the court has authority to appoint an arbitrator when the agreement of the parties does not provide a method of appointment. See Maryland Code (1974, 1989 Repl.Vol.) § 3-211(c) of the Courts and Judicial Proceedings Article. Arguing that arbitration is not available as a matter of law is not a waiver of the right to arbitrate if the court finds that arbitration is available.

Mr. Horsey’s attorney also argued that the parties should not be required to submit to arbitration because the agreement did not provide for binding arbitration. Again, he was wrong. But that error, and his argument against sending the case to arbitration instead of having the court decide it, should not preclude arbitration if the court finds it is available and has not been waived.

The trial court found that if judicial enforcement of the contract was not available the parties had not waived their right to arbitration. Although I believe judicial relief is available, and that the parties had indeed waived arbitration in favor of that judicial relief, I also agree with the trial . judge that any such waiver was conditioned upon the availability of judicial relief.

Judge CHASANOW has authorized me to state that he joins in the views stated herein.

1 . I do not suggest that the trial court was correct in issuing instructions to the arbitrator, or suggesting that the result of arbitration would be embraced within a later order of the trial court in the same case. As the majority correctly points out, when the trial court determines the case should proceed to arbitration, the pending civil case is ended.