Werneberg v. Pittsburg

Opinion by

Mb. Justice Mestrezat,

W. E. Howley & Company by a contract in writing dated September 16, 1896, agreed with the city of Pittsburg to construct a street in the city, known as Grant Boulevard, beginning at Seventh avenue and extending to Center avenue, a distance of about three miles. Howley & Company failed to begin the work, and on November 19, 1896, the contract, with the consent of the city and the surety of Howley & Company, was assigned to Werneberg, Sheehan & Company, the legal plaintiffs and appellants, who began the work on November 23, 1896, and completed it on March 26, 1901. The contract provided that the work should be commenced October 1, 1896, and be completed on or before May 1, 1898 which was subsequently extended until October 1, 1898. During the progress of the work, the plaintiffs were paid by the city from time to time according to the contract price on estimates of the amount due made by the director of the department of public works. On the completion of the street, March 26, 1901, the director made a final estimate of the entire work done and materials furnished under the contract and found a balance of $6,715.29 due the plaintiffs.

The contract contains two clauses relating respectively to arbitration and to measurements which bear upon the questions raised on this appeal. The arbitration clause provides that “ in case any question or dispute shall arise between the parties of the second part hereto and the said city of Pittsburg, party of the first part hereto, under the said plans, drawings, descriptions, general specifications, general conditions or terms of this contract, respecting the quality, quantity, or value of the work or labor done, or materials furnished or to be done or furnished, or any of the terms, stipulations, covenants or agreements herein contained, or respecting any claim for extra work, or respecting any matter pertaining to this contract, or any part of the same, said question shall be referred to the director of the department of public works of the city of Pitts-burg, whose decision thereon shall be final, binding and conclusive upon all parties, without exception or appeal, and all right or rights of any action at law or in equity under and by virtue of this contract, and all matters connected with and relative to the same are hereby expressly waived by the parties of the second part.” The measuremeijt or estimate clause is, inter alia, as follows: “ It being expressly understood and agreed by the parties hereto that the measurements shall be taken after the completion of the work, and the estimate and certificate of the director of the department of public works shall be final and conclusive evidence of the amount of work performed by the said contractor under and by virtue of this agreement and shall be taken as the full measure of compensation to be received by the contractor, without the right of exception or appeal.”

At the time of the execution of tl e contract Edward M. Bigelow was the director of public works of the city of Pitts-burg and continued in office until June 11, 1900, when he was succeeded by George W. Wilson, who held the office until June 11, 1901, when he was removed by the recorder of the city and was succeeded by his predecessor, Mr. Bigelow, who continued in office until November 25, 1901, and was then succeeded by J. Guy McCandless, who held the office until April 1, 1903, when he was succeeded by Mr. Bigelow who was again appointed and has since continued to ¿old the office.

On the completion of the work in March 1901, the plaintiffs submitted to George W. Wilson, then director of the department of public works, a claim against the city for damages growing out of the contract and over and above the contract price of the work, aggregating $384,944.07. On April 6,1901, director Wilson, after notice to the parties, satas arbitrator under the terms of the contract and heard the claims of the plaintiffs and defendant. Before the director made his award, however, he was removed from office by the recorder of the city on June 11, 1901, and thereafter Reclined to complete the arbitration by rendering a decision up<jm the matters submitted to and heard by him. On May 12, 1902, more than a year after the work had been completed and i;he final estimates of the amounts due according to the contract price had been made, J. Guy McCandless, then director of the department of public works, notified the parties that he would sit as arbitrator to determine the dispute between them under the arbitration clause of the contract. The plaintiffs denied his authority to sit as arbitrator and refused to appear before him. The director, however, proceeded with the arbitration and after hearing the testimony offered by the city and considering the proofs filed by the plaintiffs with director Wilson at the former arbitration, made a decision in writing on February 10, 1903, awarding to the plaintiffs the sum of $34,120.

The plaintiffs brought this action July 31, 1901, to recover the claim for damages which they had submitted to director Wilson for adjustment under the arbitration clause of the contract. A verdict was rendered for the plaintiffs for $134,427.64, increased by agreement to $140,040.41, subject to the question whether there was any evidence which entitled the plaintiffs to recover. Subsequently, the trial court entered judgment non obstante veredicto in favor of the defendant, holding that the arbitration clause vested jurisdiction in the director of the department of public works and that the proceedings before director Wilson were incomplete at the time he was removed from office and that thereafter he had no authority to make a decision; and further that the adjudication of director McCandless was final and conclusive on both parties and estops the plaintiffs from maintaining this action. The learned judge further held that if he were in error as to the effect of the arbitration clause of the contract, the final estimate clause would prevent the plaintiffs from recovering in the action. These are the two reasons assigned by the court for entering judgment for the defendant.

The errors complained of on this appeal are the entering of judgment non obstante veredicto for the defendant and in admitting in evidence on the trial of the cause, against the objection of the appellants, the award of director McCandless. The appellants contend that as the dispute between the parties arose while George W. Wilson was director of the department of public works, and it having been submitted to, and heard by,- him and he having been removed from office by the city before making an adjudication and thereafter declin' ing to make a decision, the common-law jurisdiction of the courts attached. It is denied by the appellants that the measurement clause of the agreement prevents them from demanding and recovering the damages claimed in this action as held by the trial court.

that as Wilson was re-his authority to act as Vhat he did. in the mat-1. The first and controlling question for determination is the effect to be given to the reference' of the matters in dispute to director Wilson and his failure to make a decision thereon. The learned trial judge held moved before he made an adjudication arbitrator was terminated, and that ter amounted to nothing and made no change in the rights of the parties.” It is well settled in this state that parties to an executory contract may agree to submit their differences arising out of the contract to a person or tribunal named, whose decision or award shall be final, and that when they do so they cannot seek redress elsewhere until the arbiter agreed upon has been discharged, either by the rendition of an award or otherwise : Commercial Union Assurance Co. v. Hocking, 115 Pa. 407. It is conceded that the arbitration clause in the contract under consideration is valid, and required a reference of the dispute to the director of the department of public works as a condition precedent to the right to sue at law. It must also be admitted that had director Wilson made an adjudication before his removal it would have been binding on both parties. Did his removal from office by the city recorder after the dispute had been submitted to, and heard by, the director deprive him of the authority to complete his duties as arbitrator by making an award? We think not. The arbitration clause provides, as we have seen, that “ In case any question or dispute shall arise between the parties, .... said question shall be referred to the director of the department of public works of the city of Pittsburg, whose decision thereon shall be final, binding and conclusive upon all parties.” In referring their differences to director Wilson, it is conceded that the parties complied strictly with this provision of their contract. It designates the official to whom the differences between the parties shall be referred, and he is the individual who holds the official position of director of the department of. public works of the city when the adjudication is demanded: North Lebanon Railroad Co. v. McGrann, 33 Pa. 530; Connor v. Simpson, 7 Atlantic Repr. 161. When the dispute arises and the adjudication is called for, the official assumes the position of arbitrator, and his jurisdiction as an individual over the subject-matter of the dispute attaches. He is then the court of the parties whose jurisdiction is conferred by their written contract. The authority to hear and determine the differences between the parties has then vested in a particular individual, and thereafter is in the person and not in the official as such. He then holds two positions : one, director of the department of public works; the other, arbitrator to adjust the dispute between the city and the contractors. The duties of the two positions are separate and distinct, and are in no way interdependent upon each other. The contract invests him with the authority he has assumed, and thereafter neither party can revoke it or prevent him from exercising it, unless the party by so doing is permitted to annul the covenants of his agreement. Having been called upon by the parties to adjust their differences and having entered upon his duties as arbitrator, Wilson’s jurisdiction attached by express authority of the litigants, and he must perform these duties regardless of whether he continues to hold his official position with the city or not. The severance of his relations with the city as director, by resignation or removal, is the end of his authority as such, but it cannot affect his position as arbitrator, the duties of which he has then assumed, and which are those of the individual and not those of the director of the department of public works. The parties unquestionably might have provided by proper stipulations in tlieir agreement for the contingency that has arisen here, and that, upon, the director’s retirement from office, the unfinished part of his duties as arbitrator should be completed by his successor in the office of director, but no provision of that character appears in the contract and we cannot, by construction, insert it in the instrument. Here the dispute had not only been referred to director Wilson but the partios had submitted to him all their proofs, and he had fully heard them, and the only other act to be performed by him in the discharge of his duties as arbitrator was to announce his decision. In the language of Chief Justice Agnisw, in Paist v. Caldwell, 75 Pa. 161, “Under such circumstances, it was not in the power of the defendant at the last moment and after the referees had gone far into the case, suddenly to give a notice of revocation and avert a result; ” neither could the arbitrator, it may be added, by declining to make an award accomplish the same result, or clothe another director with the power and authority to hear and determine the dispute which had been referred to Wilson in conformity with the arbitration clause of the agreement.

The dispute having been properly submitted to director Wilson, it was his duty to adjust the differences of the parties and make an award, and having failed or declined to do so, the power to make an adjudication under the clause of the contract was exhausted and the jurisdiction of the courts attached. Thereafter, if either party desired to enforce against the other a claim for a breach of the contract, he was compelled to resort to an action at law.

If the contention of the court below and the appellee be correct that the decision must be rendered by a person at the time holding the position of director, it would be in the power of the city authorities to control the award by making the necessary changes in the office of director of the department of public works. In this case there is no allegation that Wilson was removed for any cause connected with his duties as arbitrator. But the city charter authorizes the mayor at his pleasure to remove the director and it requires no stretch of the imagination to see how this power may be wielded so as to do great injustice to the other party to contracts of this character. The facts as stated above will disclose how frequent have been the changes in the individuals who have held the office of director of the department of public works in the city of Pittsburg. In less than three years four incumbents of that office have resigned or have been removed and their places filled by an appointment made by the mayor. Justice and fairness therefore require that unless the agreement between the city and its contractor expressly or by clear implication shows such to be the intention of the parties, the contract should not be construed so as to afford the mayor an opportunity to control the award provided for in the arbitration clause of the agreement by exercising his statutory authority of removal from office of the director of the department of public works.

The learned trial judge was of opinion that North Lebanon Railroad Co. v. McGrann, 33 Pa. 530, ruled this case in favor of the defendant. But in this we think lie is in error. In that case the agreement between the company and the contractor provided that the decision of the chief engineer should be final and conclusive in any dispute that might arise between the parties to the contract. After the completion of the road and one Worrell, who had been the chief engineer of the company during the progress of the work, had left the service of the company, a dispute arose as to the amount due the contractors. The latter, against the objection of the company, referred the dispute under the arbitration clause of the contract to Worrell who made an award in favor of the contractors. Suit having been brought on the award, this court hold that as the engineer had resigned before the adjudication was called for, he was without jurisdiction in the matter. The difference between that case and the one at bar is apparent. There the contract required the dispute to be referred to the chief engineer but at the time of the reference to Worrell he had severed his relations with the company and no longer held the position and hence was not “ competent by virtue of his office ” to act as arbitrator. Here, the contract provided that the differences should be referred to the director of the department of public works which position Wilson held when the dispute arose and was referred to him and he heard the parties. Nor do we agree that the opinion in the McGrann case sustains the position of the trial court in this case. It is there said that “ he alone could have awarded who was in office when the adjudication was called for.” The subsequent suggestion in the opinion of the court that the company had the right to have the claim determined by an arbitrator who at the time of deciding should stand in an official relation to it, when read in connection with the language of the opinion quoted above, makes it apparent, as suggested in the argument of counsel, that the learned justice who delivered the opinion regarded the hearing and decision by the arbitrator as practically contemporaneous acts.

We are of the opinion that the disputes between the parties here were properly referred to director Wilson under the arbitration clause of the contract and that he having hoard their claims and proofs and having thereafter declined to make an award the jurisdiction of the courts attached and that the plaintiffs were then at liberty to bring this suit.

2. The learned trial judge placed an erroneous construction upon the measurement clause of the contract. His interpretation of the clause in question, as suggested in the argument, entirely eliminates the arbitration clause from the contract and renders it wholly ineffective and useless. We cannot presume that such was the intention of the parties and unless the language of the instrument forbids, we must hold both clauses to be operative. Under the measurement clause, it was the duty of the director to measure the work and upon that measurement to estimate, according to the contract price, the amount of compensation due the contractors for the work performed. This the director did from time to time during the progress of the work and the estimates were paid the contractors, except the last, which was made after the completion of the boulevard. The clause of the contract in question provides that “ the estimate and certificate of the director of the department of public works shall be final and conclusive evidence of the amount of work performed by the said contractor under and by virtue of this agreement, and shall be taken as a full measure of compensation to be received by the contractor, without the right of exception or appeal.” What is final and conclusive on the parties under this clause are the estimate made by the director from his measurements and his certificate as to'the “ amount of work performed ” and “ the compensation to be received ” therefor by the contractors according to the contract price. There is no “ right of exception or appeal ” by either party to or from the decision of the director on these matters. Both parties are concluded. But save as to these matters, the jurisdiction of the director under this clause does not extend to “ any question or dispute ” between the parties growing out of the contract. The arbitration clause, unless otherwise stipulated in other clauses of the contract, must be invoked for the adjustment of such questions by the director in his capacity as arbitrator. There is no conflict between the two clauses. They are entirely consistent with each other. The duty and authority of the director under each clause are clearly defined and the purpose of each is plainly disclosed. We therefore think the trial judge erred in holding that “ the clause in regard to the final estimate of work done will .... prevent plaintiff from recovering in this case.” In submitting the disputes of the parties to director McOandless in 1902 under the arbitration clause, it is apparent that the city officials were then of the opinion that the measurement clause did not prevent the plaintiffs from submitting to an arbitrator for bis decision the disputes arising out of the claims which had been referred to director Wilson and for which this action was brought.

B. On the theory on which the case was tried in the court below, the award made by director McOandless, more than a year after this action was brought, was clearly irrelevant to the issue being tried and should not have been admitted as evidence. The learned judge having held on the trial of the cause that the court had jurisdiction, the award and its findings were not admissible in evidence for any purpose. And under our view of the legal effect of the reference proceedings before director Wilson, as expressed above, the McOandless award should have been excluded from the consideration of the jury. It was wholly immaterial whether an award had been made by him as director of the department of public works or what his findings were. The jurisdiction of the court having attached, the matters in dispute between the parties were to be adjudicated by a court and jury as though the arbitration clause of the contract had never had any existence.

The learned counsel for the appellee contend that if we should hold with the appellants on the law of the case, that a new trial should not be ordered but that judgment should be entered for the plaintiffs on the verdict. We, however, do not intend to assume the duties of the trial court and the jury and determine the law and the facts of the case. The judgment we are reviewing was entered upon the verdict as an entirety and not upon the findings of the jury on the separate items of the appellants’ claim. This is not the city’s appeal and the record discloses no alleged errors of which it can complain here. But aside from these considerations, we think the error committed by the court in admitting in evidence the McOandless award requires us to direct the case to be tried again. We are by no means satisfied that the admission of this testimony was harmless error, notwithstanding the learned judge on the motion to strike out the testimony said he would “ limit the award to the extent merely that it shows that director McCandless sat as an arbitrator under the contract and made an award. ” What effect the award had on the jury is, of course, not known. But in connection with the offer, it appeared by the testimony of director McCandless that the appellants refused to appear before him and submit any testimony to him as arbitrator, thereby denying his authority to adjust the differences between them and the city. Admitting the award under these circumstances when offered by the city may have discredited the claim of the appellants with the jury; the claim was $384,000, while the verdict was about $134,000, or a little above one third of the appellants’ demand. The importance of the case to both parties seems to require another trial, unembarrassed by the legal question settled by this appeal.

The judgment is reversed with a venire facias de novo.