In Re the Arbitration Between Methodist Church of Babylon & Glen-Rich Construction Corp.

267 N.E.2d 88, 27 N.Y.2d 357, 318 N.Y.S.2d 297, 1971 N.Y. LEXIS 1634

• Court: New York Court of Appeals
• Decided: January 6, 1971
• Status: Published

Opinions

Gibson, J.

The appeal involves the provisions for arbitration, and more particularly the conditions precedent to arbitration, expressed in a general contract for the construction of a building. Prior to completion, leakage occurred in the duct work for an air conditioning and hot air heating system, as installed by a subcontractor, and remedial repairs were made. Following the completion of the contract and final payment by the owner, there was further leakage. The subcontractor denied responsibility and his position, predicated on the contention that the plans called for airtight, but not watertight construction, was sustained upon an arbitration to which the owner was not a party. Meanwhile, the general contractor, with the owner’s approval, and in accordance with new plans prepared by the owner’s architect, had corrected the difficulty at a cost of $12,640.33. The contractor’s claim of faulty workmanship by the subcontractor was supported before the arbitrator by the owner’s architect and engineer; the owner’s and the contractor’s interests were at this point united; and the contractor asserts that, having taken a position favorable to the owner and adverse to the subcontractor, and having to that extent relied, albeit mistakenly, on the professional judgment of the owner’s architect and engineer, it could not, at that time, have consistently faulted the owner’s plans and specifications. Indeed, article 20 of the contract vested in the architect the powder to decide, subject to arbitration, disputes concerning defects appearing within a period of one year from the date of substantial completion of the contract, notwithstanding final payment; and to this extent the general contractor would have been obliged to submit to the architect, for his preliminary determination, the question of the architect’s own fault.

When the contractor was defeated on its arbitrated claim against the subcontractor for the $12,640.33 costs of correction, incurred following the final payment under the contract, the contractor commenced an action against the owner for those costs. The owner moved to stay the action on the ground that the subject of the dispute was encompassed by the general contract which provided that all disputes be arbitrated. Special Term sustained this position and ordered all proceedings in the action stayed pending arbitration of the controversy between the parties. Acquiescing in this decision, the contractor took no appeal, but served a notice and demand for arbitration. The owner then moved to stay arbitration on the ground that certain conditions precedent to the right to arbitration contained in the contract had not been met. The contractor argued that the owner, by the position taken in obtaining a stay of the action, when it asserted the right to arbitration instead, had waived any right to seek a stay of the arbitration, a contention that we do not reach.

Denying the stay application, Special Term held that a contract provision (article 40) calling for a demand for arbitration before final payment, except as otherwise provided in the contract, did not vitiate the contractor’s right, inasmuch as another contract provision (article 20, above referred to) did, in fact, relate to correction of work after substantial compliance and did provide for arbitration notwithstanding final payment. The court found it unnecessary to deal with other contentions advanced by the owner relating to conditions precedent (these concerning articles 16 and 39 of the contract), considering that they were questions for the arbitrator.

The Appellate Division reversed this disposition, on the law and the facts, and stayed arbitration ‘ ‘ pending determination by the court, pursuant to CPLR 7503 (subd. [a]) of the issues relating to noncompliance with the time requirements and conditions precedent for arbitration, found in articles 16, 20, 39 and 40 of the * * contract” (29 A D 2d 773). On remand, Special Term dealt with these questions, finding for the contractor and ordering arbitration and the Appellate Division unanimously affirmed, on the Special Term’s opinion (32 A D 2d 962). Appeal is taken by our leave.

Of the contract provisions to which allusion has been made, article 16 requires that the architect be given written notice of extra costs and article 39 provides that the architect shall within a reasonable time make decisions, subject to arbitration, on all claims of the owner and contractor. Special Term found that articles 16 and 39 had not been complied with and appellant owner continues to insist that arbitration is thereby barred; but Special Term found, and its findings were sustained at the Appellate Division, ‘ ‘ it would be unreasonable now to require that simultaneously with the claim against the subcontractor, that the General Contractor should have made a formal claim against the Owner and thereby have charged the architect and engineer with having prepared and approved inadequate plans and specifications ” and, further, that “ the reasonable concurrence by the General Contractor with the Owner and its architect and engineer in their conclusion that the leaks were due to faulty construction, and its decision to proceed first against the subcontractor alone and to withhold any claim against the Owner until the prior arbitration had been completed should not now form the basis for precluding an arbitration of this dispute, notwithstanding the lack of compliance with Articles 16 and 39.”

Implicit in the finding that the parties were, at the time, in “ reasonable concurrence ” as to the subcontractor’s fault, is the conclusion that there then existed no dispute between the parties, within the contemplation of articles 16 and 39, and hence that those articles were inapplicable in any event. Governing, instead, are articles 20 and 40. Article 20, dealing with corrective work after completion, the precise problem in this case, requires the owner to give notice of observed defects with reasonable promptness and provides that all questions arising under this article "shall be decided by the Architect subject to arbitration, notwithstanding final payment. ’ ’ Recognizing, as we have done, and as did the Special Term, that, realistically, the contractor was precluded from formal observance of article 20; and considering, too, the inconsistency and, indeed, futility of a submission to the architect of a claim which would have to be predicated on his own fault and which he had, indeed, predetermined by assigning fault to the subcontractor; it is clear that article 20 rendered operative the provisions of article 40, the arbitration article, which the contractor has properly invoked.

The order of the Appellate Division should be affirmed, with costs.