The opinion of the court was delivered by: FOLLMER
McElwee-Courbis Construction Co., Inc., and Ertel Construction Co.
(hereinafter called 'Contractors') entered into a written contract with York City Sewer Authority, York, Pennsylvania, to construct certain alterations and additions to the City's existing Sewage Treatment Works (hereinafter called 'Sewer Project') for the price or sum of $ 3,774,000. Thereafter, on April 2, 1952, Contractors entered into a subcontract with Joseph H. Rife and Clyde R. Strayer, co-partners trading as Strayer and Rife (hereinafter called 'Subcontractors') for the performance of certain excavation and other work at said Sewer Project. This subcontract provided for a lump sum price of $ 510,000 payable by Contractors to Subcontractors in monthly installments as the work progressed upon certification of the engineer for said Sewer Project. It is undisputed that Subcontractors did proceed with their work and that in connection therewith, from time to time, Contractors have paid Subcontractors sums aggregating $ 298,243.50 until Subcontractors discontinued work on the project. Thereafter formal demand was made by Contractors on Subcontractors and their surety for arbitration as provided, in their opinion, by the contract. Subcontractors and surety refused to arbitrate because in their opinion the questions involved are not referable to arbitration.
On August 27, 1953 Subcontractors instituted suit in this Court (No. 4764) against Contractors claiming damages from alleged fraud in procuring a contract and breaches of contract, and demanded a jury trial. On September 10, 1953 Contractors filed their application and motion for stay of legal proceedings and petition for order directing arbitration. The proceedings were stayed and argument was had. While the matter was under advisement and undecided, Subcontractors proposed to defendants (Contractors) that the latter consent to Subcontractors filing an amended answer to the petition for arbitration. Contractors refused the consent. On November 20, 1953, while the issue was still under advisement, Subcontractors (the plaintiffs therein) moved for the dismissal of the complaint. No responsive pleading on the merits having been filed, plaintiffs' motion to dismiss was granted on July 27, 1954, the Court indicating 'An order may be submitted.' Plaintiffs did not submit such order but permitted the action to remain dormant until defendants (Contractors) procured such order of dismissal to be entered on November 20, 1954.
Coincident with the filing of the order of dismissal of action No. 4764, Contractors instituted suit (No. 5116) in this Court against Subcontractors and their surety. Count One thereof pleads, inter alia, the facts above set forth and prays that an order be made compelling Subcontractors to proceed to arbitrate the dispute between them as required by their written contract. Count Two prays that an order be made compelling Subcontractors' surety to require its principal to proceed with the said arbitration or, in the alternative, to proceed therewith on behalf of the Subcontractors, its principal. Counts Three and Four aver that Subcontractors' surety bond provided that in no event shall the surety be subject to any suit, action or other proceeding thereon that is instituted later than June 30, 1955. Accordingly, as a precautionary measure these counts incorporate the issues involved in Counts One and Two as separate and distinct claims against the possibility that it might finally be determined that Contractors are not entitled to arbitration with respect to such issues, and demand judgment against Subcontractors in the sum of $ 176,286.15 with interest, representing the amount of their loss as a result of the breach of the contract, together with additional sums due by Subcontractors to suppliers of material, etc., for which Contractors may be liable, plus a further sum covering adjustment as set forth in the complaint.
On December 13, 1954, Subcontractors instituted a separate suit in foreign attachment against Contractors in the Court of Common Pleas of York County, Pennsylvania, which proceeding has been removed to this Court as Civil Action No. 5148.
Under date of February 21, 1955, Civil Actions Nos. 5116 and 5148 were consolidated by Order of Court.
Subcontractors (defendants) answered Contractors' complaint in No. 5116 averring, inter alia, that they have refused to arbitrate because Contractors have breached the contract and because the action is not referable to arbitration for the following reasons:
(1) plaintiffs by instituting a civil action have waived and relinquished the right to arbitration;
(2) defendants have and do disaffirm the contract;
(3) fraud and unconscionable conduct at inception by plaintiffs on defendants entitling the latter to disaffirm the contract;
(4) interferences and obstacles placed by plaintiffs in path of performance by defendants were breaches of such a nature as to entitle defendants to disaffirm the contract;
(5) the arbitration clause of the contract is limited to matters of payment, etc.;
(6) no jurisdiction to direct arbitration under Sections 2 and 4 of the Arbitration Act of July 30, 1947, c. 392, Section 1, 61 Stat. 669, 9 U.S.C. §§ 2 and 4.
The contract of April 2, 1952, between the Contractors and Subcontractors carries this clause:
'Article XXI. Disputes -- Board of Arbitration: In case the Contractor and Sub-Contractor fail to agree in relation to matters of payment, allowance of loss or should either of them dissent from the decision of the Architect (or Engineer), then the matter shall be referred to a Board of Arbitration to consist of one person selected by the Contractor, and one person selected by the Sub-Contractor, these two to select a third. The decision of any two of this Board shall be final and binding on both parties hereto. Each party hereto shall pay one-half the expense of such reference. (on written notice of one of the parties hereto to the other)'
As above indicated, I am firmly of the opinion that the agreement of the parties to arbitrate should here be enforced unless the contract itself was completely vitiated by fraud or unless arbitration has been waived by the ...