ARBITRATION AS A CONDITION PRE-
CEDENT.

To exactly what extent it is lawful for parties to

contracts to agree to submit their differences to arbitration, rather than to abide the decision of the ordinary legal tribunals, has given the courts a good deal of trouble to determine. Some confusion has arisen from the failure to distinguish between arbitration as a means of ascertaining facts or measuring values, and arbitration as a means of settling disputes. The former is permissible; the latter only in a limited manner. The difference in question is well defined by Allen, J., in Pres't, etc., D. & H Canal Co. v. Pa. Coal Co., 50 N. Y. 266: In one class the parties undertake by an independent covenant or agreement to provide for an adjustment and settlement of all disputes and differences by arbitration, to the exclusion of the courts, and in the other they merely, by the same agreement which creates the liability and gives the right, qualify the right by providing that before a right of action shall accrue certain facts shall be determined or amounts and values ascertained, and this is made a condition precedent either in terms or by necessary implication." A familiar example of the latter class is the certificate of an architect or an engineer in a building contract. Of this latter class Judge Allen says: "the condition being lawful, the courts have never hesitated to give full effect to it." This sort of arbitration extends not only to values and amounts ascertainable by measures and computations, but also to damages, as, for instance, under a policy of insurance. Thus, in Scott v. Avery, 5 H. of L. Cas. 811, the substance of the decision is thus (rather awkwardly) expressed: "Can a shipowner and an insurer enter into a valid agreement that the shipowner shall pay down a given sum, and that in consideration of such payments the insurer upon the loss of a given ship shall pay to the said owner, not the amount of the loss sustained by her through the perils of the sea, but only such sums of money as shall be settled and ascertained by arbitration? I am not aware of any legal objection to such a contract, whatever may be thought of its prudence. And I think the effect of such a contract is, that no action lies for the breach of it until the same has been ascertained by arbitration." In all these cases, it will be noticed, there is not necessarily any dispute or difference to be settled. Therefore, "arbitration" is perhaps hardly the appropriate word to apply to them.

It is equally well settled that the first class of arbitrations described by Judge Allen in the above quotation is invalid and illegal. This was authoritatively declared in Haggart v. Morgan, 5 N. Y. 422. This was a case of a building contract, containing the following provision: "In case any dispute should arise concerning the work or finish of the

building, the same shall be settled forthwith by arbitrators in the usual way." Upon this the court briefly remark: "The agreement to arbitrate only entitled the party to damages." This case has been deemed the leading one on this point in our Court of Appeals, but after all it seems a little like the famous Kettle case, where the defendant, sued for breaking a borrowed kettle, pleaded, first, that he never had the kettle; second, that it was broken when he got it; third, that it was whole when he returned it. The court, after firstly laying down the law as above quoted, proceed secondly to say, that as the action is for the last installment due on the completion of the work, "this subject is not within the letter or spirit of the covenant to arbitrate;" and thirdly, that there had actually been a submission to arbitrators, but they neglected to make an award within the prescribed time, which certainly was no fault of the plaintiff. One or another of these grounds is probably obiter, but the case has been generally received as adjudging the doctrine which we are examining. From the two lines of Judge Gardiner in this case, in 1851, to the eight pages of Judge Allen in the case first cited, in 1872, there is a remarkable crop of authorities.

The next important case is Hurst v. Litchfield, 39 N. Y. 377, A. D. 1868. The syllabus is as follows: "A stipulation in a written contract for building, etc., that in case any question arises under such contract in relation to the work, both as to the value of work added or deducted, the same shall be adjusted by the architect," is not binding, being against the policy of the common law, and having a tendency to exclude the jurisdiction of the courts provided with ample means to entertain and decide legal controversies." This is the language of Judge Mason. It appears, however, to be quite obiter, for his opinion commences thus: "The referee having found that no question ever arose under this contract between the parties in relation to the value of the work, and there being evidence in the case to sustain such finding, we must receive the finding of the referee as conclusive upon this court as to this fact. The objection, therefore, that this action cannot be maintained, because this matter had not been submitted to the architect, and his adjustment procured, is not well taken," and the court then unnecessarily continue: "There is, however, another answer to this objection." The court say, also (unnecessarily, however), "Where an agreement makes the procurement of the architect's certificate a condition precedent to any right of action, then the rule is as claimed by the defendant in this case, but such is not the agreement between these parties."

We next come to the case which we first mentioned, decided in 1872. The court observe at the outset: "It appears to be well settled by authority, that an argument to refer all matters of difference

or dispute that may arise to abitration, will not oust a court of law or equity of jurisdiction." This rule, they say, is by some traced to the jealousy of courts, and by others to their aversion, from reasons of public policy, to sanction such contracts. The court think that where the parties stand upon an equal footing, and there is no charge of fraud, it would be difficult, if the question were a new one, to assign any good reason why such a contract should not be approved. But after reiterating that the doctrine laid down is too well settled to be questioned, the court declare that the better way is to give effect to contracts, lawful in themselves, according to their terms and the intent of the parties, and that any departure from this principle is an anomaly in the law, not to be extended or applied to new cases unless they come within the letter and spirit of the decisions already made," and that "the tendency of the more recent decisions is to narrow rather than enlarge the operation and effect of prior decisions, limiting the power of contracting parties to provide a tribunal for the adjustment of possible differences, without a resort to courts of law; and the rule is essentially modified and qualified." The court then proceed to pronounce the expressions on this point, in Hurst v. Litchfield, to be obiter, and as resulting from an omission to discriminate between covenants ousting courts of jurisdiction, and those merely providing for the settlement of specified disputes or the ascertainment of values or quantities preliminary to a cause of action. In regard to a provision making such an arbitration a condition precedent, they very pointedly observe: "Whether the determination of the amount and value of the work is a condition precedent to a right of action, depends entirely upon the interpretation of the whole contraet." In this case, the provision was that the defendant was to pay certain additional tolls, which, if the parties could not agree upon them, were to be ascertained by an arbitration. After an elaborate review of all the principal authorities, the court pronounce this a valid provision and condition precedent, remarking: "The defendant only undertook to pay such rate of toll as should be established, as prescribed in the instrument, and cannot be compelled to acquiesce in the determination in any other manner, and until a rate is established, no liability is incurred under the contract or right of action given. This mode of adjustment and settlement of the rate is a part of the agreement for the additional toll, and modifies and qualifies the reservation of the right so that the right does not attach until the same is established. The determination and adjustment is a condition precedent to the right to demand and receive the toll, and no action will lie until the condition has been performed.” This case, therefore, is an authority for two propositions, namely: first, that

no express declaration in the contract that the provision shall be deemed a condition precedent is necessary; and, second, that a provision in a contract that a disagreement on a particular point, not extending to all matters of difference arising under the contract, is valid, and effectual as a condition precedent.

We now pass to the most recent adjudication on this subject, Mentz v. Armenia Fire Insurance Co., 79 Penn. St. 478; 21 Am. Rep. 80. A policy of fire insurance was conditioned that in case of difference between the assured and the company, touching the amount of any loss, such difference should be submitted to arbitrators, whose decision should be final and conclusive, and no action was to be maintained on the policy unless the amount of loss or damage in case of difference or dispute shall be first ascertained. It was held that the condition did not oust the court of jurisdiction of an action on the policy, and that, if the condition was of any effect, the company must show that they admitted the validity of the policy, and their liability under it, and that the only question was as to the extent of the loss. The court admit the well-settled doctrine as to a general arbitration clause, and the distinction between such a case and the requirement of the certificate of a particular person to the amount of a claim. The court express this distinction most admirably: "He is not created a judge or arbitrator of law and facts, but simply an appraiser of work done." In regard to the express provision that no action should be maintained on the policy unless the amount of loss should be first ascertained by arbitration, the court say: "If, however, it was not in the power of the parties to oust the courts of their general jurisdiction, by such an agreement, that clause does not help them. Had a general arbitration clause been valid, it would have been a condition precedent to an action of itself; the provision in question is but the expression of that which was implied." The validity of the clause as a provision for a special, rather than a general, arbitration, was recognized, but it was held that it was incumbent on the insurers to admit the validity of the policy and their liability under it, and to limit the questions to the amount of the loss.

We deduce these principles from the decisions: 1. A general provision for the submission to arbitration of any or all disputes that may arise under a contract is invalid.

2. A provision for the submission to arbitration of a disagreement on any particular specified point is valid.

3. No express words are necessary to render such a provision a condition precedent.

4. The doctrinę first above mentioned is not favored in the law, but the modern tendency is in favor of letting parties choose their tribunal.

LIABILITY OF GAS COMPANIES FOR EXPLOSIONS OF GAS.

THE

question of the liability of a gas company for damages arising from the explosion of gas which has escaped from the service pipes introduced by the gas company into the premises of a customer has recently been considered by the Court of Appeals, in Lanigan against The New York Gas-light Co., not yet reported.

The case was tried before John S. Lawrence, Esq., referee, in the city of New York, and from his report it appears that the defendant had supplied gas to the plaintiff at his request by means of a service pipe entering into the cellar of the plaintiff's premises and connected with a main pipe of the defendant laid under the street; that several months before the explosion the plaintiff discontinued the use of gas, and at that time the defendants removed the meter and undertook to close and fasten up the aperture in the service pipe; that, in consequence of the negligent manner in which said aperture was closed, the gas escaped into the plaintiff's cellar; that, although repeated notices were given to the defendant, the gas continued so to escape; and that August 9, 1870, two of the plaintiff's servants, by his direction, went into the cellar and lighted a match, whereupon an explosion occurred which resulted in so injuring the two servants that they died, and in doing serious injury to the plaintiff's property.

The learned referee reported that the defendant was not liable for the consequences of the explosion for the reason that the negligence of the plaintiff's servants, in introducing a light into the cellar, intervened between the negligent act of the defendant and the explosion, and contributed directly thereto.

On appeal, the General Term of the New York Common Pleas reversed the judgment appealed from. Judge Robinson, in the prevailing opinion in which Judge Van Brunt concurred, says: "This very antagonistic position of the parties, the defendants as the persistent aggressors and trespassers after full notice of the constantly recurring injury they were inflicting as against the plaintiff, who was the sufferer or person incommoded through the injury that was being continuously and willfully perpetrated upon him, deprives the case of any such ground of defense as that founded upon contributory negligence through want of a strict observance of what is deemed to be ordinary prudence or caution. The protection of the rule is confined to cases of accidental and casual or unintentional injury." And again: "These considerations render the case one wholly without any rule of exemption of a gas company from liability for allowing an improper escape of gas."

Chief Justice Daly wrote a dissenting opinion in favor of affirmance.

On appeal, the Court of Appeals unanimously reversed the order of the General Term granting a new trial, and affirm the judgment entered on the report of the referee. See 16 Alb. L. J. 352.

Allen, J., in the opinion of the court, says: "The proximate cause of the explosion was the introduction of a light into the cellar by the servants of the plaintiff acting under his immediate directions. The properties of the illuminating gas in ordinary use, its inflammable and explosive character are well understood, and every person of mature years and ordinary intelligence cannot be presumed to be ignorant of them.

The plaintiff had been for a long time aware that the gas had escaped and was escaping into his cellar and finding its way into other parts of the building, and must be presumed to have known that it would necessarily accumulate in larger quantities and in a more condensed form in the cellar but seldom opened, and but for short periods of time. He must be held to have known the danger of bringing a burning lamp or a lighted match in contact with this free gas, and to be responsible for a disregard of the peril. If he heedlessly or recklessly exposed himself or his property to the danger, he must abide the consequences.

"The maxim volenti non fit injuria applies in all its force to one who heedlessly and voluntarily exposes his person or property to apparent danger or peril. The question was, whether, under all the circumstances, the action of the plaintiff was that of a man of ordinary prudence and discretion, and if they were not, and the injury resulted from such action, he had no claim upon the defendant." See Lannen v. Albany Gas-light Co., 44 N. Y. 459; Holden v. Liverpool Gas Co., 3 C. B. 1.

STATE LEGISLATION IMPAIRING THE OBLIGATION OF CONTRACTS.

SUPREME COURT OF THE UNITED STATES — OCTOBER TERM, 1877.

STATE OF NEW JERSEY, plaintiffs in error, v. YARD1. A statute of a State which declares that all charters of corporations granted after its passage may be altered, amended or repealed by the legislature, does not necessarily apply to supplements to a charter already passed, though the supplement be subsequent to the statute.

2. Nor does a provision in a supplement to the charter, which says that this supplement, and the charter to which it is a supplement, may be altered or amended by the legislature apply to a contract with the company made in a supplement passed long after.

3. Such reservations of the right to repeal found in statutes, unlike similar provisions in the constitution of a State, are only binding on succeeding legislatures so far as they choose to adopt them, and a legislative contract may be made which is not repealable if the legislature so intend. It is, therefore, in every case a question whether the legislature making the contract intended that the former provision for repeal or amendment should become a part of the new contract by implica

tion.

4. In this case the contract of 1865 for a specific rate of taxation was inconsistent with any such implication, because:

1. There was a subject of dispute and a fair adjustment of the controversy for a valuable consideration on both sides.

2. The contract assumed, by the requirements of the legislation, the shape of a formal written contract signed by both parties.

3. The terms of the contract, that "this tax shall be in lieu and satisfaction of all other taxation or imposition whatsoever by or under the authority of this State or any law thereof," when viewed in the light of the whole transaction, do not admit the idea of the right of the State to revoke it at pleasure.

error to the Court of Errors and Appeals in and for the State of New Jersey. The action was brought in the name of the State on behalf of the Morris and Essex Railroad Company, as prosecutors, against the defendant as State commissioner of railroad taxation. The opinion states sufficient facts. Mr. Justice MILLER delivered the opinion of the court.

This is a writ of error to the Court of Errors and Appeals of the State of New Jersey.

The plaintiff invokes the jurisdiction of this court on the ground that an act of the legislature of that State, approved April 2, 1873, concerning taxation of railroad corporations, impairs the obligation of a

contract between the State and the plaintiff, found in an act of March 23, 1865, and the written acceptance of that act by the company, dated April 24 of that year.

The third section of the act of 1865 reads as follows:

"Be it enacted, That the tax of one half of one per cent provided by their said original act of incorporation, to be paid by the said company to the State whenever the net earnings of the said company amount to seven per cent upon the cost of the road, shall be paid at the expiration of one year from the time when the road of the said company shall be open and in use to Phillipsburgh, and annually thereafter, which tax shall be in lieu and satisfaction of all other taxation or imposition whatsoever, by or under the authority of this State, or any law thereof; provided, that this section shall not go into effect or be binding upon the said company, until the said company, by an instrument duly executed under its corporate seal, and filed in the office of the Secretary of State, shall have signified its assent hereto, which assent shall be signified within sixty days after the passage of this act, or this act shall be void. "

The act of 1873 imposed a more burdensome tax than this on all railroad companies not protected by irrepealable contracts, and the Court of Errors held that this statute was applicable to the plaintiff, because the contract of 1865, which had been formally accepted by the company, was repealable by the legislature of the State.

The single question, therefore, for our consideration is whether the act of March 23, 1865, and its acceptance by the Morris and Essex Railroad Company, constituted a contract which could not be impaired by any subsequent legislation of the State.

The contrary of this was maintained by the Court of Errors, on the ground that while the act of 1865 was a contract, it must be taken in connection with other legislation of the State on that subject, by which the legislature reserve the right to alter and amend the contract, and that this right entered into and became a part of it. Therefore the exercise of this right did not impair its obligation.

The solution of the question here presented must depend, first, upon an inquiry into this supposed reservation of power, and, secondly, into the essential character of the contract of 1865.

The case before us differs from those in which, by the constitution of some of the States, this right to alter, amend and repeal all laws creating corporate privileges becomes an inalienable legislative power. The power thus conferred cannot be limited or bargained away by any act of the legislature, because the power itself is beyond legislative control. The right asserted in this case to amend or repeal legislative grants to corporations being itself but the expression of the will or purpose of the legislature for one particular session or term of the State of New Jersey, cannot bind any succeeding legislature which may choose to make a grant or a contract not subject to be altered or repealed. Or, if any succeeding legislature to that of 1846, which enacted that "the charter of every corporation which shall hereafter be granted by the legislature shall be subject to alteration, suspension and repeal in the discretion of the legislature," shall grant a charter or amend a charter declaring in the act that it shall not be subject to alteration and repeal, the former act is of no force in that case. So it can by a general law

repeal this general reservation of the right to repeal, and all special reservations in separate charters. It follows that, unlike the constitutional provision in other States, it is in New Jersey a question in every case of a contract made by the legislature, whether that body intended that the right to change or repeal it should inhere in it, or whether, like other contracts, it was perfect and not within the power of the legislature to impair its obligation.

The Morris and Essex Railroad Company was chartered by an act of the legislature January 29, 1835. Section 16 enacts that "as soon as the net proceeds of said railroad shall amount to seven per centum (in any one year) upon its cost, the said corporation shall pay to the treasurer of the State a tax of one-half of oue per centum on the cost of said road, to be paid annually thereafter on the first Monday of January of each year; provided, that no other tax or impost shall be levied or assessed."

By section 20, "the legislature reserve to themselves the right to alter, amend or repeal this act whenever they think proper."

The next succeeding legislature, in a supplement to the charter, repealed section 20 and substituted this language: "The legislature reserve to themselves the right to alter or amend this supplement or the act to which this is a supplement, whenever the public good may require it." It is this last clause which counsel insist became, by operation of law, a part of the contract concerning taxation of the act of 1865, already quoted.

The argument is that the original charter, and all subsequent amendments and supplements, are to be treated merely as parts of one act, and that this reserve of the right to alter or amend became a part of every new law which has reference to that railroad company.

In support of this principle the cases of Newark City Bank v. The Assessor, 1 Vroom, 22, and The State v. Bergen, 5 id. 439, are cited.

They announce the general principle that a charter and its amendments are to be considered as acts in pari materia in construing them, and they do little more. The precise point held is, that a city charter, being declared to be a public act, supplements and amendments to it are also to be treated as public acts. But this falls short of establishing the principle that a reservation in a charter to a private corporation, of the right to repeal or amend it, shall extend to every subsequent amendment of the charter. It is not easy to see why such a provision should be extended beyond the terms in which it is expressed; and all the force which properly belongs to it is given when the exemption from the constitutional provision against impairing the obligation of contracts is extended as far as the language of the exemption justifies, and it should be extended no further by implication. The language in the statute we are construing covers the supplement of 1836 and the original act, and nothing more "the right to alter or amend this supplement, or the act to which this is a supplement "- leaving future supplements to make the same reservation, if the legislature so intends.

Section 6 of the general act of 1846 is by its terms limited to charters of corporations granted after its passage, and it requires a very strong implication to make it applicable to amendments to charters in existence before its passage, though the amendments were executed subsequently.