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Stella v. Garcia Estates Inc.

Decided: January 21, 1975.


For reversal -- Justices Jacobs, Mountain, Sullivan, Pashman and Clifford. For affirmance -- None. The opinion of the Court was delivered by Jacobs, J.


The Appellate Division reversed a Chancery Division judgment which had confirmed an arbitration award. 128 N.J. Super. 173 (1974). We granted certification on the plaintiffs' application. 65 N.J. 568 (1974).

The plaintiffs are tenants of premises leased to them by their landlord the defendant and used as a golf course. In 1971 they sought to exercise a renewal option but the defendant refused to renew on grounds which need not be detailed here. The plaintiffs filed a complaint in the Chancery Division seeking to compel renewal of the lease and the defendant filed an answer and counterclaim in which it set forth, inter alia, the following arbitration clause in the lease:

Any dispute arising under this lease shall be settled by arbitration. The Landlord and Tenant shall each choose an arbitrator, and the two arbitrators thus chosen shall select a third arbitrator. The findings and award of the three arbitrators thus chosen shall be final and binding on the parties hereto.

In its counterclaim the defendant sought judgment directing that arbitration proceed between the parties in the manner provided in their lease and in 1972 Judge McGowan entered judgment to that effect. Thereupon the plaintiffs selected an arbitrator, the defendant selected an arbitrator and these two selected a third arbitrator. The three arbitrators met and, although there were tentative votes in favor of the defendant, ultimately the three arbitrators rendered their final award with two of the arbitrators voting in plaintiffs' favor and the third voting in the defendant's favor. In 1973 Judge McGowan entered a judgment confirming the award in the plaintiffs' favor by the majority arbitrators; he summarily rejected the defendant's contention that no award could lawfully be rendered by the arbitrators without the concurrence of all three of them. The defendant appealed to the Appellate Division which reversed on the ground that unanimity was required by Factors, Inc. v. Salkind, 5 N.J. 485 (1950). In Factors this Court held that an award which

was not signed by all of the three arbitrators was fatally defective; in his opinion Justice Case adhered to the common law rule which provided that in private arbitrations "there must be unanimity of conclusion unless otherwise indicated by the terms of the submission." 5 N.J. at 492. We granted certification on the plaintiffs' application in order to reconsider the subject and, after hearing oral argument, we are satisfied that the single issue of merit calling for present consideration and determination is whether the common law rule should not now be abandoned in favor of a rule that a majority determination is sufficient unless otherwise directed by the agreement to arbitrate.

The English common law at the time of the American Revolution was undoubtedly hostile to arbitrations. See Frank, J. in Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978, 983 (2 Cir. 1942), and Hough, J. in United States Asphalt R. Co. v. Trinidad Lake P. Co., 222 F. 1006, 1007 (S.D.N.Y. 1915). Thus it permitted either party to an arbitration of an existing dispute to withdraw at any time before the actual award and, beyond that, it declared that an agreement to arbitrate future disputes was against public policy and not enforceable. See Kulukundis Shipping Co. v. Amtorg Trading Corp., supra, 126 F.2d at 982-983; Birdseye, Arbitration and Business Ethics 62 (1926); cf. Sayre, "Development of Commercial Arbitration Law," 37 Yale L.J. 595 (1928). Whether the judicial hostility originated in ancient jealousies and fears of being ousted from jurisdiction (Lord Campbell in Scott v. Avery, 5 H.L. Cas. 811, 853, 10 Eng. Rep. 1121, 1138 (1856)) or whether it originated in less ignoble considerations (6A Corbin, Contracts § 1433 (1962)) need not concern us; that there was in fact judicial hostility which must have had its effect on common law doctrines bearing on arbitrations would appear to be beyond dispute. See Shribman v. Miller, 60 N.J. Super. 182, 191 (Ch. Div. 1960).

The English common law permitting revocation prior to the award and declaring agreements to arbitrate future disputes

to be unenforceable was carried over into the common law of the various states. See 6 Williston, Contracts § 1919 (Rev. ed 1938); 6A Corbin, supra, § 1433. In most states the common law has since been altered by statute. See 6 Williston, supra, § 1920 ; Sturges, Commercial Arbitrations and Awards § 26 (1930); Domke, The Law and Practice of Commercial Arbitration § 4.01 (1968). In some states it has been altered by judicial decision. See United Ass'n of Journ. & App. of Plumbing, Etc. v. Stine, 76 Nev. 189, 351 P. 2 d 965 (1960); Park Const. Co. v. Independent School Dist. No. 32, 209 Minn. 182, 296 N.W. 475 (1941); Ezell v. Rocky Mountain Bean & Elevator Co., 76 Colo. 409, 232 P. 680 (1925).

In Stine, supra, the Nevada Supreme Court declined to follow the rule which had at common law declared that covenants for arbitration of all future disputes are "contrary to public policy". 76 Nev. at 204, 351 P. 2 d at 973. In the course of his comprehensive opinion, Justice Badt pointed to the questionable underfootings of the rule when originally enunciated and to the highly changed current circumstances; he quoted approvingly from Justice Wolfe's concurring opinion in Latter v. Holsum Bread Co., 108 Utah 364, 160 P. 2 d 421 (1945), where the Justice had suggested that it was due time that courts evidenced "a change in attitude to encourage rather than discourage use of arbitration machinery in cases where such machinery is well adapted" (108 Utah at 375, 160 P. 2 d at 426); and he held that a provision in a labor agreement for the submission of future controversies to arbitration was entirely lawful and fully enforceable despite the earlier common law notions to the contrary. 76 Nev. at 202-214, 351 P. 2 d at 972-978.

The common law unanimity rule was in all likelihood a subordinate incident of the judicial hostility to arbitrations; it was generally adopted by the various state courts without discussion of its origin or validity though at least one state rejected it with the following brief comment: ...

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