PACIFIC VEGETABLE OIL CORPORATION v. C. S. T., Limited. (1946)

This is an appeal from an order of the superior court denying a motion to vacate an award in arbitration.

Appellant, Pacific Vegetable Oil Corporation, and respondent, C. S. T., Ltd., entered into a contract by which respondent agreed to sell and deliver to appellant, with the ultimate destination Mexico, a specified quantity of ‘South Sea sun and/or hot air dried copra.’ The contract provided for: ‘Shipment: per S. S. Edna scheduled to load in Fiji Islands during late January and/or February 1942.’ It further contained the following provision: ‘This contract is subject to published rules of the Foreign Commerce Association of the San Francisco Chamber of Commerce except insofar as these rules may be abrogated by special conditions written into this contract.’

Respondent having failed to make the delivery called for by the contract, appellant demanded of respondent the submission of their dispute to arbitration pursuant to the published rules of said Foreign Commerce Association, and upon respondent's refusal, procured an order of the superior court compelling such submission.

The award of the arbitrators was in favor of respondent and appellant prosecuted an appeal pursuant to rule 511 of the rules of the Foreign Commerce Association, the first sentence of which reads:

‘An appeal from any award of arbitrators may be made to a Board of Appeal of this Association, no member of which shall have been an arbitrator in the matter appealed from.’

The board of appeal having affirmed the award the motion to vacate the award as affirmed was made in the superior court.

Respondent makes the preliminary point that the motion to vacate was not made within three months of the award as required by section 1290, Code of Civil Procedure. While more than three months elapsed from the date of the original award, the motion was within the time limit measured from the date of the award on appeal. We find nothing in the point. The rule requiring the exhaustion of administrative remedies as a prerequisite to court proceedings is so well settled in California as hardly to require any citation of authority. See Abelleira v. District Court of Appeal, 17 Cal.2d 280, 109 P.2d 942, 132 A.L.R. 715; Simpson v. The Salvation Army, 49 Cal.App.2d 371, 121 P.2d 847. Appellant was bound to exhaust its remedies under the rules of the Foreign Commerce Association before appealing to the court and by proceeding within three months after those remedies were exhausted with the award on appeal it satisfied the requirement of Code Civ.Proc. sec. 1290.

It was respondent's contention before the board of arbitration that the performance of its contract was excused under rule 557 which is quoted hereunder:

‘Casualty—Seller shall not be responsible to Buyer for delayed or non-shipment directly or indirectly resulting from a contingency beyond his control, such as embargo, act of government, strike, fire, flood, drought, hurricane, war, insurrection, riot, explosion, epidemic, pestilence, earthquake, accident, perils of the sea, tidal wave, or any other contingency beyond Seller's control not herein enumerated. If, due to any of the causes provided herein, shipment by steamer is not made within two months or by sailing vessel within three months after the contractual time for shipment, contract shall terminate with respect to any goods not then shipped.’

Rules 505 and 506 of the rules governing the arbitration read as follows:

‘Rule 505. Written statements of fact, together with written arguments thereon, must be presented in quadruplicate to the Foreign Commerce Association of the San Francisco Chamber of Commerce, which shall be submitted in their entirety to the arbitrators, but no oral evidence shall be given or personal appearance of the parties permitted unless requested by the arbitrators.

‘Rule 506. Immediately upon receipt thereof, the Chairman of the Association shall submit a copy of the statement of fact to the respective parties to the arbitration, and each shall have the right to reply thereto, but if no such answer is made by either party within a reasonable time, it shall be considered a waiver of the right of answer.’

Pursuant to the rules each party submitted an opening statement, a copy of which was duly submitted to the other. Appellant claimed before the trial court and claims here that because of the fact that the respondent's opening statement was a mere skeleton, and its real proofs were withheld for the reply statement, appellant was denied the opportunity of meeting and attempting to rebut the evidence in support of respondent's defense. To clearly appraise this argument requires an extensive quotation from respondent's opening statement. Herewith is copied verbatim every assertion dealing with claimed impossibility of performance contained in the opening statement, omitting the recital of the dealings and negotiations between the parties (the references are obviously to the S.S. Edna although its name is omitted throughout):

‘* * * Seller contends that performance was impossible because the S.S. _____ was delayed by causes beyond its control, i. e. repairs and war conditions, and because the government of the Fiji Islands refused at any time to grant the necessary export license and in addition purchased all copra in the Fiji Islands—and that the seller is thereby excused.

‘In January, 1941 (sic), the S.S. _____ was still in the United States, having been delayed as the result of necessary repairs and the necessity of proceeding on various phases of its voyage in convoy due to war conditions.

‘By reason of the necessary delay, which was recognized by the Buyer, it in turn advised the Seller that it was agreeable to an extension of the letter of credit to permit loading at a later date. However, regardless of the fact of vessel's delay it became impossible during January and continuing during subsequent months to load the contracted copra no matter when the vessel had called at Suva.

‘During the first week in January Seller understood that an export license from Suva had been refused and this was confirmed on January 8th by the receipt of a telegram from Seller's Suva representative advising that the next trip to Mexico was refused and that it ‘must be Canada.’ * * * It is important to note, however, that the information from Seller's Suva representative specified Canadian shipment and no other. This information of January 8th was again confirmed on January 17th, when Seller obtained further word that the government intended for the present to refuse licenses for destinations other than Canada. There was never any subsequent modification or change in the government's position, and on February 18, 1942, the British Ministry of Food became the buyer of all copra in the Fiji Islands. * * *

‘The same situation continued to prevail in the Fiji Islands during the subsequent months and it was not only impossible to export copra from the Fiji Islands to Mexico or the United States, but it was not even possible to send such copra to Canada on behalf of private parties.

‘The contract between Buyer and Seller was specifically made subject to ‘prevailing government regulations', which were such, not only during the time the vessel was scheduled to load but also during subsequent months, as to prevent Seller from making the contemplated shipment. The contract was therefore terminated because of the prevailing government regulations and because of the impossibility of performance.’

Rules 505 and 506 contemplate the submission of the dispute to the arbitrators entirely on the parties' written statements and written replies, unless the arbitrators request otherwise. If the arbitrators chose to accept the bare, unsupported narrative above quoted it may well be that they would be acting within their authority under the rules in doing so. Appellant's complaint is that the bald narrative assertions in the opening statement were supplemented in the respondent's reply statement by a great amount of supporting evidence and by an additional and new defense which were not properly or at all matters in rebuttal of appellant's opening statement, but constituted a part of respondent's case in chief, that appellant received no copy of this reply statement before the award was made and had no opportunity to meet or rebut the new matter therein contained.

The new defense is found in the following quotation from respondent's reply statement: ‘It (the S.S. Edna) had previously been delayed as a result of war conditions, which were known to Buyer and which alone, considering the fact that the crew refused to sail on account of war conditions and the fact of other delays encountered because of the war, would have been sufficient to terminate the contract under Foreign Commerce Association Rule 557. The contract called for late January or February loading. Due to causes beyond Seller's control, recognized by Buyer, the vessel was unable to load before June. Therefore, the contract clearly had expired under Rule 557 providing for termination if the goods are not shipped by steamer within two months after the contractual time for shipment.’

Of the just quoted language it is well to note that nowhere in the respondent's opening statement was it asserted that the S.S. Edna was unable to load at Suva within two months after February, 1942, nor that the delay was in part due to the crew's refusal to sail on account of war conditions, nor was the express claim made that the contract expired under rule 557 because the S.S. Edna was unable to load within two months after February, 1942. The only fact about the S.S. Edna's movements contained in respondent's opening statement, outside of vague generalities, was that in January, 1941 (clearly a misprint for 1942), it was still in the United States. This would not support a finding that it did not reach Suva in time to load in March or April nor an argument that it was impossible for it to load within the two months grace period provided in rule 557.

The new evidence comprised a detailed recital of the negotiations between the respondent's representative in the Fiji Islands and the government in respect to its fulfilling this contract and its efforts to get an export license, supported by quotations from numerous letters and telegrams, some of them from government representatives. The statement contained an offer to submit the originals of these documents to the arbitrators and it is an admitted fact that they were examined by the arbitrators before they made their award.

The distinction between evidence in chief and rebuttal evidence is too well established to need extensive comment. It is recognized by our code (secs. 607, 2042, Code Civ.Proc.) and is a common place of our procedure (24 Cal.Jur., 764, 765, 767; 64 C.J. 145; 53 Am.Jur. 101, 107). Under the established rules, except where relaxed in the sound discretion of the trial court, the plaintiff and defendant should present all of their evidence in chief at the first opportunity, not being allowed to hold back evidence in chief to be introduced in the guise of rebuttal. The reasons for this rule have probably never been better expressed in a few words than by Mr. Justice Story in Philadelphia and Trenton Railroad Co. v. Stimpson, 14 Pet. 448, 463, 39 U.S. 448, 463, 10 L.Ed. 535:

‘If every party had a right to introduce evidence, at any time, at his own election, without reference to the stage of the trial in which it is offered, it is obvious, that the proceedings of the court would often be greatly embarrassed, the purposes of justice be obstructed, and the parties themselves be surprised by evidence destructive of their rights, which they could not have foreseen, or in any manner have guarded against.’

The reasons for requiring all evidence in chief to be included in the opening statements in an arbitration under the quoted rules are much more compelling than in the ordinary judicial proceeding. The rules contemplate only an exchange of opening statements and one reply statement by each party to his adversary's opening statement. Under such procedure if a party omits most of his evidence in chief from his opening statement and inserts it in his reply statement his adversary is given no opportunity to meet or rebut it either by evidence or argument. That this is just what occurred in this case needs no elaboration to establish.

We can find no distinction in principle between this case and Christenson v. Cudahy Pack. Co., 198 Cal. 685, 247 P. 207. There an award given under the same rules (then differently numbered) was held invalid because through an oversight the opening statement was not delivered to the other party, so that he had no opportunity to reply. The court said (page 691, of 198 Cal. page 209 of 247 P.):

‘In fact these statements and replies were the only means offered by said rules whereby the parties might present the facts of their respective claims before the board of arbitrators. To deprive either of the parties of this right would be to deny to such a party his right to present his case, or to make his defense, as the case might be, and for the arbitrators to make an award before either party had been given the opportunity to present his statement and reply would be to decide the matter before such party had an opportunity to submit his evidence in support of said cause.’ Cf. La Prade v. Department of Water and Power, Cal.Sup., 162 P.2d 13; Olive Proration, etc., Comm. v. Agricultural etc. Com., 17 Cal.2d 204, 109 P.2d 918; McLaurin v. McLaughlin, 4 Cir., 215 F. 345; Speer v. Bidwell, 44 Pa. 23; Cameron et al. v. Castleberry et al. 29 Ga. 495.

We can see no difference in principle between the failure to permit a party to meet his adversary's case by a failure to submit to him the adversary's opening statement, and a similar failure to permit him to meet his adversary's case by the adversary reserving for his reply statement the major portion of his evidence in chief. A simple reading of respondent's opening and reply statements demonstrates that appellant was deprived of the opportunity to meet or rebut the most persuasive evidence in support of respondent's case in chief supporting its claim of impossibility of performance by reason of government interference, and was entirely deprived of the opportunity to meet respondent's claim that the contract was terminated by the unavoidable absence of the S.S. Edna from the point of loading in the Fiji Islands beyond the two months period of grace provided by rule 557.

The award of the arbitrators recited simply that: ‘Evidence submitted confirmed Seller's contention of termination of contract by force majeure.’

It was the opinion of the trial judge, as evidence by a memorandum filed at the time his decision was announced, that by the use of the expression ‘force majeure’ the arbitrators clearly excluded the respondent's claim of termination of the contract by the impossibility of loading the S.S. Edna within two months after February. If the arbitrators believed the statements of respondent that the delay was caused by necessary repairs, refusal of the crew to sail because of war conditions and necessity of sailing in convoy they might well have held that these were contingencies beyond Seller's control within the meaning of rule 557 and have embodied their conclusion to that effect in the expression ‘force majeure.’

Appellant was allowed to see respondent's reply statement after the original award. It argued on appeal to the Board of Appeal the same matters here argued. The award of the Board of Appeal did not pass on the matters herein discussed but decided simply that: ‘Following a careful review of the complete evidence submitted, the Board of Appeals unanimously upholds the decision of the original Arbitration Committee.’ We cannot see that the exhibition of the reply statement to appellant pending the appeal in any way cured the previous error. Under rule 511 there is no provision for submitting additional evidence to the Board of Appeal and a reading of the rule indicates that the only powers of the Board of Appeal are to uphold or reverse the award.

At the time the contract was entered into and at the time of the submission to arbitration rule 508 of the published rules of the Foreign Trade Association read:

‘The findings and award of the arbitrators shall be in writing, signed by the arbitrators, fully setting forth the facts of the case and a copy thereof shall immediately be furnished the parties to the dispute.’

After the submission and before the award Rule 508 was amended by deleting the words ‘fully setting forth the facts of the case.’ The arbitrators set forth no facts in their award other than their conclusion of ‘termination of contract by force majeure.’

Respondent objects that the arbitration is not one held pursuant to the agreement of the parties contained in their contract. There is substantial authority supporting their claim that the language of the contract is not sufficient to bind them to arbitration under the rules of the Foreign Trade Association. General Silk Importing Co. v. Gerseta Corporation, 198 App.Div. 16, 189 N.Y.S. 391; In re General Silk Importing Co., 200 App.Div. 786, 194 N.Y.S. 15; Bachmann, Emmerich & Co. v. S. A. Wenger & Co., 204 App.Div. 282, 197 N.Y.S. 879; Western Vegetable Oils Co. v. Southern Cotton Oil Co., 9 Cir., 141 F.2d 235. However, the order of compulsory submission made by the trial court under which the arbitration was actually held could only have been made on the theory that the contract did bind the parties to submit to arbitration. Sec. 1282, Code Civ.Proc. Respondent is here seeking to uphold the award made pursuant to that order. It does not lie in its mouth to insist on the validity of the award and at the same time to attack the basis upon which the superior court ordered the arbitration. It cannot at the same time seek the benefits of the arbitration award made pursuant to the order of the superior court and contend that the determination of the superior court that its contract bound it to submit to the arbitration under the published rules of the Foreign Commerce Association is erroneous.

In making their contract ‘subject to published rules of the Foreign Commerce Association’ the reference must be construed as incorporating the then existing published rules, and not subsequent amendments thereto. The reference to ‘published rules' appears to make this perfectly clear. The parties bound themselves by the rules then published and hence actually or constructively known to them. They did not even bind themselves to existing rules if not then published, much less to rules not yet adopted. Rule 508 as then published was thereby made a part of their agreement, and the arbitrators should have followed it in making their award. The attempted analogy of procedural changes in the law is not apt. The question is strictly one of contract and the parties are entitled to have the arbitration carried out pursuant to their agreement. Christenson v. Cudahy Pack. Corp., 198 Cal. 685, 247 P. 207, supra; William H. Low Estate Co. v. Lederer Realty Corp., 35 R.I. 352, 86 A. 881, Ann.Cas.1916A, 341; Hines v. Fisher, 61 W.Va. 565, 56 S.E. 904. If the trial court directs a resubmission to arbitration the arbitrators will have no difficulty in proceeding under rule 508 as it was published at the time of the contracting.

Respondent urges that appellant must not only show error in the proceedings but must further show that the error was prejudicial, citing Manson v. Wilcox, 140 Cal. 206, 73 P. 1004 and Moore v. Griffith, 51 Cal.App.2d 386, 124 P.2d 900 Those cases apply the familiar rule to arbitration proceedings that where evidence is improperly excluded upon a trial the party against whom the ruling is made must by offer of proof show the materiality of the excluded evidence in order to support a claim that the ruling was prejudicial. The rule can not be applicable here because, under the peculiar procedure provided by rules 505 and 506, no opportunity was afforded appellant to make any such offer of rebutting evidence to, nor indeed any argument upon, the evidence in chief included in respondent's reply statement before the making of the award. The case is similar in this respect to Christenson v. Cudahy Pack. Co., 198 Cal. 685, 247 P. 207, supra, wherein there appears to have been no showing of what evidence might have been presented in the reply statement. There, as here, no opportunity to make any such showing before the award was presented. The case is analagous to and even stronger than the situation presented in Lawless v. Calaway, 24 Cal.2d 81, 91, 147 P.2d 604, 609, where the court said:

‘Where, however, an entire class of evidence has been declared inadmissible or the trial court has clearly intimated that it will receive no evidence of a particular type or class, or upon a particular issue, an offer of proof is not a prerequisite to arguing on appeal the prejudicial nature of the exclusion of such evidence.’ Cf. Tomaier v. Tomaier, 23 Cal.2d 754, 760, 146 P.2d 905; Caminetti v. Pacific Mut. Life Ins. Co., 23 Cal.2d 94, 100, 142 P.2d 741.

The order appealed from is reversed.

DOOLING, Justice.

NOURSE, P. J., and GOODELL, J., concur.