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Under the Arbitration Act, 9 U.S.C.S. § 3, the court cannot grant a stay until it is satisfied that the issue involved in such suit is referable to arbitration under an agreement in writing for arbitration. Clearly the court cannot be thus satisfied without a determination that the parties make such an agreement to arbitrate.
Appellee shipping company alleged that appellant trading corporation agreed to a charter party with it. Appellant first denied that a contract had been formed. Two months prior to trial, appellant made a motion to amend its answer and allege in the alternative that the contract contained an arbitration clause and that the suit should be stayed pending arbitration. The district court denied the motion to amend. The district court found that a contract had been formed, that appellant had breached the contract, and that appellant was liable for damages. Appellant sought review.
Did the district court err in failing to consider whether or not there was an agreement to arbitrate between appellee and appellant before deciding on the matter?
The court reversed and remanded. The court held that the district court should have first determined under the Arbitration Act (Act), 9 U.S.C.S. § 3, whether or not there was an agreement to arbitrate and whether any of the issues raised in the suit were within the reach of that agreement. The court held that appellant should have been permitted to plead in the alternative and that an executory arbitration agreement coming within the meaning of the Act, 9 U.S.C.S. § 2, could be made the basis of a stay order. The court held that appellant was not in default within the meaning of the Act, § 3.