Bullard v. Morgan H. Grace Co. 

• Decision Date: 15 July 1925
• Citation: 148 N.E. 559,240 N.Y. 388
• Parties: BULLARD et al. v. MORGAN H. GRACE CO., Inc.
• Court: New York Court of Appeals Court of Appeals

240 N.Y. 388

148 N.E. 559

BULLARD et al.

v.MORGAN H. GRACE CO., Inc.

Court of Appeals of New York.

July 15, 1925.

Arbitration proceeding between Clarence T. Bullard and others, copartners under the firm name of the C. T. Bullard Company, and the Morgan H. Grace Co., Inc. From an order of the Appellate Division of the Supreme Court in the First Judicial Department (210 App. Div. 476, 206 N. Y. S. 335), which reversed an order of the Special Term, confirming an award in the arbitration proceedings and vacated a judgment entered thereon, the former appeal.

Order affirmed.

The facts herein are as follows: Shipments under two contracts were to be made by Grace Company to Bullard Company during November, 1923, from the Argentine. The contracts were each for the sale of 500 cases of Argentine best creamery butter, salted, which contained a provision that the Argentine government inspection certificate, certifying that the shipment is of first grade and free from preservatives, together with inspector's certificate certifying free from mold, and weight certificate, to be attached to documents, were to be final. Each contract also contained a provision that any dispute under the contracts was to be settled by arbitration before the New York Mercantile Exchange. The c. i. f. contracts read: ‘Price: 32c per lb. c. i. f. New York.’

Bullard Company made a claim on Grace Company that the butter did not come up to the quality called for by the contract and demanded an arbitration. The respondent, Grace Company, claimed that the question of quality of the butter on its arrival in New York could not be arbitrated, because there was no dispute arising under the contract, since the contract provided that certificates should be final on the subject of quality. The appellant Bullard Company asserted that it was entitled to an allowance by reason of the defective quality of the butter, and that such claim constituted a dispute to be settled by arbitration under the terms of the contract.

A submission was made which stated the matters submitted to arbitration as follows:

‘Whether or not 500 cases of Argentine best creamery butter, contract November 13, 1923, and 500 cases Argentine best creamery butter, contract November 27, 1923, are a good delivery per terms of said contracts.’

The parties then proceeded to the holding of the arbitration before arbitrators selected. On the hearing of the arbitration, the appellants' representative claimed the right to arbitrate the quality of the butter. The respondent's representative stated that the certificates were final, and that the quality of the butter was not the subject of the arbitration. The chairman of the arbitrators ruled that the Argentine inspection was not final, and that the quality of the butter must be taken into consideration by the arbitrators.

Before any testimony was taken on this branch of the case, Grace Company, the respondent, together with one of the arbitrators, withdrew, refused to carry out the arbitration proceedings, and took no further part therein. Two arbitrators thereafter signed findings and an award, dated January 11, 1924, making an allowance to Bullard Company on each contract for the loss occasioned by the alleged inferior quality of the butter on arrival. The Special Term confirmed the award and denied a motion to revoke it, and judgment was entered thereon. The Appellate Division reversed the order and judgment.

Appeal from Supreme Court, Appellate Division, First Department.

Samuel Weinberger, of New York City, for appellants.

Albert W. Putnam, of New York City, for respondent.

David Leventritt and Edgar M. Leventritt, both of New York City, for Liverpool Marine & General Ins. Co., Limited, amicus curiae.

John W. Hogan, of Syracuse, and Wendell P. Barker, of New York City, for Bankers' & Shippers' Ins. Co. of New York, amicus curiae.

POUND, J. (after stating the facts as above).

[1] A preliminary question involved in this appeal is as follows: When a submission to arbitration by three arbitrators has been entered into pursuant to the terms of a contract to settle all disputes thereunder by arbitration, and one of the arbitrators formally withdraws and refuses to take part therein before all the proofs of the parties have been heard, may two arbitrators proceed with the hearing and make a valid award?

Civil Practice Act, § 1453, provides:

‘* * * All the arbitrators selected as prescribed in this article must meet together and hear all the allegations and proofs of the parties; but an award by a majority of them is valid unless the concurrence of all is expressly required in the submission.’

When an arbitrator withdraws before the allegations and proofs of the parties have been heard, the filling of the vacancy by appointment of a substitute arbitrator, either under the terms of the contract, or under Arbitration Law (Consol. Laws, c. 72, §§ 3, 4), becomes a prerequisite to further proceedings under the submission. Bulson v. Lohnes, 29 N. Y. 291. The purpose of the statute was to change to common-law rule which permitted two arbitrators to hear when the third was notified and refused to attend or was willfully absent (Crofoot v. Allen, 2 Wend. 494), and its plain mandate may not be ignored, whether an abritrator at this stage of the proceedings withdraws for good cause or arbitrarily. See, however, Matter of American Eagle Fire Ins. Co. v. New Jersey Ins. Co., 240 N. Y. 398, 148 N. E. 562, decided herewith.

A decision on this point alone might dispose of the appeal, but the question of the right of a party to withdraw from a submission to arbitration is also presented, and a determination of this question is essential to the complete disposition of the case. Appellant contends that it may go on with the arbitration without application to the court, because a submission is irrevocable except as other contracts are revocable. Arbitration Law, § 2. Respondent says you may go on with the arbitration over our withdrawal only when the court says that you are proceeding under the terms of the submission and that we are in default in refusing to arbitrate the question submitted. An analysis of the Arbitration Law becomes helpful at this stage. It makes no change in the law as it stood at the time of its enactment, except to make arbitration agreements and submissions irrevocable and to provide the judicial remedy in case of a default. Berizzi Co. v. Krausz, 239 N. Y. 315, 318, 319, 146 N. E. 436.

Arbitration Law, § 2, provides:

‘ Validity of Arbitration Agreements. A provision in a written contract to settle by arbitration a controversy thereafter arising between the parties to the contract, or a submission hereafter entered into of an existing controversy to arbitration pursuant to title eight of chapter seventeen of the code...