In re Fletcher

• Decision Date: 26 February 1924
• Citation: 237 N.Y. 440,143 N.E. 248
• Parties: In re FLETCHER.
• Court: New York Court of Appeals Court of Appeals

237 N.Y. 440

143 N.E. 248

In re FLETCHER.

Court of Appeals of New York.

Feb. 26, 1924.

In the matter of the application of Stanley Fletcher for the appointment of a third arbiter, under the provisions of a contract dated February 3, 1917, between Stanley Fletcher and Grosvenor Nicholas. From an order of the Appellate Division (206 App. Div. 778,200 N. Y. Supp. 922) affirming an order of the Special Term as appointing a third arbiter, Grosvenor Nicholas appeals.

Reversed.

Appeal from Supreme Court, Appellate Division, Second Department.

Larkin, Rathbone & Perry, of New York City (Albert Stickney, of New York City, of counsel), for appellant.

Collin, Wells & Hughes, of New York City

(John L. Wells, of New York City, of counsel), for respondent.

LEHMAN, J.

On or about February 3, 1917, Stanley Fletcher and Grosvenor Nicholas entered into a written contract which contained a provision that Grosvenor Nicholas should deposit in escrow with three named persons stock of the par value of $40,000 of the corporation of Grosvenor Nicholas & Co., Inc., to be held for Mr. Fletcher upon the condition that in certain contingencies--

‘Mr. Nicholas shall have the right to purchase the said $40,000 aggregate par value of stock of Grosvenor Nicholas & Co., Inc., held for Mr. Fletcher as aforesaid at the fair value thereof, to be determined as of the date of November 1, 1917, and may take and pay therefor within thirty days after the said fair value thereof shall have been determined as hereinafter provided in paragraph fifth hereof.

‘Fifth. The said fair value of the said stock on November 1, 1917 at which Mr. Nicholas may purchase the same shall be determined by an appraisal thereof made by three arbiters, one to be appointed by Mr. Fletcher or his representative, another to be appointed by Mr. Nicholas or his representative and a third to be appointed by the other two.’

It was further provided in the contract that--

‘If Mr. Nicholas shall not so purchase the same within the said thirty (30) days then the certificates for the said stock shall be immediately thereafter delivered to Mr. Fletcher to be held or disposed of by him as he may see fit.’

On November 1, 1917, the contingency had arisen upon which it was agreed that Mr. Nicholas should have the right to purchase the stock; but no third arbiter has over been selected, and no appraisal has been had as provided in the contract between the parties. Apparently Mr. Fletcher or his representative has made some attempts, at least during the last two or three years, to secure the selection of a third arbiter by the other arbiters, and when these attempts failed he made application to the court for the appointment of an arbiter under section 4 of the Arbitration Law, c. 275, of the Laws of 1920. This appeal brings up for review the order granting that application.

[1] Section 4 of the Arbitration Law (Cons. Laws, c. 72) authorizes the appointment of an arbitrator by the court where for any reason ‘there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy’ in connection with an arbitration provided for ‘in the contract for arbitration or in the submission, described in section two.’ Section 2 of the Arbitration Law, as amended by Laws 1921, c. 14, § 1, provides that--

‘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 titleeight of chapter seventeen of the Code of Civil Procedure, or article eighty-three of the Civil Practice Act, shall be valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.’

No contention is made that except as provided in the Arbitration Law the courts have any power to appoint an arbitrator where the parties have provided for the appointment of arbitrators directly or indirectly by themselves, and the Arbitration Law applies only to contracts or submissions ‘described in section two.’ The agreement of the parties in the present case constitutes no actual ‘submission to arbitration’ pursuant to the provisions of the Code of Civil Procedure or the Civil Practice Act even if it could conceivably be regarded as a submission to arbitration at common law. See Wurster v. Armfield, 175 N. Y. 256, 67 N. E. 584.

[2] Moreover though the Arbitration Law applies to all written contracts to settle by arbitration a controversy thereafter arising, including contracts made before the passage of the Arbitration Law (Matter of Berkovitz v. Arbib & Houlberg, 230 N. Y. 261, 130 N. E. 288), yet by its express terms it applies only to such submissions as are ‘hereafter entered into.’ The exercise of the power of the court to appoint an ‘arbitrator’ in this special proceeding must, therefore, rest upon a finding that the provision of the contract providing for the determination of the value of corporate stock by three ‘arbiters' constitutes a provision ‘to settle by arbitration a controversy thereafter arising’ within the meaning of the statute.

It is to be noted at the outset that the contract under consideration does not provide for a determination of demages for which one of the parties may be liable in law; it does not provide for a determination of any question after disagreement of the parties upon that question; it does not attempt to substitute a tribunal created by contract for a court of justice in a dispute which would otherwise be justiciable by the courts. It merely substituted the determination of a particular matter affecting contractual rights, by persons selected by the parties, in place of the determination of that question by the parties themselves in some other manner. If such a provision brings the contract within the application of the Arbitration Law, then it would seem that every contract which provides for an appraisal, a valuation or the determination of any fact affecting contractual rights by one or more persons either named or thereafter to be selected likewise comes within the provisions of that law.

[3] Even prior to the Arbitration Law the courts have held that a provision in a contract that before a right of action arises certain facts shall be determined or amounts and values ascertained is valid and not against public policy (President, etc., D. & H. Canal Co. v. Pennsylvania Coal Co., 50 N. Y. 250), and it cannot be doubted that the provision of the contract under consideration comes within this rule. The primary purpose of the Arbitration Law was to make valid and enforceable provisions for arbitration which had previously been regarded as contrary to public policy, but it also provides a practical method for the enforcement of such provisions and both the letter and spirit of the statute require the courts to hold that this method was intended to apply to all contracts ‘to settle by arbitration a controversy thereafter arising;’ both those which were regarded as valid before the Arbitration Law as well as those which were regarded as contrary to public policy. On the other hand, the language of the statute should not be stretched to cover contracts which do not come within its plain intent where the application of the method of procedure provided in the statute is not practicable.

‘In order to constitute a submission to arbitration there must be some difference or dispute, either existing or prospective, between the parties and they must intend that it should be determined in a quasi-judicial manner. Therein lies the distinction between an agreement for a valuation and a submission to arbitration, for in the case of a valuation there is not as a rule any difference or dispute between the parties and they intend that the valuer shall without taking evidence or hearing argument, make his valuation according to his own skill, knowledge and experience.’ Halsbury, Laws of England, vol. I, p. 440. See, also, Matter of Carus-Wilson & Greene, 18 Q. B. D. 7, where the court held that the valuation of property by appraisers, to be selected, as in the present case, to determine the price to be paid upon a sale constitutes no arbitration, and the distinction is drawn between the appointment of a person ‘to ascertain some matter for the purpose of preventing differences from arising’ and the appointment of a person to settle or determine differences after they have arisen. In the present case no difference or controversy can be said to have arisen between the parties as to the fair value of the stock or the amount to be paid by Mr. Nicholas if he decides to buy it-perhaps because the parties in order to avoid the possibility of such...