Marchant v. Mead-Morrison Mfg. Co.

Decision Date03 December 1929
Citation252 N.Y. 284,169 N.E. 386
PartiesMARCHANT v. MEAD-MORRISON MFG. CO.
CourtNew York Court of Appeals Court of Appeals
OPINION TEXT STARTS HERE

Arbitration proceeding by Russell B. Marchant, as trustee in bankruptcy of the Bear Tractors, Inc., against the Mead-Morrison Manufacturing Company. A judgment of the Appellate Division (226 App. Div. 397, 235 N. Y. S. 370) modified, and, as modified, affirmed a judgment of the Supreme Court entered on the award of arbitrators, and both parties appeal, and the defendant appeals by permission of the Appellate Division on certified question from an order which dismissed the appeal from an intermediate order of the Supreme Court in the course of arbitration.

Judgment modified, and, as modified, affirmed, and the order of dismissal affirmed.

The following questions were certified:

‘1. Is the order of January 11, 1927, reviewable as an intermediate order in this proceeding?

‘2. Are the rights of the appellant under any of the provisions of the Fourteenth Amendment to the Constitution of the United States violated by the order directing arbitration to proceed in New York and in Massachusetts?

‘3. Has the court jurisdiction to order the arbitrators herein to hear proof within the city and state of New York under the terms of the contract made and to be performed in the state of Massachusetts?

‘4. Has the court jurisdiction to order the arbitrators herein to hear proof in Massachusetts and so outside the state of New York?’

Crane, Pound, and Hubbs, JJ., dissenting in part.Appeal from Supreme Court, Appellate Division, First Department.

Kenneth M. Spence, Kenneth E. Walser, Louis S. Weiss, and Charles M. Travis, all of New York City, for plaintiff.

Edward F. McClennen and Arthur P. French, both of Boston, Mass., for defendant.

Julius Henry Cohen, Kenneth Dayton, and Burton A. Zorn, all of New York City, for intervening amici curiae.

CARDOZO, C. J.

By contract dated May 25, 1922, Mead-Morrison Manufacturing Company, a Maine corporation, agreed to sell to Bear Tractors, Inc., a New York corporation, 500 tractors, to be manufactured according to specifications and to be delivered in installments. There was an arbitration clause in the following form: ‘If for any reasonany controversy or difference of opinion shall arise as to the construction of the terms and conditions of this contract, or as to its performance, it is mutually agreed that the matter in dispute shall be settled by arbitration, each party to select an arbitrator, and the two so selected to select a third, and the decision of the majority of such arbitrators given after a full hearing and consideration of the matter in controversy shall be final and binding upon the parties, and a condition precedent to any suit upon or by reason of any such controversy or difference. The cost of such arbitration shall be paid by the party against whom the majority of such arbitrators render such decision.’ The contract was closed in East Boston, Mass., and there the tractors were to be manufactured and delivery was to be made.

Bear Tractors, Inc., the buyer, became bankrupt in May, 1924. Two years had then passed since the making of the contract, but of the 500 tractors only part had been received, and these after they were due, according to the schedule for deliveries. Seller and buyer each laid the blame upon the other. A controversy having thus arisen as to the performance of the contract, the trustee in bankruptcy made demand that it be settled by arbitration. Each of the parties nominated an arbitrator. The two so selected were unable to agree upon a third. The deadlock, if not broken, would have made the settlement abortive. In this impasse, the trustee moved the court that it designate a third arbitrator in accordance with the statute. Arbitration Law (Consol. Laws, c. 72) § 4. The seller appeared generally, and opposed the granting of the petition. The chief ground of its resistance was that the arbitration clause should be interpreted as providing for an arbitration in Massachusetts, and nowhere else. The objection was overruled, and the prayer of the petition granted. A third arbitrator was designated by the court to act with the same force and effect as if named in the contract, and the parties were directed to proceed to arbitration before the tribunal thus established. Upon appeal to the Appellate Division, the order was affirmed without opinion. 215 App. Div. 759, 212 N. Y. S. 869. A motion for leave to appeal to this court was made and denied.

There followed a long contest, with 27 hearings, thousands of pages of testimony, and hundreds of exhibits. At its close a majority of the arbitrators filed a report to the effect that the seller had made default in the performance of the contract, and that its default had brought about the bankruptcy of the buyer, with a loss of all the capital invested in the enterprise. The capital thus lost, excluding moneys not invested in reliance on the contract, was fixed in the report at $849,006.76. The award was for that amount, with the costs of the proceeding.

From the judgment entered on the award there was an appeal to the Appellate Division by the seller, the defendant in the arbitration. The Appellate Division held by a divided court that in respect of a separable provision the award was in excess of the powers of the arbitrators. Buyer and seller, plaintiff and defendant, had been directed to proceed to arbitration in accordance with the contract. The powers of the arbitrators were thus measured by the contract, and did not extend to controversies beyond the terms of the submission. There was power to determine the fact of performance or nonperformance by one party or the other. There was no power to assess the damages resulting to the buyer's business by reason of the breach. The judgment was therefore modified, by striking out the award of damages, and, as modified, affirmed.

Cross-appeals are now before us. The seller, the defendant in the arbitration, is dissatisfied because the award has been allowed to stand as an adjudication of its fault. The buyer, the plaintiff in the arbitration, is dissatisfied because the damages, if there have been any, must be assessed and recovered through proceedings in the courts.

1. The appeal by the defendant is a challenge to the order directing arbitration. The challenge must be heeded even now, if the order is merely void, an assumption of unlicensed power. The award can be no stronger than the prop on which it rests. The challenge comes too late, however, if, power being present, there has been merely error in the use of it. Fauntleroy v. Lum, 210 U. S. 230, 235, 28 S. Ct. 641, 52 L. Ed. 1039;Marin v. Augedahl, 247 U. S. 142, 149, 38 S. Ct. 452, 62 L. Ed. 1038;Wagner Electric Mfg. Co. v. Lyndon, 262 U. S. 226, 231, 43 S. Ct. 589, 67 L. Ed. 961. An order for the specific performance of an agreement to arbitrate a controversy is one that finally determines a special proceeding. Hosiery Manufacturers' Corp. v. Goldston, 238 N. Y. 22, 25, 26, 143 N. E. 779. The proceeding thus ended is not a part of the arbitration that is thereby set in motion. It is subject to direct review as a separable controversy. Like any other final order, the mandate, unless void, is not assailable collaterally.

Two reasons are advanced by counsel for the seller why the order has collapsed for defect of jurisdiction.

The order, it is said, is void, because the parties to the contract, in agreeing to arbitrate their differences, had in view an arbitrationin Massachusetts, and not performance somewhere else. Whether this was their meaning was, however, a question of construction, to be determined like any other question of construction by the judge receiving the petition. Jurisdiction was not dependent upon his determining it correctly. We must distinguish between the place of performance in respect of manufacture and delivery and the place of performance for the settlement of difference. The contract was to be performed in Massachusetts to the extent that the things to be sold were to be there manufactured and delivered. The conclusion does not follow of necessity that the remedy prescribed for the settlement of differences was to be sought in the same forum. At common law, general contracts of arbitration, though not specifically enforceable, were not held to be illegal. This is seen from the fact that, in case they were broken, there might be a recovery of damages. Matter of Berkovitz v. Arbib & Houlberg, 230 N. Y. 261, 271, 130 N. E. 288;Red Cross Line v. Atlantic Fruit Co., 264 U. S. 109, 121, 44 S. Ct. 274, 68 L. Ed. 582. The statute of New York does not bring the contract into being, but adds a new implement, the remedy of specific performance, for its more effectual enforcement. This remedy may lawfully be extended to contracts of manufacture made in Massachusetts and there to be performed, unless it is one of the terms of the arbitration clause, implied, if not express, that the arbitration shall proceed in a particular locality. Express restriction there is none in the contract now before us. Whether one is to be implied is a question of intention, to be determined in the light of context and occasion. That is what was done. The court in the discharge of its judicial function was called upon to declare the implications of the promise. We do not say at this time that the determination was free from error. Enough for present purposes that it is not to be ignored as void.

A second objection, more perplexing, is urged now for the first time. The order, it is said, is void, in so far as it appoints a third arbitrator, not nominated by the other two, but designated by the court. The effect of such an order, we are told, is not merely to give specific performance in New York of a contract to arbitrate made in Massachusetts: The effect is to nullify the contract, by exacting a form of arbitration inconsistent with the promise. The parties promised to submit to the decision of two...

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