Stefano Berizzi Co. v. Krausz

• Decision Date: 21 January 1925
• Citation: 239 N.Y. 315,146 N.E. 436
• Parties: STEFANO BERIZZI CO., Inc., v. KRAUSZ.
• Court: New York Court of Appeals Court of Appeals

239 N.Y. 315

146 N.E. 436

STEFANO BERIZZI CO., Inc.,

v.KRAUSZ.

Court of Appeals of New York.

Jan. 21, 1925.

Action by the Stefano Berizzi Company, Inc., against Bela Krausz, trading as the Krausz Casing Company. From judgment on an order of the Appellate Division (208 App. Div. 322, 203 N. Y. S. 442), reversing an order of the Special Term, vacating arbitrator's award for defendant, plaintiff appeals.

Reversed, and order of Special Term affirmed.

Appeal from Supreme Court, Appellate Division, First department.

Lemuel Skidmore, of New York City, for appellant.

David T. Smith, and Nicholas A. Heymsfeld, both of New York City, for respondent.

CARDOZO, J.

Plaintiff agreed to sell, and defendant to buy, 8,000 cases of bamboo skewers to be shipped from China to New York. On the arrival of the skewers the buyer refused to pay for them, urging various excuses and finally defects of quality. The seller asked for arbitration in accordance with a provision of the contract that differences between the parties should be settled in that way; and upon application to the court an arbitrator was named. At the hearings before the arbitrator the parties appeared by counsel; witnesses were called upon each side, and examined and cross-examined; a stenographer was present, and minutes were preserved. Thereafter the arbitrator made an award in favor of the defendant. Cross-motions followed, on the one side to confirm the award and on the other to vacate it. On these motions it appeared that the arbitrator, after the hearings had been closed, proceeded without notice to the parties to make an investigation for himself. He gave samples of the skewers to his salesmen, who reported that the men to whom the samples were offered would not use them and that sales could not be made. He made inquiries for himself at important markets in New York, and learned, he says, that the skewers were unsalable and useless. It was on the strength of this personal investigation, as well as upon the testimony submitted, that his award was made. This the arbitrator concedes. Indeed, one gains the impression, when one reads his affidavit, that what he did by himself and without notice was the real basis for his decision. The Special Term upon this showing vacated the award. The Appellate Division reversed, and ordered judgment for the defendant.

[1] An award must be vacated ‘where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.’ Civil Practice Act, § 1457, subd. 3; Code Civ. Proc. § 2374; 2 R. S. p. 542, § 10. We think the conduct of this arbitrator was misbehavior, prejudicing the rights of one of the parties within the meaning of the statute. There is no doubt that this was the law before the adoption of the present Arbitration Act. National Bank of Republic v. Darragh, 30 Hun, 29; Fudickar v. Guardian Mutual Life Ins. Co., 62 N. Y. 392, 405;Knowlton v. Mickles, 29 Barb. 465; Matter of Plews & Middleton, 6 Ad. & Ellis (N. S.) 845; Walker v. Frobischer, 6 Ves. Jr. 70; Drew v. Drew, 2 McQueen Scotch App. Cas. 1; Moshier v. Shear, 102 Ill. 169, 173,40 Am. Rep. 573. True, the arbitrator in this proceeding acted in good faith, but misbehavior, though without taint of corruption or fraud, may be born of indiscretion. This is abundantly established, not only by the adjudged cases, but also by the specific instances of misconduct enumerated by the statute in this very subdivision. Cf. Halstead v. Seaman, 82 N. Y. 27, 30,37 Am. Rep. 536.

[2] The Appellate Division, conceding the previously existing rule, held, however (citing Matter of Berkovitz v. Arbib & Houlberg, 230 N. Y. 261, 269, 130 N. E. 288), that a new public policy had been declared by the present Arbitration Act (Laws 1920, c. 275; Consol. Laws, c. 72), with the result that what had been misbehavior before was misbehavior no longer. But the only new public policy declared by the present act is the removal of the ban that had been laid by the decisions of the courts upon general and executory agreements for the arbitration of future differences. The Legislature has said that such agreements shall be enforceable, and that the tribunal chosen by the parties shall be the tribunal for the trial. The declaration of such a policy does not call for a relaxation of restraints upon the conduct of the arbitrators in so far as those restraints have relation to the fundamentals of a trial and the primary conditions of notice and a hearing. Indeed, they are more important now than ever, if arbitration is to attain the full measure of its possibilities as an instrument of justice. The new policy does not mean that there is to be an inquisition rather than a trial, and that evidence unknown to the parties and gathered without notice may be made the basis of the judgment. If this could otherwise be doubted, there are provisions in the Arbitration Act itself by which doubt is set at...