Fudickar v. . Guardian Mutual Life Ins. Co. , 1875 N.Y. LEXIS 520 ( 1875 )

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] Prior to the submission to arbitration of the controversy between the parties, the defendant had dismissed the plaintiff from his agency, and assumed to treat the contract of April 1, 1869, and all rights of the plaintiff thereunder, as terminated and forfeited by his misconduct. The company thereupon assumed control of the business and agencies established by the plaintiff, and not only prevented him from securing new business, but denied and refused to recognize his right to commissions on renewal premiums which might thereafter be paid on policies then in force, issued upon applications procured by him. It was claimed by the plaintiff that he was dismissed without cause and that he was entitled to damages for the breach of the contract by the defendant, including therein compensation for prospective profits upon new business, which he might have secured if the contract had not been terminated; and also, an allowance equal to the present value of his interest in the renewal premiums upon policies issued through his agency.

The defendant denied the liability claimed, and insisted that it had sustained damages in a large amount from the infidelity of the plaintiff. Out of this controversy two actions at law arose; one by the plaintiff against the defendant, and a counter-action by the defendant against the plaintiff; and pending these actions the parties executed a submission under the statute, under which an award was made which is the subject of the present suit. The language of the submission is general and comprehensive. After reciting that divers disputes had arisen between the parties they agree to submit to the arbitrator named, to award and determine of and concerning "all and all manner of actions, cause or causes of action, suits, bills, bonds, judgments, quarrels, controversies, damages, claims and demands, whatsoever," pending, existing or held between them.

The arbitrator under the submission had full authority to investigate and determine all questions arising under the contract of April 1, 1869; the mutual demands and claims of the parties growing out of the dismissal of the plaintiff, and, in short, his jurisdiction was coextensive with the whole field of controversy.

It is the general doctrine pervading our jurisprudence on the subject, that the decision of an arbitrator in a matter within his jurisdiction is final and conclusive between the parties. The jealousy with which, at one time, courts regarded the withdrawal of controversies from their jurisdiction by the agreement of parties, has yielded to a more sensible view, and arbitrations are now encouraged as an easy, expeditious and inexpensive method of settling disputes, and as tending to prevent litigation. The arbitrator is a judge appointed by the parties; he is by their consent invested with judicial functions in the particular case; he is to determine the right as between the parties in respect to the matter submitted, and all questions of fact or law upon which the right depends are, under a general submission, deemed to be referred to him for decision. The court possesses no general supervisory power over awards, and if arbitrators keep within their jurisdiction their award will not be set aside because they have erred in judgment either upon the facts or the law. If courts should assume to rejudge the decision of arbitrators upon the merits, the value of this method of settling controversies would be destroyed, and an award instead of being a final determination of a controversy would become but one of the steps in its progress. The courts in this State have adhered with great steadiness to the general rule that awards will not be opened for errors of law or fact on the part of the arbitrator. (Shephard v. Watrous, 3 Caines, 166; Cranston v. Kenny, 9 J.R., 212; Jackson v. Ambler, 14 id., 105;Mitchell v. Bush, 7 Cow., 185; Emmet v. Hoyt, 17 Wend., 410; Winship v. Jewett, 1 Barb. Ch., 173; Perkins v.Giles, 50 N.Y., 228.)

The general principle is subject to the qualification that awards may be set aside for palpable error of fact, like a miscalculation of figures, or mistake of that nature. It may also be set aside for error of law, when the question of law is stated on the face of the award, and it appears that the arbitrators meant to decide according to the law but did not. In both these cases the award is not what the arbitrators themselves intended. It is not, in fact, their judgment; for, except for the mistake, the award would have been different. But it is held, in accordance with what seems to be a just view of the subject, that arbitrators may, unless restricted by the submission, disregard strict rules of law or evidence and decide according to their sense of equity, (Kleine v. Catara, 2 Gall., 61; BostonWater Power Co. v. Gray, 6 Met., 131; Tyler v. Dyer,13 Me., 41; Hazeltine v. Smith, 3 Vt., 535; Cushman v.Wooster, 45 N.H., 410; Sto. Eq., § 1454.) If, for example, a claim for compensation for the erection of a building by one person on the land of another, under a contract which, by technical construction, makes the right to compensation dependent upon full performance by the builder, is referred to arbitration, and it turns out that there has been a failure by the builder to comply with the contract in some particulars, although the benefit which the other party has received from part performance is greater than the injury sustained by the failure to perform the contract in full, the arbitrator may, I think, where the submission is general, award the excess of benefit, although in an action at law upon the contract he could not, within the decision inSmith v. Brady (17 N.Y., 172), recover.

It must, as has been already observed, appear upon the face of the award that the arbitrators have mistaken the law to enable the court to set aside the award on that ground. If it appear from the award that the arbitrators intended to decide the case according to the law, and the grounds for their decision are set out, which in law do not justify it, the case is brought within the exception to the general rule, and the court will set it aside. But it is not necessary that it should appear by express statement in the award that the arbitrators intended to decide according to law, in order to give the court the power of review. It is sufficient if this be shown by clear and necessary inference.

It is a settled principle governing this subject, and which ought never to be lost sight of, that all reasonable intendments and presumptions are indulged in support of awards. The party alleging error of law must be able to point to the award and say that the arbitrator, as appears from the award itself, intended to decide the case according to law, and has mistaken it, and that except for this mistake his award would have been different.

It is claimed, by the learned counsel for the plaintiff, that it does appear from the award in this case that the decision of the arbitrator proceeded upon a mistake of law. The mistake is alleged to consist in this: that the arbitrator having found that the plaintiff was guilty of misconduct which justified his dismissal, decided, as matter of law, that the breach by the plaintiff of the stipulation in the contract that he should faithfully perform his duties as agent, followed by his discharge from his agency, barred him from any claim to commissions on renewed premiums which might thereafter be paid upon policies issued upon applications procured before that time by the plaintiff under the contract. If it clearly appeared that the award was made upon the ground suggested, it would be, at least, very doubtful whether it could be supported. It is found, by the judge at General Term, that the plaintiff, while acting under this contract, and the previous contract of February 15, 1868, had established and secured a large and profitable business for the defendant, on which, as appears in the case, the annual renewal premiums were about $250,000, and the value of the plaintiff's interest thereunder was more than $20,000. If this interest was forfeited, it must have been for the reason that faithful performance by the plaintiff of his duties as agent under the last contract was made thereby a condition precedent to his right to claim any benefit under either. It would be very difficult to hold that the mutual covenants in the contract of April 1, 1869, were dependent so as to make the benefit of the renewals secured by that contract to the plaintiff dependent on full performance on his part. It is a material circumstance bearing upon the construction of the contract in this respect, that it expressly reserves to the plaintiff the renewal commissions to which he was entitled under the previous contract of February 15, 1868, which contract, in all other respects, was annulled by the contract in question. It cannot be supposed that the right to these commissions, which was expressly reserved, was to depend upon the performance by the plaintiff of the new agreement. Again, the plaintiff, by the contract in question, agrees to devote his time and attention in a faithful manner to developing and extending the business of the company in the districts mentioned, and also to be responsible for the agents therein appointed by the company under his direction. The plaintiff's covenant faithfully to discharge his duties as agent goes in part only to the consideration of the defendant's promise, and this is one of the tests by which covenants are ascertained to be independent. (1 Saund., 320; 2 id., 352.) There is still another suggestion tending to show the independent character of the covenants in question. The contract provides that "it shall be binding on the company" for the term of five years, but there is no provision obligating the plaintiff to continue in the service of the company for any definite period. It was optional with him to remain or not; and a provision was inserted that if the contract "should cease to be in force," his interest in the business done previous to the change should continue. Each instance of procuring an application upon which a policy was issued was a separate and independent transaction, to which the covenant for the payment of commissions applied distributively; and if, before the misconduct complained of, the plaintiff's claim to commissions on business done to that time was complete and perfect, it would not be lost by a subsequent violation of duty, although if damages resulted therefrom they might be made the subject of counter-claim.

The difficulty in the way of the plaintiff, in respect to the point just considered, is, that it does not appear with that certainty, which is necessary to authorize the court to interfere with an award, that the arbitrator decided the case upon this question of law suggested by the plaintiff. The arbitrator, in his statement embodied in the award, considered, at great length, the question whether the plaintiff's conduct justified the company in dismissing him; and a variety of facts are stated which, in the judgment of the arbitrator, justified the company in doing so. The arbitrator finds that the plaintiff repeatedly, before his dismissal, had broken his contract, and details acts on his part which show that he was guilty of fraudulent conduct towards the company in his agency; and he states "that his unjustifiable action has entailed upon the company great loss, which will be known and felt during future years." It does not appear that the arbitrator, in making his award, did not allow the plaintiff the benefit of the commission on renewals, as upon a continuing contract, and set off against that account the damages sustained by the company from the plaintiff's misconduct, which would be clearly within his authority. But a small part of the evidence taken before him is in the case. We cannot say that the evidence did not amply justify him in finding that the company's loss from the plaintiff's misconduct exceeded any sum which he could claim under the contract. There is no statement in the award that the arbitrator decided, as a question of law, that full performance by the plaintiff of his contract was a condition precedent to any recovery, nor is that a necessary inference from any thing contained therein. The conclusion of the arbitrator, that the plaintiff was not entitled to commissions on renewal premiums followed the statement of facts embodied in the award, and we cannot say, from what appears, that it was not based on an adjustment of the mutual claims of the parties, conceding the right of the plaintiff to commissions on renewals.

There is a distinct ground upon which the plaintiff claims that the award should be opened, viz., the partiality, corruption and misconduct of the arbitrator on the trial; and the specifications upon which the plaintiff relies will be briefly considered.

1. The fact that the arbitrator, in reaching the conclusion that the plaintiff was guilty of misconduct which justified the company in dismissing him, considered and to a considerable extent relied upon evidence of transactions which took place under the previous contract, neither establishes or tends to establish partiality or corruption. The evidence so far as appears, was received without objection. It was not the sole ground of the arbitrator's judgment. Many other facts are stated in the award which justified the conclusion that the dismissal was proper.

2. The letter written by the arbitrator to the company after the case had been substantially closed, and the receipt by the arbitrator from the company in reply of a new statement of account, would be cause for opening the award, except for the reason that the evidence warrants the finding that the plaintiff was advised by the arbitrator, before the letter was sent, that he proposed to send a letter of that purport, and afterward exhibited the letter and the statement to the plaintiff; that the plaintiff made no objection either to the arbitrator's sending the letter or receiving the statement, but examined and criticised it on the merits, and claimed the right to introduce proof in respect to it, which the arbitrator consented to receive if he concluded to regard the statement at all; to which disposition of the matter the plaintiff assented; and that the arbitrator did not consider it in making his award.

I have reached the conclusion that the objection here considered ought not to prevail, with considerable hesitation. Awards are, if possible, to be upheld. But any violation of natural justice by an arbitrator, such as receiving material evidence from one of the parties without the knowledge or consent of the other, should be condemned; and in several cases awards have been set aside for this reason. (Burton v. Knight, 2 Vern., 515; Lord Lonsdale v. Littledale, 2 Ves. Jr., 450;Walker v. Frobisher, 6 id., 70; Harvey v. Shelton, 7 Beav., 455; Clelland v. Hidley, 5 R.I., 163; Spear v.Bidwell, 44 Penn. St., 53.) In this case the sending of the letter was not justified by any thing which occurred on the trial. The right was reserved to the referee to examine the defendant's books. The letter did not call for the books or a transcript from them, but for the answer or claim made by the company as to certain credits or charges not appearing on the books, in respect to which proof was given on the trial. But after the plaintiff was apprised of the proceedings of the arbitrator, if he disapproved of them he should have then objected. He ought not to be permitted, after having lain by and taken the chance of a favorable award, to object when he finds the award against him.

3. The exclusion of the testimony of Hertog, offered for the purpose of impeaching the testimony of Baldenecker, was not, I think, justified by the rule adopted in respect to the examination of witnesses. If an arbitrator refuses to hear competent evidence on the merits, his award will be set aside. (Van Cortlandt v. Underhill, 17 J.R., 405.) But a refusal by an arbitrator, acting upon a mistaken construction of a rule, adopted by consent to govern the arbitration, to receive evidence tending to show bias or prejudice on the part of a witness, is not, I think, a cause for setting aside an award; and no authority to sustain the position of the plaintiff has been cited.

In conclusion, it may be observed that the judge at Special Term found as a fact, that there was no partiality, misconduct or corruption on the part of the arbitrator.

We see no legal ground for reversing the judgment in this case, and it must, therefore, be affirmed.

All concur.

Judgment affirmed.