In Re the Arbitration Between Behrens & Feuerring

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] By contract dated November 12, 1941, the parties fixed their respective interests in the assets of a Pennsylvania corporation and agreed that its business would be carried on by them as joint adventurers. Capital for the enterprise was to be supplied by the respondents. The appellant was to contribute technical skill and experience in management. Provision for arbitration was made in this text: "All disputes which may arise between the two parties regarding the application or interpretation of this agreement and of the legal relations connected therewith, which shall not be settled by way of amicable agreement, shall, to the exclusion of any court of law, be arbitrated with final effect by a board of arbitration consisting of three persons."

In December, 1941, the respondents wrote the appellant a letter repudiating the contract. In January, 1942, they refused a demand for arbitration of his claim of a breach of their commitment to him. In March, 1943, he obtained at Special Term an order directing the arbitrators to determine "any and all controversies, disputes and matters of difference which may have arisen among the parties under the said contract". Upon appeal by the respondents to the Appellate Division, that order was affirmed. We then denied a motion for leave to appeal to this court.

At the Special Term and again on the hearing before the arbitrators, the respondents contended that the contract had been induced by fraud of the appellant and that performance on his part became an impossible thing when the United States entered the war, since he was a German refugee then residing here on a visitor's visa. A majority of the arbitrators made a report in this form: "The claim of Henry Behrens [the appellant] against Gertrud Feuerring and Alfred Schwabacher [the respondents] for damages for breach of contract is not sustained, and is disallowed." This determination was confirmed at Special Term by an order which the Appellate Division has affirmed and the case is now here by our leave.

In its recitals, the order for arbitration asserts that "the written agreement dated the 12th day of November, 1941, was duly signed and delivered and constitutes a valid and subsisting contract among the parties hereto". The argument for the appellant takes that provision to be an adjudication in his favor upon the claims of fraud and disability which the respondents had made against him. From that viewpoint, the only question before the arbitrators was the amount of damages that were necessarily to be paid by the respondents for their repudiation of the contract. We cannot adopt that position.

The finding by the Special Term of the existence and validity of the agreement of November 12, 1941, was not a measure of the authority of the arbitrators. On the contrary, that finding was no more than a rejection by the court of an argument whereby the respondents had attacked the agreement of November 12, 1941, as a mere preliminary writing which was not meant to be binding until its terms were put into a more formal document. The extent of the powers of the arbitrators was fixed by the command of the court which called upon them to resolve "any and all controversies, disputes and matters of difference which may have arisen among the parties under the said contract". Thereby the arbitrators were commissioned to say whether the respondents were let out of the contract when the war excluded performance thereof by the appellant — an issue which was clearly a dispute of the kind described in the above arbitration clause. (Cf. Matter ofLipman [Haeuser Shellac Co.], 289 N.Y. 76.) For all we know, the arbitrators did not take account of any other phase of the controversy.

But however that may be, the report of the arbitrators does not appear to be based upon any finding that the contract was induced by fraud on the part of the appellant. Hence we do not reach the question whether the issue as to such fraud was cognizable by the court on the motion to compel arbitration, rather than by the arbitrators (see Matter of Cheney Bros. v. Joroco Dresses,Inc., 245 N.Y. 375; Matter of Kahn [National City Bank],284 N.Y. 515, 523; Boudin v. Clarren, 289 N.Y. 724). In that state of the record there is no warrant for an inference of usurpation of power by them or other abuse of their office (cf.Fudickar v. Guardian Mutual Life Ins. Co., 62 N.Y. 392, 403,404; Matter of Bolton, 295 N.Y. 734).

The charges of bias made by the appellant against one of the arbitrators are not established as matter of law.

The judgment should be affirmed, with costs.

LEWIS, CONWAY, DESMOND, THACHER, DYE and FULD, JJ., concur.

Judgment affirmed. [See 297 N.Y. 472.]