25 N.Y.2d 451 | NY | 1969
Lead Opinion
Granite Worsted Mills, Inc. (“ Seller ”) made two sales of certain cloth goods to Aaronson Cowen, Ltd. (“ Buyer ”) to be used in the manufacture of sport coats. In each case, sales agreements were employed which included broad arbitration clauses and clauses which limited the buyer’s damages for defective goods. Paragraph 12 of each of the sales agreements contained the following language: ‘ ‘ Arbitration. Any controversy or claim arising out of or relating to this contract shall be settled by arbitration ”.
With respect to the goods delivered pursuant to each of the sales agreements, the buyer complained to the seller that there were defects and thereafter filed a demand for arbitration of the dispute according to the terms of the sales agreements. The total purchase price for the goods shipped under both agreements was less than $1,000 but the buyer’s demand for damages amounted to more than $7,000. Paragraph 6 of each of the sales agreements provided as follows: "Defective goods. No goods shall be returned by Buyer unless such return is authorized by Seller. No goods shall be returned nor allowance made, unless defective. Buyer shall be deemed to have accepted goods and his right to reject or claim damages for breach of warranty or otherwise shall expire 15 days after invoice date. Notwithstanding the foregoing, sponging, cutting or otherwise processing goods constitutes final acceptance and waiver of any defect in the goods. If within 15 days after invoice date and before the goods have been sponged, cut or otherwise processed, Buyer notifies Seller in writing of a claimed defect, Buyer shall, together with his notice of claim, offer Seller, in writing, prompt opportunity to examine the goods. Failure to do so constitutes acceptance and waiver of all claims for defects. If Seller
It is clear that an arbitrator’s award may be vacated only upon the grounds specified in the statute (CPLR 7511 subd. [b]) and that, if the party moving to vacate cannot establish one of the statutory grounds, the award must be confirmed. In this
In Matter of Stange v. Thompson-Starrett Co. (261 N. Y. 37), the contract between a contractor and a subcontractor specified unit prices for the work to be performed by the subcontractor and it also expressly provided that any changes in, or additions to, the work to be performed by the subcontractor were to be paid for at those same unit prices. The parties submitted their disagreement as to the amount due to the subcontractor to arbitration and an award was made. This court, in reversing a judgment affirming a Special Term judgment confirming the award, examined the computations made by the arbitrators to determine whether the formula specified in the contract had been disregarded in making the award, even though such disregard was not apparent on the face of the award itself. It was determined that the award was in fact made on a quantum meruit basis rather than on the basis of the unit prices specified in the contract. In the language of the opinion in that case, the award could not be permitted to stand “ since it involves a repudiation of every contract term, in relation to the adjustment of the price.” (261 N. Y., at p. 42). More recently, in Matter of Deering Milliken & Co. (Boepple Sportswear Mills) (4 A D 2d 652, affd. without opn. 4 N Y 2d 956), a contract for the sale of yarn contained a broad arbitration clause, as did
Taken together, those two decisions indicate that, where it is clear from the face of the award itself or from an examination of the computations made by the arbitrator that the arbitrator has included an element of damages specifically excluded by the contract pursuant to which he obtained his very authority to act, he exceeds his powers under the contract and the award thus made must be vacated upon proper application. In the present case, the award itself demonstrates that the arbitrator ignored the provision of the contract providing a formula for the computation of the buyer’s damages and specifically excluding consequential damages since the award amounted to more than $3,700 whereas the total purchase price for both sales was only $984.
The indication in the majority opinion in the Appellate Division that the arbitrator may have refused to apply the damage limitation clause because he found it to be “ unconscionable ” is based, as that opinion also .recognizes, on pure speculation since it is conceded that the bases for the award are “ unknown.” The sole indication in the record is the self-serving statement made in Aarons on’s affidavit at Special Term that arbitrators uniformly refuse to enforce such damage limitation clauses, which does not establish that this arbitrator, in making this award, made such a determination. On a motion to vacate such an award, finding that the arbitrator has indeed
Dissenting Opinion
The sales agreements in suit included a “broad” arbitration clause covering “ [a]ny controversy or claim arising out of or relating to [the] contract ”. Thus the parties chose arbitration rather than the courts to resolve the disputes which might arise between them, and, as a corollary, the arbitrators were vested with the power to interpret the agreement between the parties (Matter of Astoria Med. Group [Health Ins. Plan], 11 N Y 2d 128, 132-133; Matter of Spectrum Fabrics Corp. [Main St. Fashions], 285 App. Div. 710, 714, affd. 309 N. Y. 709).
The only part of the agreement bearing an arbitration clause which is not determinable by the arbitrators alone is the arbitration clause itself. It is always open to judicial censorship to determine whether or not the arbitration clause limits the scope of the arbitrator’s powers (see, e.g., Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76, 80). But this does not mean that every direction in the over-all agreement is a limitation on the arbitrators’ powers. On the contrary, the agreement is addressed to the arbitrators and there is no judicial review of their errors in failing to follow such direction, if the failure amounts to no more than an error of law. As it has often been said, the arbitrators’ awards are not reviewable before the courts for errors of law or fact, and obviously a misinterpretation of a written agreement is an error of law
The rule has been well stated quite recently by this court in Matter of National Cash Register Co. (Wilson), (8 N Y 2d 377). It was there said: “ As to the Company’s contention that the arbitrators ‘ exceeded their powers ’ within the meaning of section 1462, it is enough to point out that (in the context of the case before us) arbitrators may be said to have done so only if they gave a completely irrational construction to the provisions in dispute and, in effect, made a new contract for the parties. (See, e.g. Matter of S & W Fine Foods [Office Employees Int. Union, Local 153, AFL-CIO], 7 N Y 2d 1018; Matter of Wilkins, 169 N. Y. 494, 496-497; Steelworkers v. Enterprise Corp., 363 U. S. 593, 597.) The mere fact that a different construction could have been accorded the provisions concerned and a different conclusion reached does not mean that the arbitrators so misread those provisions as to empower a court to set aside the award. It appears clear to us that the agreement between the Company and the Union is reasonably susceptible of the construction given it by the arbitrators. Accordingly, since they acted within their powers and are not chargeable with such misconduct as is specified in section 1462 of the Civil Practice Act, the award is unassailable and, disappointing though it may be to one of the parties, must be obeyed.” (8 N Y 2d, at pp. 383-384.)
This, of course, is the latter-day rule of a court less hostile to the private forum of arbitration than were the courts of another day. Indeed, the leading practice treatise states: ‘ ‘ As noted under CPLR 7501, however, the arbitrator’s power to interpret the agreement is now so great and relatively free of judicial control * * * that earlier cases vacating awards because an arbitrator exceeded his power should not be heavily relied upon. Typical of the more recent tendency is Matter of National Cash Register Co. (Wilson), in which the Court of Appeals pointed out that arbitrators exceeded their powers within the meaning of the statute only if ‘ they gave a completely irrational construction to the provisions [of the agreement] in dispute and, in effect made a new contract for the
Coming to the precise question in this case, it is quite clear, as the Appellate Division majority held, that the arbitrators were doing no more than interpreting and applying the agreement before them. Because it was possible for the arbitrators to have found the consequential damage clause unconscionable, it cannot be said that their construction was so perverse as to amount to misconduct (Matter of S & W Fine Foods [Office Employees Int. Union], 8 A D 2d 130, affd. 7 N Y 2d 1018). Their award is beyond judicial review, not because this or any other court might agree with their view of the consequential damage clause, but because no court may say that a rational tribunal, especially one endowed with equitable powers, could not reach the same conclusion as did the arbitrators. And, of course, arbitrators in both a special remedial and general substantive sense have such broad powers (Matter of Staklinski [Pyramid Elec. Co.], 6 N Y 2d 159, 163).
It is difficult, of course, to resist the temptation to look over the shoulders of the arbitrators, as it is also difficult to envisage as reasonable any system of interpretation that does not conform to one’s own. Nevertheless, arbitration is an alternative forum governed to a large extent by its own principles, and not limited by the rules of evidence, the rules of law, or even the canons of construction in the reading of documents. In Matter of Spectrum Fabrics Corp. [Main St. Fashions] (285 App Div. 710, at p. 714, affd. 309 N. Y. 709, supra) it was said: “ When parties agree to arbitrate, they agree to waive the rules of evidence and the inexorable application of substantive rules as well. This may not always be wise, but it is within the powers of the contracting parties, and it is the import and essence of an arbitration agreement. It distorts the purpose of arbitration
Accordingly, I dissent and vote to affirm the order of the Appellate Division.
Judges Scileppi, Bergan and Gibson concur with Judge Burke ; Judge Breitel dissepts and votes to affirm in a separate opinion in which Chief Judge Fuld and Judge Jasen concur.
Order reversed, with costs, and the matter remitted to Special Term for further proceedings in accordance with the opinion herein.