Union Insurance Co. v. . Central Trust Co.

Vann, J. Each party to the submission agreement, which was quadripartite in character, was bound only to the extent of the promises, express or implied, made by them respectively. (Berry Harvester Co. v. Walter A. Wood Co., 152 N. Y. 540.) While the contract required a deposit to be made in behalf of Dimick for the benefit of the plaintiffs, it did not expressly provide by whom it was to be made. The object of the deposit was to secure performance of any award against Dimick in favor of the plaintiffs, or either of them. It was not to secure performance by him of the arbitration agreement, generally, but simply of that part relating to payment of the award. Every other covenant, by whomsoever made, stood without security. The deposit bore no relation to any part of the agreement other than that pertaining to satisfaction of the award by Dimick, except the provision that unless the pending actions were discontinued the security might be withdrawn. In making the deposit, therefore, the Continental Company pledged its property for the purpose of securing payment by Dimick of any award made against him in favor of the Union and State Companies, which thereupon became the pledgees, the Continental Company the pledgor, and the trust company the holder of the pledge in trust for the purpose aforesaid. As the .object of the pledge was to secure performance of a certain act by Dimick, while the subject of the pledge belonged to the Continental Company, the latter became entitled to the rights of a surety with reference to the thing pledged, although it was not subject to the affirmative obligations of a surety, for it made no promise to perform for another, but simply deposited its property to secure fulfillment *640 of a specified act by another upon a contingency named for the benefit of third parties. It was not a surety in the sense of one who had engaged to answer for the debt, default or miscarriage of another, and it was not sued as a surety. Eo affirmative relief was asked and no personal claim made against it. This action, therefore, is, in effect, a proceeding in rem to foreclose the pledge by securing a sale of the thing pledged for the benefit of the plaintiffs. It is claimed by the defendants that the submission agreement furnishes no basis for such an action, because the condition of the pledge has not been broken. As the condition of the pledge was the payment of the award, they insist that an actual award was a condition jnecedent to the right to foreclose, and as there has been no award and none can now be made, the agreement to pledge is functus officio, and the trust company is under an implied obligation to return the thing pledged to its owner. On the other hand, the plaintiffs claim that this action can be maintained under section 2384 of the Code of Civil Procedure, “in connection with well-settled common-law principles, as one based either upon the terms of the submission as. a whole,” or that part thereof which provided for the deposit. The section referred to is found in that part of the Code relating to arbitrations, and is as follows : “ Liability of party who revokes. Where a party expressly revokes a submission, made either as prescribed in this title or otherwise, any other party to the submission may maintain an action against him, and also against his sureties, if any, upon the submission, or any instrument collateral thereto, in which action the plaintiff may recover all the costs and other expenses, and all the damages, which he has incurred in preparing for the arbitration, and in conducting the proceedings to the time of the revocation. Either of the arbitrators may recover, in an action against the revoking party, his reasonable fees and expenses.” (§ 2384.) The next section provides that “ a sum, penalty, forfeiture, or damages, shall not be recovered for a revocation of a submission to arbitration, made either as prescribed in this title or *641 otherwise, except as prescribed in the last section; notwithstanding any stipulated damages, penalty, or forfeiture, expressed in the submission, or in any instrument collateral thereto.” The first section quoted authorizes an action against one who revokes a submission, and also against his sureties upon the submission, as well as against his sureties upon any instrument collateral to the submission, to recover all the costs and other expenses, and all the damages incurred in preparing for and conducting the proceedings to the time of revocation, and the second section limits the recovery to such costs, expenses and damages, even if the submission provides for a more extended recovery. These sections reproduce in substance similar provisions contained in the Revised Statutes. (2 R. S. 544, 545, §§ 23, 25.) Before the passage of the Revised Statutes it had been held in Allen v. Watson (16 Johns. 204) that a party could-revoke the powers conferred by an arbitration bond, but the consequence was a forfeiture of the penalty, although the other party could recover no more than the actual damages sustained. The revisers, in their notes, refer to this case, and state that it was deemed useful to finally settle “ the much agitated question respecting stipulated damages which are frequently inserted in submissions to avoid the general rule of law concerning penalties.” Otherwise a resort to equity would have been necessary to obtain relief from the forfeiture. We think this is what the Code accomplishes, and that it does not place a limitation upon the right of action at common law to recover damages for revocation, except by limiting the amount of the recovery. It creates no new or exclusive remedy, but confirms an old one, and fixes the measure of damages. The act of revocation by Dimick made the condition upon-which the deposit was made impossible of performance. He thereupon became liable, not for an award, but for the expenses incurred in the effort to secure an award, which were rendered of no effect by his act. He voluntarily disabled himself from" performing his covenant to pay the award, and that, according to the authorities, was in itself a breach of the covenant. *642 The earliest authority upon the subject is the celebrated Vynior’s Case (4 Coke, 302), where the condition of an arbitration bond was “to stand to, abide by and perform an award.” The only breach by the defendant was a revocation of the authority of the arbitrators. It was resolved that the defendant by his own act “ made the condition of the bond impossible to be performed and by consequence his bond is become single and without the benefit or help of any condition, because he has disabled himself to perform the condition.” This has been followed for many years and has been made the basis of a multitude of judgments both in England and in this country. Thus, in Warburton v. Storr (4 Barn. & C. 103, 106) the defendant agreed, under a penalty, to perform an award, and by revocation of the submission prevented himself from doing so, but he was held to have broken his agreement and thereby to have subjected himself to an action for the penalty. Vynior’soa&e is the only one cited, and the court, relying upon it, said, “ that if a party covenants to do a certain thing, and afterwards, by his own act, disables himself from performing it, that is, in itself, a' breach of the covenant.” So in Brown v. Tanner (1 M’Cl. & Younge’s Reports, 464) it was held that the defendant’s revocation of his submission, whereby the performance of his agreement to stand to, obey, abide and fulfill the award became impossible, was a breach of that agreement. In Town of Craftsbury v. Hill (28 Vt. 163) the condition of an arbitration bond was that if the principal should “ well and truly observe, perform and keep the award and determination which the said arbitrators shall make and publish,” the obligation was to be void. The only breach of the condition alleged was a revocation of the „ submission, and it was held on demurrer that it was a breach of the submission because the principal had deprived the arbitrators of the power' to make an award as well as himself of the power to observe, perform and keep it, and that this in legal effect was a forfeiture of the bond and a breach of the condition, rendering both principal and surety liable. *643 Where a defendant, by preventing one of three referees from acting with the others, defeated any valid award, it was held to be a sufficient breach of an agreement for having and perfecting a reference. (Quimby v. Melvin, 28 N. H. 250.) In Brown v. Leavitt (26 Me. 251, 256) the court said: “ It is a general rule that any party or any one of a party may revoke his submission before award made, giving notice thereof to the arbitrators, but then he forfeits his obligation he has given to abide the award. (1 Danes Abr. 277, c. 13, art. 14, § 15 ; Milne v. Gratrix, 7 East, 608; King v. Joseph, 5 Taunt. 452.) * * * It is a well-established rule of law that if a party covenants to do a certain tiling, and afterwards by his own act disables himself from doing so, or declines doing it when he was able, it is a breach of the covenant.” (Citing Vynior's case and Warhurton v. Storr.) The principle is not confined to agreements of submission, but is applied to contracts generally, and the rule is universally recognized that where a party, before the time of performance arrives, puts it out of his power to keep his contract, there is an immediate right of action for a breach of that contract by anticipation. (Hochster v. De La Tour, 2 E. & B. 678; Frost v. Knight, L. R. [7 Exch.]. 111, 114; Synge v. Synge, L. R. [1 Q. B. Div. 1894] 466; Johnstone v. Milling, L. R. [16 Q. B. Div.] 460; Crist v. Armour, 34 Barb. 378; Burtis v. Thompson, 42 N. Y. 246; Howard v. Daly, 61 N. Y. 362, 375; Ferris v. Spooner, 102 N. Y. 10; Nichols v. Scranton Steel Co., 137 N. Y. 471, 485.) In Frets v. Frets (1 Cow. 335, 341) a bond in fact given for the performance of an award contained no condition. One of the parties revoked, and it was declared that “ by the revocation, the penalty of the bond is forfeited, and an action lies upon it to recover the damages actually sustained.” In Russell on Arbitrators (p. 100) it is laid down that “ every submission contains some words expressing or implying the agreement of the parties to abide by and perform the award of the arbitrator. Preventing the award being made is a breach of this agreement as much as not performing it *644 when made, and when the submission is by bond is a forfeiture of the penalty.” In the case before us the pledge was made to secure performance by Dimick, and as he failed to perform by depriving himself of the power to perform, he broke the condition upon which the pledge was made. As was said in Ferris v. Spooner (supra), where property was pledged for performance by a party, “ when he repudiated the further performance of the contract, the plaintiff was * * * set at liberty to enforce his securities.” If he had furnished sureties for the performance of an award they would have been liable, because revocation prevented an award and constituted a breach of the promise to perform. This would be true even if the promise of the sureties was limited to payment of the award and did not apply to any other part of the agreement of submission, because by voluntarily preventing an award he virtually broke the agreement to perform the award. He was “ bound to stand to the award,” and when he made an award impossible and disabled himself from performing the condition of the pledge, he thereby broke the condition itselD We have a pledge as security in place of personal sureties. The pledge is to secure performance of an award when made. If there had been no revocation and an award had been made to the plaintiffs of $50,000, they could have proceeded against the subject of the pledge by an action to foreclose their lien thereon, to procure a sale thereof and payment of their claim out of the proceeds. We have not that exact case before us, which would be an actual breach of the condition on which the pledge was made, but we have its equivalent in an implied breach of that condition, because Dimick intentionally rendered an award impossible. If the five hundred shares of stock could have been sold by proceedings m rem founded on an actual award, the same proceedings may' be maintained, founded upon that which the authorities regard as having the same effect as a breach of the condition to pay the award. The pledge was to be forfeited upon the making of an award and non-payment thereof, and the pledge *645 was forfeited by the act of Dimick in making an award impossible. Here the statute comes in and limits the amount of the damages to those caused by the fruitless effort to prepare and try the case and submit it to the arbitrators so that they coidd pass upon it. We base our decision upon the agreement and the pledge made to secure performance of a part thereof, and the legal consequences resulting upon common-law principles from the disabling act of Dimick in preventing an award, giving effect to the statute as both sanctioning the action and limiting the amount of the recovery. It is, however, insisted that none of the damages claimed are recoverable in any event, because the agreement of submission prevents it. The items of damages were fixed as to amount by the stipulation of the parties, with no admission, however, of any liability, and the defendants duly objected to the allowance of anything for fees of arbitrators, counsel or witnesses. This position is founded upon the provision of the agreement of submission that the-fees of arbitrators and witnesses should be paid equally by the parties, and that no part of the costs of the arbitration or the expenses of witnesses should be recovered by the prevailing party or entered in the judgment. This simply settled what should follow an award when made, and what should be included in the judgment to be entered upon the award. It does not deal with the consequences of revocation nor prevent the recovery of expenses incurred in preparing for the arbitration, as allowed by statute, where an award is prevented by revocation. That wrongful act was not under contemplation by the parties when they provided -that costs and expenses should not become part of the judgment, for they had all promised not to revoke in another part of the agreement. They were dealing simply with the award and the judgment to be rendered thereon, and, as was said by one of the learned justices below, “the stipulation relied upon was predicated upon a continuance and completed execution of the agreement. It was, in effect, inconsistent with revocation, and was, therefore, destroyed by revocation.” In covenanting against the recovery *646 of expenses they proceeded upon the theory that the arbitration agreement was to be performed and not revoked, and the argument already made as to breach of the condition through a deliberate act rendering performance impossible applies with equal force to the position taken by the appellants with reference to the allowance of these items of damage. The contingency of a revocation was not provided for by the agreement to submit, but the statute and the common law take care of it. The cause of action arises through the submission, the deposit, the act of revocation and the statute. By revoking Dimick prevented an award and thereby broke his promise to pay the award. At common law he would have been liable for all damages resulting from the breach, including the amount for which an award should have been made, but the-statute intervening prevents that result and allows a recovery for the exjienses of the arbitration, which it substitutes in the place of all other damages. By preventing an award Dimick became liable for the expenses incurred in trying the case before the arbitrators, because the pledge made to secure the award was forfeited by the act that made an award impossible. By violating his agreement he not only made himself liable but also the property pledged for him. Instead of allowing an absolute forfeiture, however, the statute, which was a }iart of the contract and is referred to therein, measures the damages as already mentioned. If an award had been made the-expenses could not have, been recovered, but the plaintiffs would have had the value thereof in an award settling all controversies between the parties. The agreement would then have been enforced as made and any award in favor of the plaintiffs would have been paid out of the proceeds of the pledge not exceeding the limit named. They incurred legitimate expenses in the effort to secure jan award, but that effort was defeated by the act of a party, which, as the courts hold, was equivalent to a violation of the condition upon which the pledge was made. The pledge secured the award and Dimick prevented an award, and thereby forfeited the pledge and made it, under the statute, liable for the expenses incurred in *647 trying to get an award the same as it would have been liable for an award if made. Non-payment of an award would have violated the condition of the pledge no more than a revocation of the submission violated it, and the pledge is liable for all the direct and natural consequences of such violation except as limited by the statute. Without further discussion we think the judgment appealed from should be affirmed, with costs.