Continental Milling & Feed Co. v. Doughnut Corp. of America

Delaplaine, J., delivered the opinion of the Court. This suit in equity was brought by Doughnut Corporation of America, which operates a flour mill at Ellicott City, to correct an award made by the arbitrators of a claim against Continental Milling and Feed Company, purchaser of 48,754 tons of by-products of the mill. The bill of complaint alleges that in 1932 complainant entered into a contract to sell all of its middlings and bran to defendant at the prices quoted in the Northwestern Miller, a weekly trade journal published in Minneapolis, less discount of $3 per ton; and that in 1937 it executed another contract effective August 1, 1937, reducing the discount to $2.25. The bill then alleges that in 1942, when prices were set by the Federal Government, its attention was called to the fact that the published quota ⁶⁷³ tions had been substantially lower than the actual market prices, and following an investigation it was found that the quotations were between $3 and $4 per ton less than they should have been from January 1, 1935, to July 31, 1942; and the parties submitted the claim for underpayments to three arbitrators, A. E. Duncan, W. H. Marshall and L. I. Whiteford, chosen by the American Arbitration Association.

According to complainant, the underpayments totaled $166,984.22, the difference between the erroneous quotations and the quotations for various milling centers appearing in the Northwestern Miller, the Southwestern Miller, and other publications; but the arbitrators used only the quotations in the Northwestern Miller for the City of Buffalo and added the freight per ton to Baltimore, and by this criterion found that the underpayments totaled $166,289.83; but after making that determination, the arbitrators unjustifiably reduced the amount of the award by deducting 50 cents per ton. The bill further alleges that the arbitrators, ignoring the period to be considered under the arbitration agreement, made an award for underpayments only from January 1, 1935, to August 31, 1937, on the theory that complainant was negligent in failing to compare the quotations in the Northwestern Miller with the market prices which prevailed in Baltimore from week to week; and that the arbitrators thereby reduced the award unlawfully to $44,-328.15, which sum complainant refused to accept in full setlement of its claim. The bill finally alleges that the arbitrators further exceeded their authority by declaring that there was no evidence that defendant or any of its officers, directors, or employees had attempted or conspired to defraud complainant. The bill prays the Court to set aside those parts of the award which were not authorized by the arbitration agreement, and to decree that defendant owes complainant for the entire amount of underpayments in the period beginning January 1, 1935, and ending July 31,1942.

Defendant demurred to the bill on the ground that the award is valid and conclusive. The chancellor held (1) ⁶⁷⁴ that the criterion used by the arbitrators for determining the market prices in Baltimore was valid, (2) that their refusal to make an award for underpayments in the period from August 31, 1937, to July 31, 1942, was invalid, (3) that the decision that there was no attempt or conspiracy to commit fraud was invalid, and (4) that the valid parts of the award can be separated from the invalid parts. Defendant is appealing from the chancellor’s order overruling the demurrer. It'is a fundamental principle that where the parties to a dispute decide.of their own accord to submit their dispute to arbitration without restriction or condition, the award on the subject matter, in the absence of fraud or mistake, is binding and conclusive upon the parties.

J. F. Fitzgerald Construction Co. v. Southbridge Water Supply Co., 304 Mass. 130 , 23 N. E. 2d 165 ; Stowe v. Mutual Builders Corporation, 252 Mich. 492 , 233 N. W. 391 . The Court will not review the findings of law and fact made by arbitrators, or substitute its judgment for theirs. Arbitrators are expected to frame their award on broad views of justice, which may sometimes deviate from strict rules of law. Their good faith in the discharge of their duties will be presumed, and their award will not be disturbed unless it clearly appears that they were influenced by partiality or corruption.

The reason for this doctrinéis that an award by arbitrators is the decision of a tribunal which the parties themselves have created, and by whose judgment they have mutually agreed to abide. Very often these tribunals are without legal training, and the purpose of the parties in creating them is to have their disputes settled speedily and inexpensively by a decision which will be final and unalterable. Obviously, if the decision of such a tribunal should be subject to review under the strict rules of the law, the arbitration, instead of promoting economy and finality, would generally be but a forerunner to protracted litigation. To avoid such controversies the courts have adopted the rule that, after the parties to an arbitration have had a full and fair hearing, the award will be expounded favorably, and every ⁶⁷⁵ reasonable intendment will be made in its support.

Roberts v. Consumers’ Can Co., 102 Md. 362, 369 , 62 A. 585 , 111 Am. St. Rep. 377 ; Dominion Marble Co. v. Morrow, 130 Md. 255, 260 , 100 A. 292 ; McDonald v. Real Estate Board of Baltimore City, 155 Md. 377, 382 , 142 A. 261 ; Pumphrey v. Pumphrey, 172 Md. 323 , 191 A. 235 ; Boston Water Power Co. v. Gray, 6 Metc., Mass., 131, 165; Leslie v. Leslie, 50 N. J. Eq. 103, 24 A. 319 . In this case the problem of determining the market prices of millfeeds over a period of 7 years and 7 months was not a simple one. The arbitrators found that the prices of millfeeds in Baltimore, which is not a primary market for such byproducts, are affected by the quotations of the primary markets as well as by local conditions and imports from South America.

They also found that the quotations in the primary markets varied from 25 cents to $1 per ton. After considering various suggestions for determining the market prices in Baltimore, the arbitrators decided to take each weekly quotation per ton for Buffalo, which is a primary market for