Utah Construction Co. v. Western Pacific Railway Co.

A controversy existed between the plaintiff and the defendant with regard to a claim by the plaintiff that the defendant was indebted to it in the sum of $236,735.28, on account of the construction by the plaintiff of the defendant’s railroad, and the claim of the defendant that such indebtedness had been discharged by the execution and delivery to the plaintiff by defendant of fifteen checks aggregating $153,562.24 and nine checks aggregating $83,175.04 upon the California Safe Deposit and Trust Company, bearing date October 22, 1907. On April 29, 1910, the parties agreed in writing to submit said controversy to Charles P. Bells as arbitrator. The agreement empowered him to hear the evidence, judge and determine said controversy, and make a final award thereon which should be a complete and final adjudication of all the matters so submitted, and provided that the submission should be entered as an order of the superior court of the city and county of San Francisco, in accordance with section 1283 of the Code of Civil Procedure. Pursuant to this agreement the parties produced evidence, submitted the matter, and the arbitrator made his award thereon declaring that the plaintiff take nothing and that the defendant should have judgment for its costs incurred in the proceedings. This award, signed by the arbitrator, was delivered to the parties and filed with, the clerk of said court on April 19, 1913, and a note thereof was thereupon made in the clerk’s register. Notice of such filing was served on the plaintiff. On April 23, 1913, the plaintiff duly served and filed a notice of motion in the superior court to vacate and set aside the award. This motion was denied on September 24, 1913. On September 27, 1913, the award was regularly entered by the clerk as a judgment in the judgment-book of said court. The plaintiff has filed two notices of appeal, one from the judgment entered by the clerk upon the award, the other from the order of the superior court denying the motion to vacate the award.

The respondent contends that no appeal lies from the judgment entered by the clerk upon the award of the arbitrator. The judgment here involved was entered by the clerk but the entry was made after the decision by the court on the motion to vacate the award. Section 1289 of the Code of Civil Procedure provides that “The decision upon the motion is subject to appeal in the same manner as an order which

We are of the opinion that the code does not allow a separate appeal from the judgment entered upon the award. The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing. The statutory provisions for a review thereof are manifestly for the sole purpose of preventing the misuse of the proceeding, where corruption, fraud, misconduct, gross error, or mistake has been carried into the award to the substantial prejudice of a party to the proceeding. The design was to avoid useless proceedings and to make the practice simple and as speedy as would be consistent with justice. In Peachy v. Ritchie, 4 Cal. 205 , 207, it is said that the statute providing for the review of such awards “gives to the parties no higher rights than they might have asserted in a court of equity in case of mistake, fraud or accident.” It has also been said that “by reason of the fact that the proceeding represents a method of the parties’ own choice and furnishes a more expeditious and less expensive means of settling controversies than the ordinary course of regular judicial-proceedings, it is the policy of the law to favor arbitration. Therefore every reasonable intendment will be indulged to give effect to such proceedings.” (5 Cor. Jur. 20; Fluharty v. Beatty, 22 W. Va. 698 , 705; Payne v. Crawford, 97 Ala. 604 , 607, [ 11 South. 725 ]; Wilson v. Wilson, 18 Colo. 615 , 620, [ 34 Pac. 175 ]; Russell v. Smith, 87 Ind. 457 ; Groat v. Pracht, 31 Kan. 656 , [ 3 Pac. 274 ] ; Snyder v. Rouse, 58 Ky. (1 Met.) 625 , 627; Mickles v. Thayer, 96 Mass. (14 Allen) 114 , 119; Brush v. Fisher, 70 Mich. 469 , 473, [ 14 Am. St. Rep. 510 , 38 N. W. 446 ] ; Tucker v. Allen, 47 Mo. 488 , 490; Caldwell v. Brooks Elevator Co., 10 N. D. 575 , 580, [ 88 N. W. 700 ]; Bishop v. Valley Falls Mfg. Co., 78 S. C. 312 , 315, [ 58 S. E. 939 ] ; Jensen v. Deep Creek etc. Co., 27 Utah, 66 , 75, [ 74 Pac. 427 ].) In view of this policy of the law the reasonable conclusion is that section 1289 was intended to cover all the methods of review by appeal in arbitration proceedings. Where the submission is unqualified, an award cannot be set

The code provisions are in aid of the common-law remedy of arbitration, a reaffirmance thereof, and do not' alter its principles. (Muldrow v. Norris, 2 Cal. 74 , 77, [ 56 Am. Dec. 313 ]; Tyson v. Wells, 2 Cal. 122 , 130; Headley v. Reed, 2 Cal. 322 , 325; Peachy v. Ritchie, 4 Cal. 205 .) An award made upon an unqualified submission cannot be impeached on the

There is no merit in the suggestion that the submission constituted the arbitrator a judge pro tempore of the superior court, under the amended section 8, article VI, of the constitution. The submission made him an arbitrator, not a judge. The award being for the defendant, the matter of interest is eliminated. As to all other matters, the provisions above mentioned bound the arbitrator to decide in eon

Section 1287 of the Code of Civil Procedure provides that the superior court, on motion, may vacate an award and may order a new hearing before the same arbitrator, or not, in its discretion, on the grounds: “1. That it was procured by corruption or fraud; 2. That the arbitrators were guilty of misconduct, or committed gross error in refusing, on cause shown, to postpone the hearing, or in refusing to hear pertinent evidence, or otherwise acted improperly, in a manner by which the rights of the parties were prejudiced; 3. That the arbitrators exceeded their powers in making their award; or that they refused, or improperly omitted, to consider a part of the matters submitted to them; or that the award is indefinite, or cannot be performed.” No motion was made to modify or correct the award as provided in section 1288; therefore its provisions are immaterial.

The grounds of the motion to vacate the award were, in substance, as follows: (1) That the award and the findings of fact on which it was based were contrary to the evidence. (2) That it was against law. (3) That the arbitrator committed gross error and was guilty of misconduct (a) in failing to consider the evidence of the financial condition of the California Safe Deposit and Trust Company from October 22 to October 30, 1907, and of the money it had on hand and of its ability to pay the checks in controversy, during said period (b) in failing to consider evidence upon the question whether or not it would have paid the checks if they had been presented for payment, (c) in failing to consider the evidence of the debit and credit entries made by such company on its books concerning said checks. Under the first ground the notice of motion specifies ten particulars in which it is claimed the evidence does not support the special findings of fact upon which the award is based.

Neither the terms of the submission, nor the provisions of section 1287, authorize us to consider the weight of the evidence or to overrule the arbitrator where he has drawn reasonable inferences from the facts proven. There is no foundation for the claim that the arbitrator refused to consider the evidence, or any part thereof, or that his findings are contrary to the evidence. They are fully sustained by the evidence and the inferences legitimately arising therefrom. No

The only questions remaining for consideration arise out of the claim that, under the qualification of the submission above mentioned, a mistake in the conclusions of law upon the findings should be considered a mistake appearing upon the face of the award, and good ground for vacating it if it affects the substantial rights of the plaintiff on the merits of the case, the theory being that, in that event, as he did not decide according to the legal right, he has exceeded his limited power under the agreement in making the award as he did. Our final conclusion on the merits renders it unnecessary to determine whether the submission agreement, when properly construed, did or did not empower him to decide the law wrongly as well as rightly. We may assume, for the purposes of the case, that he was empowered only to decide correctly as to the law, and proceed upon that theory without deciding the point.

The facts on which the decision of the case depends are as follows: The Western Pacific Railway Company on October 23, 1907, owed the Utah Construction Company $236,735.28. It kept money on deposit with the California Safe Deposit and Trust Company, which was doing a general banking business in San Francisco. It drew twenty-four checks in various sums aggregating said amount, each dated October 23, 1907, payable to the Utah company, upon said Safe Deposit Company and forwarded them by mail from San Francisco to said Utah company, at Ogden, Utah. They were received there and by the Utah company indorsed to the First National Bank of Ogden, for collection only. Said Ogden bank at that time kept a deposit account with said Safe Deposit Company. The said Ogden bank forwarded the checks to the Safe Deposit Company with instructions to credit the same to its account upon the books of said Safe Deposit Company. Upon receipt of these advices the said Safe Deposit Company charged the amount of the checks against the railway company on the books of said Deposit Company and entered the same as a credit upon the account of said Ogden bank on its books. The railway company then had deposits more than sufficient to cover the checks. All this was done prior to 2

Upon these facts, as said by the learned arbitrator, “the case would seem to turn upon the single question whether the First National Bank of Ogden, plaintiff’s agent, having .the opportunity to cash these checks and preferring to deposit them and to take credit for the amount for its own purposes, thereby exonerated the drawer, notwithstanding the insolvency of the bank on which they were drawn; the checks having been drawn by defendant and received by plaintiff in good faith. ’ ’ There is no doubt in our minds that the arbitrator correctly decided this question in the affirmative. “A credit given for the amount of a check by the bank upon which it is drawn is equivalent to, and will be treated as, a payment of the check. It is the same as if the money had been paid over the counter on the check, and then immedi

1 The plaintiff insists that “the giving of a check upon an insolvent bank is not a payment of the debt for which it is taken.” This may be admitted. A check is never a payment of the debt for which it is given until the check itself is paid or otherwise discharged, unless expressly agreed to be taken in payment. (Morse on Banks and Banking, secs. 543, 544.) But here the checks, though not agreed to be taken as payment, were satisfied by the taking of credit therefor. This satisfaction exonerated the railway company, regardless of the solvency or insolvency of the drawee.

The finding that the Safe Deposit Company could and would have paid the checks in cash, had payment been insisted on, conceding .it to be material, is based on inferences which we cannot say are unreasonable, even if we could inquire into such matters. Hence we cannot disturb the finding.

The fact that Brown was president of the Safe Deposit Company and also treasurer of the railway company, and that he had, as president, personal knowledge of the insolvency of the Safe Deposit Company, does not make that knowledge imputable to the railway company. He did not control the money of the railway company, nor cause it to be deposited in the Safe Deposit Company, nor have power to do so. That matter was controlled by the latter’s board of directors. The duties of Brown as treasurer of the railway company gave him no knowledge of the insolvency of the Safe Deposit Company. His knowledge was not communicated to the former, and therefore cannot be charged to it. (Lothian v. Wood, 55 Cal. 159 , 162; Wittenbrock v. Parker, 102 Cal. 93 , 102, [ 41 Am. St. Rep. 172 , 24 L. R. A. 197 , 36 Pac. 374 ] ; Iverson v. Metropolitan etc. Ins. Co., 151 Cal. 746 , 750, [ 13 L. R. A. (N. S.) 866 , 91 Pac. 609 ]; 2 Cor. Jur. 863.)

Plaintiff also invokes section 1533 of the Civil Code, relating to novation. A novation is the substitution of a new obligation for an existing one. (Civ. Code, sec. 1530.) The clause of section 1533 relied on provides that a rescission of a contract of novation may be made, when an order of a third person “is accepted in satisfaction,” if at the time the order is received the third person on whom it is drawn is insolvent and the fact is unknown to the creditor. The checks of the railway company were not given as payment nor ‘‘accepted

It is also contended that since, under section 3255 of the Civil Code, the drawer of a check is exonerated by delay in its presentment only to the extent that he suffers injury thereby, and as the Safe Deposit Company was,’ at the time of presentment, and ever since has been, hopelessly insolvent, the railway company has suffered no injury by the delay and is not exonerated. This argument loses sight of the fact that the arbitrator has found that payment could have been made if it had been insisted on. But in any event the section applies only to a case where there has been delay in presentment, not to a case where there was a presentment to the drawee and credit with the drawee was accepted in lieu of cash.

We find no other points deserving of notice.

The judgment and order are affirmed.

Sloss, J., and Lawlor, J., concurred.