HARRY GEIGER v. E. F. CALDWELL et al.

(Filed 15 November, 1922.)

1. Arbitration and Award — Contracts—Intent—Scope—Oonclusiveness.

An agreement to submit a controverted matter to arbitration is, in its interpretation, to be regarded as a contract between tbe parties and construed to arrive at tbeir intent, and tbe scope of tbeir award will be confined to sucb matters only as are submitted to them.

2. Same — Extraneous Matters.

Where tbe arbitrators bave included in tbeir award matters relating to tbe subject that are not properly witbin its scope, tbe award as to tbe matters that are properly therein passed upon will be held to conclude the parties when capable of being separated without prejudice to tbe rights of any of them.

3. Same.

Where tbe vendor of land has agreed with tbe purchaser under a writing that tbe latter was to repair tbe dwelling upon tbe land, not to exceed a certain sum, as a part of tbe purchase price, and be claims that be has exceeded tbe sum limited in making tbe repairs; a written submission to arbitration of tbe value of tbe repairs made by tbe purchaser witbin tbe limitation imposed by the agreement to arbitrate, is conclusive only witbin tbe amount so limited, and to that amount only are tbe parties bound by tbe award.

4. Arbitration and Award — Award if Two Arbitrators.

Where tbe parties have each selected an arbitrator under an agreement that three were to determine tbe controverted matter, and bave conducted tbe proceeding upon tbe idea that tbe third should be called in only in case of disagreement of tbe arbitrators so selected, it becomes unnecessary for those selected to call in tbe third when they both bave agreed and rendered tbeir award accordingly.

5. Appeal and Error — Objections and Exceptions — Sufficiency of Exception — Arbitration and Award.

Tbe form of an exception to tbe judgment of tbe Superior Court that presents on appeal the question as to whether tbe arbitrators bad exceeded tbe authority conferred upon them by tbe agreement to arbitrate, will not be held insufficient when it substantially presents tbe real point intended to be raised.

Appeal by defendant from Long, J., at September Term, 1922, of RICHMOND.

Civil action, beard on tbe report of a referee. Tbe case is tbis: On 27 September, 1918, defendant sold to plaintiff a certain lot in Hamlet, N. 0., known as No. 81, for a stipulated price, on wbicb plaintiff made payments and tben gave bis note for tbe balance, wbicb was $4,750, due 27 December, 1918, with interest, and to secure tbe same be executed a deed to E. A. Harrill, as trustee, for said lot, witb power of sale, wbicb was duly registered. At tbe time of said purchase there was on tbe *388lot a dwelling-house, wbicb bad never been completed, and wbicb bad been damaged by fire, and as a part of tbe contract of purchase, it was agreed between the parties that the defendant should, at bis own expense, repair tbe bouse, complete it, and put it in good condition, as will fully appear from a contract between tbe parties, dated 27 September, 1918. That if tbe defendant bad proceeded with due diligence with tbe work performed by him in accordance with tbe contract of 27 September, 1918, it should have been completed by 1 January, 1919, but on account of sickness and lack of money tbe defendant did not complete tbe work, and on 27 June, 1919, although defendant bad done certain work on tbe bouse, it bad not been completed in tbe way and manner specified by tbe contract.

On 27 June, 1919, tbe contract of 27 September, 1918, was abandoned by mutual consent, and a new contract was entered into between tbe parties, under tbe terms of wbicb tbe plaintiff was to pay tbe defendant tbe sum of $4,000 in cash as a credit upon tbe indebtedness secured by tbe deed of trust to E. A. Harrill, trustee, and was himself to finish tbe bouse in tbe manner specified in tbe contract of 27 September, 1918, tbe reasonable cost thereof to be credited on tbe indebtedness secured by tbe deed of trust to E. A. Harrill, tbe estimated cost of finishing tbe bouse, to wit, tbe sum of $750, to be retained by tbe plaintiff pending tbe completion of said bouse. It was further agreed that if, uiion tbe completion of tbe bouse, tbe parties could not agree upon tbe amount expended by plaintiff for work done by him on tbe same, tbe matter should be referred to three disinterested persons as arbitrators, and tbe plaintiff and defendant, on 27 June, 1919, executed a written agreement wbicb, as far as it relates to this matter, is as follows: “Whereas, Harry Geiger is indebted to E. E. Caldwell in tbe sum of $750, and' E. E. Caldwell is indebted to tbe said Harry Geiger, in tbe manner hereinafter stated, both parties mutually agree to tbe following: Tbe parties agree that for’the purpose of paying whatever amounts are due for completing this bouse, wbicb tbe said Geiger agreed to do, but failed to do, and wbicb Geiger now agrees to do, tbe said Geiger shall complete tbe bouse and receive payment for the same (omitting immaterial matters), and tbe parties agree that Geiger may deduct tbe cost and expense of completing tbe bouse from tbe balance due by him to Caldwell for tbe land to tbe amount of $750 of said purchase money, and tbe balance thereof be shall pay to Caldwell, with a lien on tbe bouse and lot for tbe same. Tbe parties further agree to refer any dispute as to tbe amount due Geiger for the work to three arbitrators if they themselves cannot agree as to tbe same.

Tbe case was sent to a referee, who found "the following facts: “In accordance with tbe contract of 27 June, 1919, tbe plaintiff completed *389tbe bouse in tbe way and manner specified in tbe contract of 27 September, 1918, and delivered to tbe defendant an itemized statement, showing tbat plaintiff bad expended tbe sum of $1,190.80 in completing said bouse, and tbe plaintiff tben and there offered to settle with tbe defendant upon this basis and to pay tbe defendant tbe balance due upon tbe indebtedness secured by tbe deed of trust to E. A. Harrill, trustee, after deducting all cash payments theretofore made, plus said sum of $1,190.80, but tbe defendant declined and refused to make settlement upon this basis. Tbe parties, therefore, being unable to agree upon tbe amount expended by plaintiff in completing tbe bouse, appointed arbitrators, in accordance with tbe contract of 27 June, 1919, and thereupon tbe plaintiff selected W. J. Galloway and tbe defendant selected J. H. Austin, and tbe parties agreed upon one Cole as tbe third arbitrator.' Thereupon tbe three arbitrators were furnished with an itemized statement of tbe amount claimed by plaintiff to have been expended by him in completing said bouse, together with bills and receipts evidencing tbe amounts paid by him, and tbe three arbitrators and plaintiff and defendant went over tbe bouse and inspected tbe same, and on 27 January, 1920, W. J. Galloway and J. H. Austin, two of tbe arbitrators, filed an award in writing, whereby they found tbat plaintiff bad expended tbe sum of $1,135.36 in completing said bouse. A copy of tbe award was furnished to plaintiff and another to defendant. Although tbe contract of 27 June, 1919, provided for three disinterested arbitrators, both plaintiff and defendant construed tbe contract to mean tbat tbe third arbitrator was not to act, except in case of a disagreement between tbe other two arbitrators. Tbat upon tbe arbitration there was no disagreement between tbe two arbitrators first selected and agreed upon between tbe parties, and f.or tbe reason tbe third arbitrator did not act or sign tbe written award. Tbat tbe work of completing said bouse in tbe way and manner provided by tbe contract of 27 September, 1918, should have been performed and completed by tbe plaintiff in accordance with tbe contract of 27 June, 1919, at a cost and expense to him of not exceeding $750. Tbat after said bouse was completed and finished, certain material was left over, tbe cost of which bad been included in tbe statement furnished by plaintiff to tbe arbitrators, and which was allowed by them, and said material is still in tbe possession of tbe plaintiff. Tbat tbe only cash payments which have been made by plaintiff to defendant on account of tbe indebtedness secured by the deed of trust to E. A. Harrill, trustee, are tbe following: $70.25, paid on or about 1 December, 1918, being three months interest; and tbe further sum of $3,000, paid in cash on 1 September,' 1919. Tbat if tbe award of tbe arbitrators is valid and binding, tben a true and correct statement of tbe indebtedness due by plaintiff to defendant secured by tbe deed of trust to E. A. Harrill, trustee, is as follows: “Tben follows *390a statement of tbe account between tbe parties by tbe referee showing a balance due by Geiger on tbe indebtedness secured by tbe deed of trust to Harrill of $855.41 (as shown in finding No. 11), allowing him for tbe value of all work done and for all expenditures by him in completing tbe bouse, and giving him tbe benefit of tbe award of arbitrators.”

Tbe referee then says in bis report: “If tbe award of tbe arbitrators be not final and binding, then a correct statement of tbe indebtedness due by plaintiff to defendant and secured by tbe deed of trust to A. E. Harrill, trustee, is as set forth in finding No. 11, with tbe exception that tbe credit of $1,135.36 as of 27 January, 1920, should be only tbe sum of $750 as of that date. Tbe evidence before tbe referee was insufficient to authorize or justify tbe allowance of any damage in favor of or against either of tbe parties. Tbe balance due by plaintiff to defendant is secured by tbe deed of trust to E. A. Harrill, trustee, registered in Book 110, at page 452, and is a first lien upon tbe property therein conveyed.”

Tbe referee concludes as matters of law:

“1. That tbe arbitration agreement and tbe award therein are valid and binding on tbe parties.

“2. That plaintiff is indebted for balance of debt to defendant secured by Harrill’s deed of trust, in tbe sum of $855.41, with interest from 27 January, 1920, until paid, which is secured by tbe said trust deed, and recommends a sale of tbe property to pay it.” There are other findings not material to this appeal.

Report of referee confirmed by tbe court, and judgment thereon for defendant for tbe balance due on debt, and for a sale of tbe property for its payment.

Defendant excepted and assigned tbe following errors: “Tbe defendant excepts to tbe first conclusion of law of tbe referee herein for that tbe same is erroneous, and for that tbe referee should have found that tbe arbitration and award was not legal or binding upon the defendant E. E. Caldwell.” This exception was overruled, and tbe report of tbe referee confirmed, and judgment rendered accordingly. Defendant appealed.

W. B. J ones for plaintiff.

J. Chesley Sedberry for. defendant.

"WalKER, J.

Tbe referee (Mr. Lawrence) acted wisely in presenting a report in tbe alternative views based on tbe construction of tbe arbitration and award and tbe evidence. He held himself bound by tbe award, and in this be was also correct, but we are of tbe opinion that tbe arbitrators adopted a mistaken view of tbe arbitration. It is clear from tbe terms of tbe submission to them that tbe plaintiff was not to *391be allowed a credit of more than $750 for work done by him on the balance of the debt due by him to Caldwell. This, it seems to us, is the plain and only allowable construction of the submission. The confusion as to its meaning arose from the fact that they had separated a part ($750) of an entire debt due by Geiger to Caldwell from the whole thereof ($1,750), and referred to the $750 as if it was a separate and distinct debt evidenced by a note or some other instrument for its amount ($750), whereas the balance of the debt, originally $4,750, was $1,750, but the meaning and intention of the parties is so plainly manifest that this peculiar and confusing way of expressing it is altogether immaterial. We search for the contract and construe it according to the real intention of the parties, and when this is discovered, and especially when, as in this case, it is so easily found, we do nothing more than execute it.

In paying or reducing the amount of Caldwell’s indebtedness to him for his work on the house, the plaintiff could offset it by his debt to Caldwell for the balance of the purchase money due for the lot and secured by the Harrill deed of trust, but only to the amount of $750. This was, therefore, the limit of the power conferred upon the arbitrators in determining the balance due by Geiger to Caldwell. The learned referee considered this matter, and would have given Geiger a credit for only $750 had he not been of the opinion that he was bound and concluded by their award allowing him more than that amount. In thus holding, he overlooked the fact that the arbitrators had exceeded their power and jurisdiction, if it may be so called, and to the extent that they did so, he was not bound by their decision, but could decide for himself.

Turning to the authorities, we find it settled that the submission furnishes the source and prescribes the limits of the arbitrators’ authority, without regard to the form of the submission. The award, both in substance and in form, must conform to the submission, and the arbitrators are inflexibly limited to a decision of the particular matters referred-to them. 5 Corpus Juris, 124. A submission is in itself a contract, or agreement, or so far partakes of its nature as to be substantially within the principle applicable to contracts as “the basis of the arbitration and award is the submission.” Sprinkle v. Sprinkle, 159 N. C., 81; Millsaps v. Estes, 137 N. C., 536; Dist. of Columbia v. Bailey, 171 U. S., 176. As a legal proposition, defendant is correct in contending that an award may not extend beyond the meaning and scope of the submission, unless waived by the conduct of the parties, or by some other recognized method of enlarging the range of inquiry, which is not shown here. Such improper action on the part of the arbitrators is void, certainly as to the excess, and if not on matter independent and severable, its effect may be to render the entire award invalid. Robert *392 son v. Marshall, 155 N. C., 167. An award must be made strictly in pursuance of and in agreement with the submission, which must not, in its terms, be exceeded, and the arbitrators should regularly award as to all things referred to them, though an award may be good as to p>art, and void as to the remainder (if the parts are separable), where the arbitrators have acted in excess of authority. Millinery Co. v. Ins. Co., 160 N. C., 130; Watson on Arbitration, marg. p. 176; Stevens v. Brown, 82 N. C., 460. In Cutler v. Cutler, 169 N. C., 482, it was held that an agreement to arbitrate is a contract, and from it the arbitrators derive their authority to bind the parties by their decision, and it is well settled that the arbitrators cannot exceed the authority conferred upon them by the agreement.

The award exceeded the limit set by the terms of the submission, and, as argued by the defendant, it was, at least to that extent, not authorized and void, and did not bind the defendant or the arbitrators. But this is, as to the latter, on matter substantially separable from the rest of the award and indejiendent of it. The arbitrators did what they were authorized to do, although they did more, but as this does not vitiate what was within their express power to do, we may hold it valid as to it, and void as to the excess.

The parties, as rexjorted by the referee, treated the submission as, in the first instance, to two of the arbitrators, and in the event of disagreement between them, the third then to act in conjunction with the others. But the last was not required to be done, as the two agreed, and rendered his participation unnecessary. This was the correct view as taken by the referee. The very nature of the transaction, as disclosed by the entire record, clearly sustains his conclusion irpon this part of the case.

The objection to the form of the single exception and assignment of error is not well taken. It substantially presents the real point intended to be raised, namely, that the award in its present form is not legal and binding up>on the defendant, because the arbitrators exceeded their p)owers. It would be placing a very technical and strained construction upon the exception of defendant should we decide otherwise.

The judgment will be modified and the case remanded, so that the rexJort of the referee may be modified by the court, or recommitted to the referee for that |>urpose, by allowing the plaintiff $750, as a credit on the account, instead of the amount now apxoearing in the referee’s account as stated by him, this being his alternative ruling, if the award is not valid and binding upon defendant, except as modified, which it is now held by us to be. The other grounds of objection to it are untenable.

As thus modified, the judgment of the court is affirmed, and will be enforced.

Modified and affirmed.