McCormick v. Gray - 54 U.S. 26 (1851)
U.S. Supreme Court
McCormick v. Gray, 54 U.S. 13 How. 26 26 (1851)
McCormick v. Gray
54 U.S. (13 How.) 26
Where two partners assigned all their partnership property to a trustee with certain instructions how to dispose of it, and afterwards agreed between themselves to
appoint an arbitrator, recognizing in their bonds the directions given to the trustee, the arbitrator had no right to deviate from these directions and make other disposition of the property.
The reason given by the arbitrator, that he preferred creditors before awarding a certain sum to one of the partners, is insufficient.
Nor had the arbitrator a right to depart in any particular from the arrangement of the property which the partners had designated in their deed to the trustee.
McCormick was the inventor of "McCormick's patent Virginia Reaper," and being desirous of manufacturing the same for sale in the States of Illinois and Wisconsin, entered into partnership with Gray. The articles were very specific, but too long to be inserted here. The object was to manufacture five hundred reapers for the harvest of 1848, and the partnership was formed on 30 August, 1847. Three lots of ground were purchased in Kenzie's Addition to Chicago, and the manufacture was commenced.
Some disagreement afterwards occurred, and both parties united in transferring all the assets of the firm to William B. Ogden, and a settlement was to be made according to the award of judge H. T. Dickey. The principal parts of the assignment to Ogden are recited in the opinion of the Court, and need not be repeated.
Afterwards, on 20 December, 1848, they formally agreed to the reference to Judge Dickey, and exchanged arbitration bonds. By these bonds it was made an express condition of the reference that the award to be made by the arbitrator should
"not in any way alter or affect the demands of property and assets in the hands of William B. Ogden as the trustee of said parties, or the agreements between said parties relative to the collection and disposition of said demands, assets, and property, but the same shall remain under the provisions of said contract."
The time for making the award, as originally limited, was afterwards extended to sixty days from 20 January, 1849.
The referee, on 20 March, 1849, made his award, which was as follows:
"Award between Cyrus H. McCormick and Charles M. Gray"
"It having been submitted to me by Cyrus H. McCormick and Charles M. Gray by articles of agreement and submission dated the twentieth day of December, in the year of our Lord one thousand eight hundred and forty-eight, and a supplement thereto dated 19th (nineteenth) January, one thousand eight hundred and forty-nine, to arbitrate and determine certain differences and disputes between them growing out of the partnership
affairs, business, and dealings of the late firm of McCormick & Gray submitting all their said partnership differences and all other differences to me as such arbitrator, and the said parties having appeared before me as such arbitrator on the fourteenth day of January last and for several days thereafter, together with their respective counsel and witnesses, vouchers and proofs having been then sworn, exhibited, produced, and examined, and the said differences and disputes having been finally submitted to me on the nineteenth day of January last, and it appearing to me that such differences and disputes so existing grew out of the partnership business and dealing of the said late firm of McCormick & Gray and in the accounts of the said respective parties, and in the claims on their respective parts, one against the other, for alleged breaches of the co-partnership articles, and in the final settlement and adjustment of all their co-partnership business, dealings, and accounts, and all of the same having been by me fully examined and considered, I do find and award as follows, to-wit: "
"I do find that the assets and liabilities of said late firm on the fourteenth day of January last were as they are stated to be in an account of assets and liabilities hereto annexed, and marked A, that is to say: "
Real estate constituting assets of said firm,
amounting to . . . . . . . . . . . . . . . . . . $ 9,406.06
Machinery amounting to . . . . . . . . . . . . . . 3,637.17
Bills receivable &c., for reapers. . . . . . . . . 36,853.15
Iron on hand . . . . . . . . . . . . . $ 623.14
238 sickles, $3,50 . . . . . . . . . . 833.00
13 reapers, $120 . . . . . . . . . . . 1,560.00
Debt to Fitch, Barry & Co. . . . . . . . . . . . . $ 1,802.82
Debt to Seymour & Morgan . . . . . . . . . . . . . 1,750.60
Debt to Seymour & Morgan . . . . . . . . . . . . . 1,635.29
Debt to O. Orcutt. . . . . . . . . . . . . . . . . 30.00
Debt to M. & M. Stone. . . . . . . . . . . . . . . 105.00
Debt to H. Rowell. . . . . . . . . . . . . . . . . 204.08
Debt to George M. Gray . . . . . . . . . . . . . . 73.75
Debt to Charles M. Gray. . . . . . . . . . . . . . 4,051.88
Debt to C. H. McCormick. . . . . . . . . . . . . . 12,050.67
Profit and loss. . . . . . . . . . . . . . . . . . 31,207.43
"And I do therefore award as follows: "
"1st. I award out of the money and assets of said firm, whether in the hands of either of said co-partners or of their agents, there in the first place be paid the following of said debts and liabilities of said firm, pro rata, until the same shall be fully paid, viz., the above-mentioned debts and liabilities, principal and interest, to the time of payment due to Fitch, Barry & Co., Seymour & Morgan, both claims, O. Orcutt, M. & M. Stone, H. Rowell, and George M. Gray and all other outstanding debts, if there should be any found to be omitted in the above account due or coming due by said firm to third persons."
"2d. I award that in the next place there be paid to Cyrus H. McCormick, one of said co-partners, out of money and assets, the sum of fourteen thousand six hundred and ten dollars, $14,610, for his patent fees, as stipulated by the articles of co-partnership, for reapers sold by said firm."
"3d. I award that in the third place there be paid out of the assets of the said firm, and in the manner hereinafter stated to each of said co-partners, viz., to the said Charles M. Gray and to the said Cyrus H. McCormick, the amount due by said late firm to each of said co-partners as stated above, and in the annexed account marked A, viz., to the said Charles M. Gray the sum of four thousand and fifty-one dollars and eighty-eight cents (4,051.88), and to the said Cyrus H. McCormick, the sum of twelve thousand and fifty dollars and sixty-seven cents (12,050.67), the said two last mentioned sums to be paid to each of said co-partners in the manner specified hereinafter fifthly, and the balance coming to said McCormick over and above his half of his real estate and machinery mentioned hereinafter to be paid to him in money."
"4th. I award that out of the balance of the money and assets of said firm, as profits, after paying the items above mentioned, there be paid to the firm of Ogden and Jones, of Chicago, on account of the sale made to them by the said Charles M. Gray by deed dated the fifteenth day of January, one thousand eight hundred and forty-eight, one-fourth part, to Cyrus H. McCormick, one of the said co-partners, one-fourth part, and to Charles M. Gray the other of the said co-partners, the remaining two fourth parts, the said parts to be paid to each of the said parties pro rata as the moneys and assets are received and collected."
"5th. I do award that the real estate and machinery and their appurtenances, and the tools of the said late firm of McCormick & Gray amounting together, according to the above statement, to thirteen thousand and forty-three dollars and twenty-three
cents (13,043.23) -- that is to say, the real estate to nine thousand four hundred and six dollars and six cents ($9,406.06), and the machinery &c., to three thousand six hundred and thirty-seven dollars and seventeen cents (3,637.17), be taken, one-half part thereof by each of the said co-partners, viz., the said McCormick and the said Gray at the above-mentioned rate, that is to say, six thousand five hundred and twenty-one dollars and sixty-one and a half cents ($6,521.61 1/2) each, and that such appropriation by each of said co-partners of one-half of the said real estate and machinery at the sum of six thousand five hundred and twenty-one dollars and sixty-one and a half cents (6,521.61 1/2), each, be applied towards the payment of the respective balance due to each of them by the said firm, that is to say, of the balance of twelve thousand and fifty dollars and sixty-seven cents due to the said McCormick, and the balance of four thousand and fifty-one dollars and eighty-eight cents (4,051.88) due the said Charles M. Gray and that the balance of the said Charles M. Gray's half of said real estate and machinery, over and above the payment of the said sum of $4,051.88, be applied in part payment of the two fourth parts of the profits of said firm, coming to him as awarded fourthly above."
"6th. I do award that the thirteen reapers belonging to said firm, on hand and unsold, be sold with all convenient dispatch and at the best price that can be had for the same, and that out of the proceeds thereof there be paid to Cyrus H. McCormick the sum of thirty dollars for each of said reapers so to be sold, as a patent fee; but if the said reapers shall sell for a less amount than one hundred and twenty dollars a piece, then the patent fee aforesaid shall be apportioned to the amount of the sale of each reaper in the same proportion as thirty dollars is to one hundred and twenty dollars, and the said patent fee to be paid as aforesaid upon the sale of the said thirteen reapers shall be deducted from the profits to be divided as above fourthly stated."
"7th. I do award that the bills, receivable accounts, and debts due the said firm not already collected, whether in the hands of either of said co-partners or their agent or agents, be collected and caused to be collected in money by the said co-partners, and each of them, with all reasonable diligence and dispatch, and that the iron and sickles on hand mentioned in said account, and all other assets of the said firm, excepting the real estate and machinery and tools above stated, not already sold, be sold and converted into money with all convenient and reasonable diligence and at the best price that can be procured for the same, and the proceeds of all of the above applied in pursuance of the direction and provisions of this award. "
"8th. I do award that all moneys, notes, and other property and assets of said late firm in the hands or possession of or under the control of either of said co-partners shall be forthwith applied by them, and each of them, according to the terms and provisions of this award."
"9th. In case any part of the debts mentioned in the first above-mentioned item, or of the patent fees mentioned in the second above-mentioned item, shall have been paid since the hearing of the arbitration aforesaid, the amount of such payment shall be deducted from the amounts directed thereby to be paid."
"10th. I do award that all necessary costs and expenses which may be expended or incurred in the sale of any of the co-partnership property, and in the collection of the bills receivable and debts due the said firm, shall be paid out of the balance of the partnership moneys and assets fourthly above mentioned before the whole of such balance shall be finally divided as mentioned in said above-mentioned fourth item."
"11th. This award shall be a final settlement of the accounts of the late partnership firm of McCormick & Gray and of the manner in which the assets of said firm are to be paid, appropriated, and applied, and embracing as well the settlement of the accounts of the respective partners, as an adjustment of their respective claims one against the other, growing out of their said partnership dealings, and of all differences and matters of difference between the said Cyrus H. McCormick and Charles M. Gray which have been submitted by the arbitration."
"All of which is signed by me in duplicate as my award in the premises this twentieth day of March, one thousand eight hundred and forty-nine."
"HUGH T. DICKEY"
In June, 1849, McCormick filed his bill in the Circuit Court of the United States for the District of Illinois against Gray and Ogden for an account &c., upon the ground that the award was null and void for the following reasons:
"First. The said award is not within the terms or spirit of the said submission, and the said arbitrator exceeded the power and jurisdiction conferred upon him by the said parties in this, to-wit: "
"1st. That in and by the said assignment from the said McCormick and Gray to said trustee, William B. Ogden, it is expressly declared in the first section thereof that said Ogden shall proceed to collect said assets as speedily as may be, and after first paying all expenses, costs, and commissions attending the collection and disbursement of the same, shall pay over to said McCormick the sum of $14,610, on account of patent fees due
him for the manufacture of said Virginia Reaper as aforesaid; whereas the said arbitrator, wholly disregarding the said assignment and the said proviso of said arbitration-bond hereinbefore mentioned and set forth, in and by his said award, awarded and directed in the seventh section thereof, amongst other things, that the bills receivable, accounts, and debits due the said firm, not then already collected, whether in the hands of either of said co-partners, or of their agent or agents, be collected or caused to be collected in money by the said co-partners, and each of them; and in and by the said first section of said award, the said arbitrator awarded amongst other things that out of the money and assets of said firm, whether in the hands of either of the said co-partners or of their agents, there in the first place be paid certain debts and liabilities of said firm, mentioned and specified in said section, pro rata, and the said section of the said award directed and awarded in substance that in the next place there be paid to your orator out of the funds of said co-partnership the sum of $14,610 for his said patent fees, thus attempting to subvert and annul the said assignment so made to said Ogden by directing the said parties to collect the said debts and assets so assigned to him, instead of said Ogden, and in utter disregard of his rights and duties as trustee, and to disburse and distribute the funds of said partnership in a different manner from that provided in and by the trusts of said assignment, and postponing the payment of the said sum of $14,610 so due to your orator for patent fees until after the payment of said debts mentioned in said first section of said award, contrary to the tenor and effect, true intent, and meaning of the said assignment, and of the said arbitration bond."
"2d. The said assignment provides in the second section thereof that said Ogden shall pay all legal liabilities and debts of the said McCormick and Gray as they shall become due, whereas the said award in the first section thereof awards and directs in substance that certain debts in said last-mentioned section specified shall be paid pro rata until the same shall be paid."
"3d. The said assignment in the third section thereof, amongst other things, provides in substance that the balance of said assets, as fast as collected, shall be paid in pro rata sums as follows: to said McCormick one-half of all moneys collected, to Ogden and Jones one-fourth, and the remaining fourth to said Gray, provided however and it is in said third section agreed and understood that the respective sums therein provided to be paid to said McCormick and Gray respectively shall be retained by said Ogden to await the award of said Dickey, and shall in no case be paid over to either of said parties until said award shall be made, and when said award shall be made, in case it
should be made against either party, the amount of such award shall be taken out of the moneys going to the party against whom the said award shall be made, and paid over to the party in whose favor the said award shall be made, and when said award shall have been paid, the balance of said moneys going to said McCormick and Gray, if any there shall be, shall be paid over to them respectively in the proportion in said assignment provided, whereas in and by the fourth section of the said award it is awarded and directed that of the balance of the money and assets of said firm, as profits, after paying the items therein mentioned, there be paid to said Ogden and Jones one-fourth part, to said McCormick one-fourth, and to said Gray the remaining two fourths, and no sum certain is awarded to either party within the intent and meaning of the said assignment and submission, but the assets of the said firm and directed to be distributed and divided as last aforesaid."
"4th. That the said arbitrator has exceeded his powers in other respects, and the said award is uncertain, unjust, illegal, and tends to the manifest injury, wrong, and oppression of your orator; and your orator humbly insists and submits that the said award ought to be annulled and wholly set aside, and the said Gray ought to be enjoined and restrained from commencing any suit or other proceeding to enforce the collection thereof or from interfering with said assignment aforesaid or intermeddling with the property and assets in said assignment mentioned, and that the said Gray ought to come and account with your orator of and concerning the said partnership dealings and transactions from the commencement thereof, and that the said pretended award, so made as aforesaid, is no bar to such account."
The defendants appeared, and demurred to the bill, and the circuit court, then holden by the district judge, sustained the demurrer and dismissed the bill.
The complainant appealed to this Court.