Fabrex Corp. v. Winard Sales Co.

• Decision Date: 11 January 1960
• Citation: 200 N.Y.S.2d 278,23 Misc.2d 26
• Parties: FABREX CORPORATION, Petitioner, v. WINARD SALES COMPANY, Respondent. WINARD SALES CO., Plaintiff, v. FABREX CORP., Defendant.
• Court: New York Supreme Court

Page 278

200 N.Y.S.2d 278

23 Misc.2d 26

FABREX CORPORATION, Petitioner, v. WINARD SALES COMPANY, Respondent.

WINARD SALES CO., Plaintiff, v. FABREX CORP., Defendant.

Supreme Court, Special Term, New York County, Part I.

Jan. 11, 1960.

Hahn, Hessen, Margolis & Ryan, New York City (James C. Slaughter, New York City, of counsel), for Fabrex Corp.

Arthur I. Winard, New York City (Melvin S. Cohn, New York City, of counsel), for Winard Sales Co.

VINCENT A. LUPIANO, Justice.

Motion number 68, bearing index number 17308/59, and motion number 159, bearing index number 16457/59, dated December 21, 1959, are consolidated for the purpose of joint disposition.

The first motion by the petitioner-seller, Fabrex Corporation, seeks to stay an action pending arbitration. In the second motion, the buyer, Winard Sales Co., moves to stay the pending arbitration.

The facts: The seller, Fabrex Corporation, entered into three contracts with Winard Sales Co. for the sale of a quantity of textile piece goods. Each contract contained a broad arbitration clause which states in part, 'Any controversy arising under or in relation to this contract or order or any modification thereof shall be settled by arbitration * * *.' The buyer received deliveries under the contracts and thereafter asserted a claim that the merchandise did not conform to the contracts as to quality, and withheld payment. On November 29, 1959 the buyer instituted an action against the seller. The first two causes of action in the complaint seek money damages for alleged breach of warranty. The third cause of action seeks rescission alleging fraud in the inducement. Subsequently the seller served a demand for arbitration pursuant to the terms of the contracts.

The buyer contends on these motions that arbitration may not be had if there is an action pending between the same parties in which rescission is sought based upon fraud in the inducement. It is urged that the very nature of the rescission action itself repudiates the existence of the contract, and arbitration based upon such a contract must yield to the charge.

The law: Where an arbitration clause is broad and all inclusive, a request for rescission, either in a pending action or in a demand for arbitration, based upon fraud in the inducement, will be left for determination of the arbitrators (Charles S. Fields, Inc. v. American Hydrotherm Corp., 5 A.D.2d 647, 174 N.Y.S.2d 184; Application of John E. Potter Co., 2 Misc.2d 515, 149 N.Y.S.2d 641, affirmed 2 A.D.2d 816, 155 N.Y.S.2d 775; Kanter v. Burlington Mills, 278 App.Div. 554, 102 N.Y.S.2d 429; Transpacific Transport Corp. v. Sirena Shipping Co., 16 Misc.2d 217, 184 N.Y.S.2d 30). For, as Mr. Justice Steuer pointed out in Aaron Krumbeim & Sons, Inc. v. Winola Silk Mills, Inc., 133(65) N.Y.L.J., Apr. 4, 1955, p. 6, col. 7m: 'Fraud does not make a contract void, merely voidable. The parties may provide for the arbitration of such questions as would give one of them the right to rescind.' In the case before me the arbitration clause is of the broadest scope. Clearly, such a clause may provide for the determination of such questions of fraud and rescission.

Moreover, while the buyer alleges fraud in the inducement, a reading of the complaint and accompanying affidavits indicates that the alleged fraud relates solely to the question of performance under the contracts, for the buyer admits that deliveries were made thereto, and alleges breach of warranty in the first two causes of action. The law is that issues raised by claims relating to...