Finsilver, Still & Moss, Inc. v. Goldberg, Maas & Co.

• Decision Date: 06 May 1930
• Citation: 253 N.Y. 382,171 N.E. 579
• Court: New York Court of Appeals Court of Appeals
• Parties: FINSILVER, STILL & MOSS, Inc., v. GOLDBERG, MAAS & CO., Inc.

253 N.Y. 382

171 N.E. 579

FINSILVER, STILL & MOSS, Inc.,

v.GOLDBERG, MAAS & CO., Inc.

Court of Appeals of New York.

May 6, 1930.

Arbitration proceeding by Finsilver, Still & Moss, Inc., against Goldberg, Maas & Co., Inc. Plaintiff appealed from a judgment of the Appellate Division reversing by a divided court a judgment of the Special Term of the Supreme Court entered upon the award of an arbitration, and vacating the award (227 App. Div. 90, 237 N. Y. S. 110), and plaintiff also appealed from an order of the Appellate Division (227 App. Div. 790, 237 N. Y. S. 119), reversing an order which denied an application for an injunction perpetually restraining the enforcement of the award, or, in the alternative, to direct a trial by jury of the issue of the existence of a contract of arbitration.

Judgment of Appellate Division vacating award reversed, and judgment of Special Term affirmed, and order of Appellate Division perpetually enjoining enforcement of award modified, with directions.Appeal from Supreme Court, Appellate Division, First Department.

Joseph Dannenberg, of New York City, for appellant.

Lewis Garvin & Kelsey, Wallace T. Stock, and Edwin L. Garvin, all of New York City, for the American Arbitration Association, amicus curiae.

Charles S. Rosenberg, and Harold M. Brown, both of New York City, for respondent.

CARDOZO, C. J.

The defendant in this arbitration proceeding, Goldberg, Maas & Co., Inc., signed and delivered to the plaintiff, Finsilver, Still & Moss, Inc., an order for the purchase of twenty-five pieces of merchandise, described as style No. 195, the price to be $6.95 per yard, and delivery to be made at stated times. There was an arbitration clause as follows: ‘All claims, demands, disputes, differences, controversies and misunderstandings arising under, out of, or in connection with, or in relation to this contract, shall be submitted to and be determined by arbitration, pursuant to the Arbitration Law of the State of New York, in The Tribunal of Justice known as the Court of Arbitration established and conducted by the American Arbitration Association and in accordance with its Rules.’

The plaintiff, upon receipt of the order, notified the defendant in writing of its acceptance, adding a description of the merchandise as ‘Karavan Kamel Kloth,’ 48 inches in width and 30 to 35 in length.

A dispute arising thereafter as to the width of goods delivered, the defendant gave notice to the plaintiff that future deliveries would be rejected. Upon this the plaintiff made demand for arbitration. A proceeding, based upon a submission, went forward to the stage of an award, but in the end was abortive for lack of an acknowledgment. That proceeding having failed, another was begun. In default of a new submission, there was adherence to the forms prescribed by the executory agreement. Under this the rules of the American Arbitration Association were to govern the procedure. The defendant was notified by the association that arbitration was demanded, and was requested to join in the selection of an arbitrator. The request having been ignored, the association, in adherence to its rules, made its own choice of an arbitrator from the members of a panel, and so notified the defendant, informing it also of the time and place of hearing. Again the defendant paid no attention to the warning. Upon its failure to respond, the arbitration proceeded in its absence. The arbitrator made an award of damages in favor of the plaintiff, upon which judgment was thereafter entered pursuant to an order of the court. The court at the same time denied a motion by the defendant for a perpetual injunction, or in the alternative for the submission to a jury of the question of the existence of a contract. Upon appeal to the Appellate Division, the judgment and order were reversed on the ground that there had been an unconstitutional denial of due process of law.

The Arbitration Law of this state, as first enacted in 1920 (Consol. Laws, c. 72), declared agreements for the arbitration of future differences to be valid and irrevocable, but did not set up any machinery whereby an award would be effective in the absence of an order that arbitration should proceed (Arbitration Law, § 3; Matter of Bullard v. Morgan H. Grace Co., 240 N. Y. 388, 148 N. E. 559). The workings of the statute were thought to have disclosed inconveniences as a result of that omission. Thus, where one of three arbitrators withdrew before the proofs had been submitted, there was need of a new order to give validity to the proceeding continued by the others. Bullard v. Morgan H. Grace Co., supra. Still more hapless was the plight of a party to a controversy, if his adversary was a nonresident, without the jurisdiction. The process of the court could not reach the recalcitrant opponent to coerce response to a petition that the arbitration should proceed. In a much-litigated case, a claimant so situated tried the experiment of an arbitration without preliminary judicial sanction. The adverse party, resident in England, was notified of the proceeding, but refused to have a part in it, and later contested the jurisdiction when sued on the award abroad. On the authority of our decision in Bullard v. Morgan H. Grace Co., supra, the House of Lords decided that the award was ineffective, though declaring at the same time that, according to its own view of the law and the practice in Great Britain, an antecedent order was not an indispensable condition. Liverpool Marine & Gen. Ins. Co., Ltd., v. Bankers & Shippers Ins. Co. of N. Y., Jan. 29, 1926, reported in 24 Ll. L. Rep. 85, H. L., reversing a decision of the Court of Appeal reported in the New York Law Journal of March 4, 1925, sub nom. Bankers' & Shippers' Ins. Co. of N. Y. v. Liverpool Marine & Gen. Ins. Co., Ltd. Cf. Bullard v. Morgan H. Grace Co., supra, page 396 of 240 N. Y., 148 N. E. 559.

Faced by these mischiefs, the Legislature, by an amendment adopted in 1927 (Laws 1927, c. 352), added to the Arbitration Law a section, designated 4-a, which reads as follows: ‘Where pursuant to a provision in a written contract to settle by arbitration a controversy thereafter arising between the parties to the contract, or a submission described in section two hereof, an award has been, or is hereafter rendered, without previous application to the Supreme Court, or a judge thereof, as required by section three hereof, such award shall notwithstanding anything contained in section three hereof be valid and enforceable according to its terms, subject, nevertheless to the provisions of this section. At any time before a final judgment shall have been given in proceedings to enforce any such award whether in the courts of the state of New York or elsewhere, any party to the arbitration who has not participated therein may apply to the supreme court, or a judge thereof, to have all or any of the issues hereinafter mentioned determined, and if, upon any such application the court, or a judge thereof, or a jury, if one be demanded, shall determine that no written contract providing for arbitration was made, or submission entered into, as the case may be, or, that such party was not in default by failing to comply with the terms thereof, or that the arbitrator, arbitrators and, or umpire was, or were not appointed or did not act, pursuant to the written contract, then and in any such case, the award shall thereupon become invalid and unenforceable. Where any such application is made any party may demand a jury trial of all or any of such issues, and if such a demand be made, the court or a judge thereof shall make an order referring the issue or issues to a jury in the manner provided by law for referring to a jury issues in an equity action.’

This section of the statute has been condemned by the Appellate Division as a denial of due process. Arbitration presupposes the existence of a contract to arbitrate. If a party to a controversy denies the existence of the contract and with it the jurisdiction of the irregular tribunal, the regular courts of justice must be open to him at some stage for the determination of the issue. The right to such a determination, either at the beginning or at the end of the arbitration or in resistance to an attempted enforcement of the award, is assured by the Constitution as part of its assurance of due process of law. In the view of a majority of the Appellate Division, the statute nullifies this right, or burdens it unreasonably, by attaching a condition that, if the contract be upheld, the party unsuccessfully disputing its existence shall be deemed to have waived the benefit of a hearing before the arbitrators, though the proceeding be still pending.

We think the holding has its origin in a misconstruction of the statute, its aim and its effect. What the amendment seeks to do is to give validity to the practice which in the opinion of the English judges or most of them was permissible already without the aid of an amendment. A ‘party might not wish to enter upon an expensive arbitration which might be a nullity, and he was given power to get the validity of the arbitration determined beforehand by the court. But this * * * still left it free to a party whose arbitration tribunal was duly constituted under the contract, to proceed at his...