Opinion
December 18, 1961
In a proceeding by Nathan R. Goodman to compel Benjamin Lazrus to proceed to arbitration pursuant to a written contract between them, in which Lazrus interposed an amended answer and supporting affidavits seeking the dismissal of the petition on the ground that the contract was illegal or, in the alternative, seeking to restrain the arbitration pending the court's determination of the issues raised by the defenses and counterclaim pleaded in his amended answer, to wit: (1) the defense that the contract constituted a scheme to evade the payment of import duty to the United States and was illegal; (2) the defense that the contract was orally cancelled and abandoned by mutual consent and that Goodman waived written notice of the cancellation; (3) the defense that Goodman waived the performance of the contract by him, Lazrus, and that Goodman is now estopped from asserting Lazrus' nonperformance thereunder; and (4) the defense, counterclaim and cross petition that he, Lazrus, was induced to enter into the contract by Goodman's fraud, the parties cross appeal as follows from an order of the Supreme Court, Queens County, dated January 23, 1961: Goodman appeals from so much of said order as directs that the issue of illegality raised by the first defense be tried by the court pursuant to section 1450 of the Civil Practice Act, and as fails to direct Lazrus to proceed to arbitration forthwith. Lazrus appeals, as limited by his brief, from so much of said order as directs the dismissal of his second and third defenses. Order modified on the law and the facts as follows: (1) by striking out the second, third and fourth decretal paragraphs directing a trial by the court of the issue raised by the first defense of illegality, and directing a dismissal of the proceeding in the event the court shall find that the contract is illegal; (2) by substituting therefor a decretal paragraph dismissing the said first defense of illegality; and (3) by adding a decretal paragraph directing that arbitration shall proceed before an arbitrator in accordance with the terms of the contract. As so modified, order insofar as appealed from, affirmed, without costs; and proceeding remitted to the Special Term for the appointment of an arbitrator pursuant to section 1452 of the Civil Practice Act, and for further proceedings not inconsistent herewith. The contract provides for arbitration pursuant to the Laws of the State of New York of "any dispute arising out of this agreement." The issues raised in the second and third defenses relating to oral cancellation of the agreement, waiver of written notice thereof, abandonment, suspension and estoppel, raise no question as to the making of the agreement (Civ. Prac. Act, § 1450). Consequently, these issues lie exclusively within the jurisdiction of the arbitrators pursuant to the contractual provision ( Matter of Lipman [ Haeuser Shellac Co.], 289 N.Y. 76, 80; Matter of Minkin [ Halperin], 279 App. Div. 226, 233, affd. 304 N.Y. 617; see, also, Matter of Exercycle Corp [ Maratta], 9 N.Y.2d 329). Even if it be assumed that the issue of oral cancellation and waiver of written notice of termination could not be determined in an action at law since the contract provides only for written notice and also specifically prohibits oral changes or additions (Personal Property Law, § 33-c), nevertheless, the arbitrators, in reaching their determination, may disregard the strict and traditional rules of law ( Fudickar v. Guardian Mut. Life Ins. Co., 62 N.Y. 392, 399-400; Sturges, Commercial Arbitration and Awards, pp. 793-798 [1930]; cf. Matter of Grayson-Robinson Stores [ Iris Constr. Corp.], 8 N.Y.2d 133; Matter of Staklinski [ Pyramid Elec. Co.], 6 N.Y.2d 159; Matter of Ruppert [ Egelhofer], 3 N.Y.2d 576). Therefore, there is no reason why respondent should be prohibited, in the first instance, from raising this issue before the arbitrator. Concerning the alleged illegality of this contract, it is asserted that it is an agreement to evade United States Customs duties in the importation of watches assembled in the Virgin Islands. Examination of the agreement discloses no patent illegality ( Matter of Gale [ Hilts], 262 App. Div. 834). The agreement, on its face, neither calls for performance which is prohibited by statute nor which is contrary to existing public policy "as reflected in a legislative act" ( Matter of Exercycle Corp. [ Maratta], 9 N.Y.2d 329, 355, supra). The only issues raised by this defense are those relating to the interpretation of the agreement and the performance required thereunder, which necessarily must fall within the exclusive jurisdiction of the arbitrator under this arbitration clause ( Matter of Exercycle Corp. [ Maratta], supra; Matter of Paloma Frocks [ Shamokin Sportswear Corp.], 3 N.Y.2d 572; Matter of Lipman [ Haeuser Shellac Co.], 289 N.Y. 76, supra). Consequently, unless it can be said that performance is barred by statute as a matter of law ( Matter of Kramer Uchitelle [ Eddington Fabrics Corp.], 288 N.Y. 467), arbitration may not be stayed. Moreover, to hold otherwise would mean a court determination of the issues relating to the interpretation and performance of the contract and a weakening of the broad public policy favoring arbitration ( Matter of Ruppert [ Egelhofer], 3 N.Y.2d 576, supra). Ughetta, Acting P.J., Kleinfeld, Christ, Pette and Brennan, JJ., concur.