In re the Arbitration between Finsilver, Still & Moss, Inc. & Goldberg, Maas & Co.

Proskauer, J. This appeal is from an order confirming the award of arbitrators and from the judgment entered thereon. The arbitration was conducted pursuant to section 4-a of the Arbitration Law (as added by Laws of 1927, chap. 352, in effect March 29, 1927). The validity of this statute is challenged upon the ground that it violates the due process clause of the State and Federal Constitutions (N. Y. Const, art. 1, § 6; IT. S. Const. 14th Amendt. § 1). Prior to the enactment of this statute a party who denied the creation or validity of a contract which provided for arbitration, could, of right, secure a judicial determination with respect to this condition precedent to arbitration and could also, if so advised, insist upon a jury trial of the issue. (Arbitration Law, § 3.) The 1927 statute made a radical and basic change in this procedure. It provides: “ 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 [92] 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.” Under this statute a party who disputes the existence of a contract providing for arbitration must make an election at his peril. He may appear before the arbitrators and be heard, but if he does, he is finally estopped from questioning the jurisdiction of the arbitrators and from asserting that he never agreed to be bound by their determination. He may question their jurisdiction to make the award, but only if he foregoes the opportunity to present his side of the controversy to the arbitrators. The hardship thus imposed is well illustrated in the facts of this case. Goldberg, Maas & Co., Inc. (hereafter designated as the buyer) desired to purchase from Finsilver, Still & Moss, Inc. (hereafter designated as the seller), twenty-five pieces of cloth designated by the number 195. The buyer claims that in preliminary negotiation he stated that he wished these goods to be fifty-four inches in width, and that the seller’s representative stated that he would do his best to give cloth at least fifty inches in width. After this preliminary negotiation the buyer signed a written order upon a form provided by the seller for twenty-five pieces of style 195. Upon it was printed the legend: “ This order is not binding unless accepted by Finsilver, Still & Moss, Inc.” On October third the seller sent to the buyer what purported to be an acceptance of the order. There are discrepancies between the written order and the written acceptance. The order describes the merchandise merely as style 195 and designates no stated width of the cloth. The acceptance describes the merchandise as Karavan Kamel Kloth and states that the width is forty-eight inches. The order recites that arbitration shall be conducted “ 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 acceptance refers to a similar tribunal established and conducted by the Arbitration Society of America, Inc. The appellant contends that this acceptance contained terms which were essentially different from those in the order, and that, therefore, no written contract was created by the exchange of papers. [93] We do not determine whether a contract was made. A trial upon that issue might well involve the admission of oral evidence to explain these apparent differences. That there is an issue as to the existence of the contract is the significant fact upon this appeal. The Constitution guarantees to the buyer the right to appear and to be heard in a judicial tribunal upon this issue. We do not think that it can be fairly said that this guaranty is safeguarded by a statute which attaches to the right to appear and be heard in a judicial tribunal the condition that the buyer must waive all right to be heard before the extra-judicial tribunal. We are referred by counsel to no authority helpful in the determination of this question. The nearest analogy in judicial decisions is found in the cases which deal with and generally sustain the validity of statutes which provide that a special appearance in an action shall be deemed the equivalent of a general appearance. (York v. Texas, 137 U. S. 15; Western Indemnity Co. v. Rupp, 235 id. 261, 272, 273; Chicago Life Ins. Co. v. Cherry, 244 id. 25, 30; Jones v. Jones, 108 N. Y. 415, 426.) These cases, however, do not go to the length of sustaining a statute such as the one here considered. When a litigant files a special appearance and attacks service or jurisdiction, he receives from a court a judicial determination upon the issue of service or jurisdiction. If he is unsuccessful, he is still free to assert his defense upon the merits. As the price of litigating the question of service and securing a judicial determination thereon, he must only agree that if he is unsuccessful the court may proceed to determine the controversy upon its merits. Here, however, as a condition of litigating jurisdiction, he must waive the right to be heard upon the merits. In the alternative, if he is heard upon the merits before a tribunal which is extra-judicial and which can derive jurisdiction only from the fact that he has given his written consent to such jurisdiction, he may never challenge the existence of the very fact upon which the whole right of the arbitrators to function is based. In final analysis, the order of a court enforcing by judgment the award of arbitrators is in the nature of the specific performance of a contract. The foundation of such a judgment is two-fold. It rests, first, upon the existence of the contract, and, second, upon the determination of the arbitrators after a hearing on the merits pursuant to the terms of that contract. When both these conditions exist, the court enforces the award. A party has a right both to a hearing before arbitrators and also to a judical determination that he consented to arbitration. The order in which these rights are given him may be immaterial, but a statute which deprives him of one of them is a denial of due process. [94] For these reasons the judgment and order appealed from should be reversed, with costs, and the award vacated, with costs. Dowling, P. J., Martin and O’Malley, JJ., concur; Merrell, ■ J., dissents and votes for affirmance.