Case Name: In the Matter of the Arbitration between Uraga Dock Company, Ltd., Respondent, and Mediterranean & Oriental Steamship Corp., Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1958-11-05
Citations: 6 A.D.2d 443
Docket Number: 
Parties: In the Matter of the Arbitration between Uraga Dock Company, Ltd., Respondent, and Mediterranean & Oriental Steamship Corp., Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 6
Pages: 443–450

Head Matter:
In the Matter of the Arbitration between Uraga Dock Company, Ltd., Respondent, and Mediterranean & Oriental Steamship Corp., Appellant.
First Department,
November 5, 1958.
Joseph M. Callahan of counsel (Joseph A. Doran, James E. Freehill and Morton Liftin with him on the brief; Hill, Betts & Nash, attorneys), for appellant.
Wharton Poor of counsel (R. Glenn Bauer with him on the brief; Haight, Gardner, Poor & Havens, attorneys), for respondent.

Opinion:
Rabin, J.
This is an appeal from an order granting petitioner's (the builder's) motion for a stay of arbitration. Respondent (the buyer) was the prospective purchaser of two 21,000 ton tankers, for an aggregate sum of approximately $8,000,000, to be constructed by the builder in Japan. The proceeding arises out of a dispute as to whether the buyer made timely tender of payment of the first payment due pursuant to the terms of the written construction contract. Since the agreement provided for arbitration of " [a]ny dispute arising under or by virtue of this Contract ', the buyer sought arbi tration of the described issue. The builder moved to stay arbitration on the ground that the failure to make a timely first payment was a failure to perform an express condition precedent of the contract thereby vitiating ab initio the contract, including the arbitration clause.
A review of the pertinent provisions of the contract leads us to the conclusion that the arbitration clause was operative and therefore the proceedings should not have been stayed.
The contract provides that the builder " agrees " to deposit with a designated bank a signed copy of the construction contract, a certified copy of an export license, and a security agreement to be executed by a named Japanese bank. Within 10 days after the depositary bank notifies the buyer that the foregoing-documents have been duly deposited, the buyer " shall " pay a sum representing* 20% "of the Contract Price and the initial payment under this Contract." The contract thereafter provides: "Upon the initial payment by the Buyer as provided hereinabove, this Contract shall become effective and binding upon the parties. If, however, the Buyer fails to make the initial payment under the terms and conditions above, this Contract shall be null and void and no obligations, duties or liabilities shall attach to either the Builder or the Buyer under this Contract."
At a later point the contract obliges the buyer to pay interest at the rate of 6% per annum in the event of " default of payment as to any instalment ', with an option to the builder to rescind the contract if " any instalment remains unpaid by the Buyer for twenty (20) days after such instalment is due and payable ".
The final article of the contract specifies that the contract " shall become effective only on fulfillment and realization of all of" certain conditions, i.e.: (1) execution of the contract; (2) delivery to the depositary bank of the above-described documents; and (3) payment by the buyer to the builder " of the first instalment as provided in this Contract." The first two of the conditions were duly completed. Initial payment, however, was not made within 10 days of the completion of those first two conditions, but was tendered within the period which, according to buyer's interpretation, constituted a grace period. The builder refused to accept the payment. The buyer initiated arbitration proceedings and the builder promptly applied for a stay.
The court below found that the grace period did not apply to the initial payment and concluded therefrom that the agreement, including the arbitration clause, "never took effect". We consider it unnecessary to decide, and specifically refrain from deciding whether the grace period did so apply to the first payment. For in onr view the arbitration clause was effective and it remains for the appropriate arbitration tribunal to determine in the first instance the effect of the grace provisions upon the time for the first payment.
No doubt the right to arbitrate clause " presuppose [s] the existence of a valid and enforceable contract ". (Matter of Kramer & Uchitelle, 288 N. Y. 467, 471.) But here the integrity of the contract is challenged not on grounds extrinsic to the terms of the contract such as fraud or illegality, but because of failure to perform one of its terms. The parties have agreed to leave to arbitration " [a]ny dispute arising under or by virtue of this Contract ", and that, we believe, necessarily includes a dispute as to whether the buyer has duly performed pursuant to the contract the prescribed condition of initial payment.
The signed agreement imposed mutual obligations on the parties and these were absolute ones, for the builder " agrees " to obtain and deposit with a Japanese bank, specified documents and within 10 days after notice thereof the buyer " shall " make the initial payment. The parties having thus assumed these obligations there immediately came into being a binding contract and the arbitration clause became immediately operative.
While it is true that the continued existence of the contract was conditioned upon the buyer making the initial payment, the failure to make such payment could not have the effect of removing the arbitration clause from the agreement. It is of no consequence that the continued existence of the contract depends on whether the tender of the first payment was timely. We have already held arbitrable an issue concerning the continued existence of a prior agreement allegedly superseded by a later one. (Matter of Spectrum Fabrics Corp. [Main St. Fashions], 285 App. Div. 710, affd. 309 N. Y. 709.)
The builder invokes and relies upon one portion of the contract to demonstrate the contract's nullification, but so long as the construction and application of any of its terms is in issue, even the term prescribing the annulment of the contract, that issue has by agreement of the parties been delegated to arbitration. The builder may not at once accept and repudiate that term of the contract mandating arbitration. (Cf. Yeomans v. Bell, 151 N. Y. 230; Friedman v. Richman, 213 App. Div. 467, affd. 241 N. Y. 576.)
Moreover the only consequence of the failure to make the first payment was to make ineffective all subsequent obligations. It did not relieve the builder of its obligation to deposit the documents nor .the buyer of its obligation to make the first payment. These obligations were absolute.
As observed the failure to make the initial payment in time does not support the conclusion that the contract never went into effect. Even prior to that payment the builder had "agreed" and assumed an enforcible contractual obligation to undertake to procure an export license and a security agreement to be lodged with a designated depository. (Silverman v. Goldmann Realty Corp., 232 App. Div. 292; Creamer v. Metropolitan Securities Co., 120 App. Div. 422.) And upon performance of these conditions by the builder it is clear that the buyer had the duty to make the initial payment. Consequently, while the builder's promise to build was conditioned upon timely initial payment, the initial vitality of the agreement, together with the arbitration clause, was not vitiated by the alleged failure to make timely payment. We hold therefore that the arbitration proceedings were properly instituted and should not have been stayed.
The order should be reversed on the law, with $20 costs and disbursements to appellant, and motion to stay arbitration denied.