Court Opinion

ID: 5751414
Source: CourtListenerOpinion
Date Created: 2022-01-12 16:57:53.236997+00
Date Added: 2024-06-11T08:41:17.730846
License: Public Domain

Steuer, J. (dissenting).
We disagree to the extent that we believe all the issues are determinable by the arbitrators and that consequently Special Term should have granted the motion to compel arbitration.
We agree with the majority that two questions are presented, namely, whether CPLR changed the existing law as to the respective functions of the court and the arbitrators and whether, assuming there was no change applicable to the present situation, the question is for the court or the arbitrator. We further agree that if either of these questions is to be answered as the respondent contends, Special Term’s disposition is correct. As to the first question, as we read the majority opinion the court *45found it unnecessary to decide, merely calling attention to respondent’s position and stating that if it is correct it provides an additional ground for affirmance. While this disposition is eminently proper, it does not dispense with the necessity of our establishing our position on this phase of the legal issue presented.
Prior to the enactment of Civil Practice Law and Buies it was quite clear that before arbitration could be directed it was the duty of the court to determine whether the parties had agreed to arbitrate (Matter of Rosenbaum [Amer. Sur. Co.], 11 N Y 2d 310). This would involve a court-made determination of such questions as whether there was a meeting of the minds, and whether an apparent agreement was vitiated by fraud in the factum, duress or any other element which interdicted an offer and its acceptance (see Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76, 79). As most agreements to arbitrate are terms in the contract which gives rise to the controversy, it was also the province of the court to determine whether that term was so understood by the parties that it could be said that they had agreed to it (Matter of Riverdale Fabrics Corp. [TillinghastStiles Co.], 306 N. Y. 288). Other questions are for the arbitrators. ‘ ‘ Once it be ascertained that the parties broadly agreed to arbitrate a dispute ‘ arising out of or in connection with ’ the agreement, it is for the arbitrators to decide what the agreement means and to enforce it according to the rules of law which they deem appropriate in the circumstances.” (Matter of Exercycle Corp. [Maratta], 9 N-Y 2d 329, 334.)
The Exercycle case was decided pursuant to the statutory directions contained in section 1450 of the Civil Practice Act, which limited court inquiry to any “ substantial issue as to the making of the contract”. The current statutory provision (CPLB 7503) is whether there is any “ substantial question whether a valid agreement was made ’ ’. The distinction between the succeeding provision and its predecessor is in the use of the word “ valid ”. This may refer to the making of the contract, that is, that all steps necessary to formalize an agreement were taken and nothing was done to negate the effect of those steps, or it may refer to the agreement itself—whether it is such that no legal obstacle to its enforcement can prevail. This would embrace such questions as lack of consideration, mutuality of obligation and all other situations which can serve to render what purports to be a contract obligation into a nudum pactum. Either interpretation is possible under the language used. If the first represents the legislative intent, no substantial change *46in the law was effected.* If the latter, there has heen a very substantial change indeed, not only in procedure but in substance. In very many instances the question of whether the instrument is legally enforcible or not depends on the interpretation to be put on it and this, in turn, depends most frequently on subsidiary issues of fact. The resolution of these issues determines the right to recovery. It is just those issues that the parties agreed to submit to arbitrators. If these issues are to be determined by the court, the role of the arbitrators is written out of the contract, or at least reduced to a calculation of damages. While the Legislature could, no doubt, achieve such a result if they so wished, we cannot believe that they would undertake to effect so material a change by the use of a single word in a practice statute.
We turn now to the more difficult question of whether illegality under the rule of the Exercycle case is arbitrable or whether, when such a claim is asserted, the court must first find the claim unjustified before arbitration can be ordered. The general rule is, and always was, that illegality negates the existence of the contract and hence there is nothing to arbitrate (Matter of Kramer & Uchitelle, 288 N. Y. 467). However, illegality is a very broad term and when applied to contracts is used to cover a multitude of situations. These vary from agreements which are intended to carry out a criminal result (i.e., an agreement to divide the spoils of a robbery) to one that runs counter to a statute regulating trade. The nature of the illegality involved can and does have some effect on the rights created by the contract and the ability to enforce it. Every contract to which a claim of illegality in the broad meaning of that word might be asserted is not, ipso facto, a nullity, nor is arbitration of questions arising out of it interdicted. That result only attends such contracts whose performance would call for acts which run counter to our public policy. (See Matter of Exercycle, supra, p. 335.) And this limitation of the effect of the generic term “illegality” fits in perfectly with our legal concepts. As noted, arbitrators, where they are empowered to act, may enforce an agreement under any rule of law that they deem appropriate. It would be an unthinkable travesty to allow them to apply a rule which directed enforcement of acts, or to give *47damages for the failure to perform acts which our public policy forbade. No such difficulty is presented where the acts called for do not offend against our public policy.
So it becomes necessary to determine whether the collection of a usurious rate of interest is such an act. We submit it is not. Usury means a stipulation for interest in excess of a statutory rate. A contract tainted with usury occupies, in the law of this State at least, a rather peculiar situation. By statute, certain, but not all, such contracts, are declared to be void (General Business Law, § 373*). Nevertheless, from the earliest times it has been stated that “ [t]he contract is not absolutely void, but only voidable, at the election of the borrower, or those who are privies * * * with him: hence, no other party can make the objection.” (Williams v. Tilt, 36 N. Y. 319, 325.) The Court of Appeals has repeatedly reaffirmed this proposition, even to the quotation, long after usurious contracts were declared void by statute (Lipedes v. Liverpool & London & Globe Ins. Co., 184 App. Div. 332, affd. 229 N. Y. 201, citing Chapuis v. Mathot, 91 Hun 565, affd. 155 N. Y. 641, which cites the quotation with approval). That the defense is peculiar to the borrower is still the law (Broad & Wall Corp. v. O’Connor, 13 A D 2d 462). Furthermore, our courts are not wedded to the principle that they will throw out all cases where a rate in excess of our statutory rate is called for. If the obligation arises outside the State, it can be enforced here despite the fact that the interest called for is in excess of our legal rate (City Nat. Bank, in Miami v. Lake Constr. Co., 227 App. Div. 85). It has also long been our policy, as it is that of many States, that where a contract calling for interest has relation to several States, the law of the State which will sustain the contract (i.e., allows a rate of interest equal to or exceeding the contract rate) will be applied (Cutler v. Wright, 22 N. Y. 471; Leflar, Conflict of Laws, § 131; Ann. 125 A. L. R. 482, Conflict of Laws as to Usury). These considerations are no mere subtleties as to whether a contract is void or voidable. They present a very clear picture of our public policy. They show that the making of an agreement that calls for interest in excess of our statutory rate does not contravene our public policy but that in certain of these contracts the court will not, under certain circumstances, enforce their performance. It would follow that there would be no objection to allow such contracts to go to arbitration.
*48In reaching this conclusion we are not unaware of the holding in Matter of Metro Plan v. Miscione (257 App. Div. 652). As pointed out in the majority opinion, this is an alternative holding. It was also held that the contract did not, under the limited arbitration clause, provide for arbitration of the question. We submit that at the time the case was decided the law as to what was arbitrable had not been developed to its present degree. As to its citation in the Exercycle case, the manner is fairly set out in the majority opinion, but we do not conclude from that that the Court of Appeals intended to approve the specific holding.
Our courts have increasingly adopted the principle that where the parties have agreed upon arbitration as the forum for their disputes, the courts will not place obstacles in the way of that agreement. The nature of the contract here is in dispute. It is not controverted that this very question, the nature of the contract, is left to arbitration. If we can, we should give recognition to this agreement. If it should eventuate that the arbitrators find an agreement that contravenes our policy but, nevertheless, decree enforcement, any resulting question can be determined on the motion to confirm the award (Matter of Gale, 262 App. Div. 834). But the factual questions upon which the legality or illegality of the contract depends are for the arbitrators (Matter of Goodman v. Lazrus, 15 A D 2d 530). This is exactly what the parties contracted for. Moreover, it is the only way consonant with our existing procedure in which their indisputable agreement to arbitrate the underlying questions of fact—which will determine whether this is in fact a usurious contract—can be given effect.
In the view we take it is unnecessary to decide whether the agreement to arbitrate should be considered separate and apart from the agreement in dispute. Naturally, if it is considered separate, the first question is obviated (17A C. J. S., Contracts, § 515 [5]). No doubt exists that the agreement to arbitrate is a valid agreement.
Order denying motion for arbitration pending a trial of certain issues should be reversed and the motion granted.
Yaleete and McNally, JJ., concur with Beeitel, J. P.; Stetjer, J., dissents in opinion in which Eager, J., concurs.
Order, entered June 15, 1964, denying defendant’s motion to compel arbitration pending a trial of the issues of whether the written agreements are usurious and invalid, affirmed, with $30 costs and disbursements to respondent.

 While there is very little proof of the legislative intent dehors the statute, Professor Weinstein states that no change in the substantive law was intended (8 Weinstein-Korn-Miller, N. Y. Civ. Prac., p. 75-62). (But see Thornton, Practice Commentary, § 7503, McKinney’s Cons. Laws of N. Y., Book 7B, CPLR, p. 488; Falls Jr., Arbitration Under the Civil Practice Law and Rules in New York, IX New York Law Forum 335, 346 et seq.)

 This section will very shortly become part of the General Obligations Law, § 5-511.