§ 7503.Application to compel or stay arbitration; stay of action; notice of intention to arbitrate.

(See also Advisory Committee notes preceding § 7501, under subheading “Notice.”).

Subd (a) of this section contains provisions substantially the same as those in CPA § 1450. The term “failure” is used as the equivalent of “failure, neglect or refusal.” At a preliminary hearing on an application to compel arbitration the court’s function is confined to determining whether an agreement to arbitrate and an issue referable to arbitration exists. See Committee on Arbitration, An Outline of Arbitration Procedure 18 (Association of the Bar of the City of New York, Sept. 1, 1956). Since the hearing is similar to a hearing on a motion for summary judgment, the papers of both parties would set forth evidentiary facts on these questions. If the court is satisfied that there is no substantial issue as to either, it will order arbitration or deny the application. If a substantial issue is raised, however, the court will try it forthwith. The phrase in CPA § 1450, “proceed immediately to the trial thereof,” must be read in the light of the provision of that section that a party may demand a jury trial within five days after the order directing the trial of an issue. Similarly, this section, providing that the court shall try such an issue “forthwith,” is not intended to eliminate trial by jury if it is desirable or constitutionally required. Section 2218 is applicable to trials of an issue raised on motion and outlines the manner in which the issue is to be tried and a jury trial demanded. An effort has been made to confine the arbitration article to simple provisions for swift procedures largely by way of motion practice. See Sturges, Some General Standards for a State Arbitration Statute, 7 Arb J (ns) 194, 197 (1952). This subdivision also changes the procedure for a stay of court proceedings brought in violation of an arbitration agreement. Under CPA § 1451, a party aggrieved by such an action would have applied either to the court in which the action was pending or to the Supreme Court for a stay. Under the new CPLR, when a motion to compel arbitration is granted, the order stays any pending or subsequent action, or so much of it as is referable to arbitration. This procedure is derived from the Uniform Arbitration Act, § 2(d). The motion to compel arbitration may be made either in the court where the action is pending or where otherwise proper under § 7502.

Subd (b) of this section follows CPA § 1458(2) in providing that a person who has neither participated in the arbitration proceedings nor been a party to an application to compel arbitration may raise the issue of the existence of, or the failure to comply with, an arbitration agreement by a motion to stay the proceeding. It is intended that a stay can be secured under this provision even before arbitration has been commenced. Participation in the selection of the arbitrators would constitute participation within the meaning of this provision. The provision in CPA § 1458(2) that a party may serve his opponent with a notice of intention to arbitrate was not formerly used in practice; with the speedy motion available to compel arbitration, there was no need for it. If a party proceeds to ex parte arbitration, his opponent may raise the issues of the existence of an agreement or an arbitrable dispute by a motion to stay the arbitration, by opposing the party’s later motion to confirm the award, or by a motion to vacate the award. If the proponent desires to bar his opponent from raising these issues, however, he may make a motion to compel arbitration. This simplification conforms to the proposed Uniform Act. Only one jurisdiction, other than New York, presently requires the additional step of a notice of intention to arbitrate. See Pirsig, Toward A Uniform Arbitration Act, 9 Arb J (ns) 115, 117 (1954). The language “on the ground that the agreement does not exist” is congruent with the language found in § 1450 and subd 2 of CPA § 1458, “the making of the contract or submission.” In fact, the introductory paragraph of § 1458 used the phrases “the existence of a submission or contract to arbitrate,” indicating it is interchangeable with “the making of the contract.” No consideration has been given to changing whatever distinction formerly existed between a claim for rescission based upon breach of contract (e.g., Kahn v National City Bank, 284 NY 515, 32 NE2d 534 (1940); Charles S. Fields, Inc. v American Hydrotherm Corp. 5 App Div 2d 647, 174 NYS2d 184 (1st Dept 1958)) and a claim for rescission based upon fraudulent inducement (Compare Fabrex Corp. v Winard Sales Co. 23 Misc 2d 26, 200 NYS2d 278 (Sup Ct 1960) with Gruen v Carter, 173 Misc 765, 18 NYS2d 990 (Sup Ct), affd, 259 App Div 712, 18 NYS2d 1023 (1st Dept 1940)). The Committee has not considered whether the arbitration clause should be considered as separable so that a claim for rescission of the principal agreement would not raise the issue of the enforceability of the arbitration clause. E.g., Robert Lawrence Co. v Devonshire Fabrics, Inc. 271 F2d 402 (2d Cir 1959), appeal dismissed 364 US 801 (1960); Lummus Co. v Commonwealth Oil Refining Co. 280 F2d 915 (1st Cir 1960).

Subd (c) of this section is based on CPA § 1458(2). The notice of intention to arbitrate procedure has been extended to include preclusion of the objection of a statute of limitation. This change accords with the spirit of CPA § 1458-a although not with its terms. CPA § 1458-a allowed assertion in court of the bar of a statute of limitation by motion before the arbitration had commenced. After that time, the section allowed the bar to be asserted in the court by motion to stay arbitration or vacate the award, but only if the objection was raised by a party then entitled to raise the objection that the agreement did not exist or had not been complied with. A party who had been served with a notice of intention to arbitrate, like one who had participated in the arbitration, was not then entitled to raise the latter objections. In effect, the notice precluded him, after the arbitration had begun, from raising the statute of limitation as well as the issue of the existence of the agreement; and fair procedure required that the notice so specify. Efficient procedure further required that if the party served moved for a stay within ten days after service of the notice, both issues should be raised on that motion if they were available to him. The explicit statement that assertion of the bar of the statute “in court” is precluded was necessary because CPA § 1458-a alternatively allowed it to be raised before the arbitrators, who might or might not have applied it in their discretion. In the last two sentences of this subdivision provision has been made for service of both the notice of intention to arbitrate and the notice of application for a stay by registered or certified mail, return receipt requested, on the suggestion of a number of bar associations that this conforms with actual former practice. The latter portion of the subdivision has also been expanded for clarification, with no change in meaning.

Add, L 1962, ch 308, eff Sept 1, 1963; amd, L 1964, ch 388 § 28, eff Sept 1, 1964; L 1973, ch 1028 § 1, eff Sept 1, 1973.