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Sussleaf-Flemington Inc. v. Bruce

Decided: July 2, 1964.


Conford, Freund and Sullivan. The opinion of the court was delivered by Conford, S.j.a.d.


[84 NJSuper Page 600] Plaintiff brought this action to enjoin resort to arbitration by defendants in respect of a dispute

over an alleged breach of a long-term lease. It obtained a preliminary injunction. Defendants counterclaimed to compel arbitration under N.J.S. 2A:24-3; but the court denied their motion to order the arbitration, holding: (1) defendants presented no bona fide controversy for arbitration; (2) there was a preliminary question for decision by the court in relation to plaintiff's defense of laches against assertion of the cause of action for arbitration. We granted leave to appeal the denial of the motion for arbitration.

Plaintiff was the original builder and owner of a shopping center in Raritan Township. In February 1962 it sold the premises to defendants, taking back a long-term lease. There was then in existence an operating sublease for the entire premises to a subsidiary of Terry Shops, Inc., the performance of which was guaranteed by that corporation. The principal lease between the present parties provided that it was subject and subordinate to the Terry Shops lease mentioned "which said lease and guarantee thereof may not be cancelled, terminated or modified without the prior written consent of the Lessor [ i.e. , of principal lease]." By the principal lease the plaintiff also assigned the Terry Shops sublease to defendants as collateral security against breach of the principal lease by plaintiff.

Terry Shops and its subsidiary (the nominal sublessee) were adjudicated bankrupts on August 1, 1963, and their trustee promptly abandoned the lease under order of the bankruptcy court. On January 3, 1964 defendants served plaintiff with a demand for arbitration, asserting that the bankruptcy and abandonment of the sublease constituted a cancellation of that lease and the guarantee thereof by Terry Shops giving defendants the right to terminate plaintiff's lease under the terms of that instrument. They acted under a provision of the lease stating: "Controversies of any kind relating to this agreement shall, at the option of either party hereto, be settled by arbitration in New York, N.Y., in accordance with the rules then obtaining of the American Arbitration Association."

Plaintiff refused to arbitrate, and brought this action instead. It claims that after the Terry Shops bankruptcy it entered into a new sublease with a responsible operator, spent substantial sums of money to reorganize the shopping center, and paid the rents due under the lease to defendants, all to the knowledge of defendants and without any claim or assertion of default by the latter until service of the demand for arbitration. It was on the basis of these facts that plaintiff asserted the defense of laches to the counterclaim for arbitration, alternatively casting the defense in terms of waiver and estoppel on the same factual premises.

We consider first plaintiff's contention that the dispute is not arbitrable. The argument is that defendants in effect are seeking to add terms to or to reform the contract, and New York cases are cited to support the argument that an arbitration clause is not applicable in such case, e.g., Agora Development Corporation v. Low , 19 A.D. 2 d 126, 241 N.Y. Supp. 2 d 126 (App. Div. 1963). That decision, however, stated that an arbitration clause would apply to a claimed right to reform the letter of the contract terms to conform with the asserted real agreement but held it inapplicable to a contention that the circumstances called (apparently as a matter of equity) for adding a new term to the contract. We need not decide whether a refinement of that nature would be held material in this State as against the holding of our own Supreme Court in Jersey Central Power & Light Co. v. Local Union No. 1289, etc. , 38 N.J. 95 (1962), giving very broad scope to an arbitration clause. The present attempt by defendants is not to obtain an equitable recasting of the contract terms but a judicial determination that the cancellation of the Terry Shops sublease and guarantee, although by bankruptcy, warranted a cancellation of the major lease by the landlord under a proper construction of its provisions as written.

Plaintiff also argues that the arbitration claim is not founded upon a bona fide dispute. But that kind of contention has been declared unavailing any longer in Jersey Central Power & Light Co. v. Local Union No. 1289, etc., supra.

If the controversy is within the arbitration clause it is absolutely arbitrable whatever the apparent lack of substantive merit in the position of the demanding party. Id. , at pp. 102-103. We find this controversy clearly within the broad language of the present arbitration clause.

Plaintiff's further contention that Jersey Central Power & Light is applicable only to collective bargaining agreements cannot be accepted. There is no intimation of such a limitation in the opinion of the Chief Justice; on principle, the functional considerations therein discussed are as germane to commercial as to labor agreements providing for arbitration of controversies arising thereunder.

A more substantial question arises, however, in relation to plaintiff's assertion that the order for arbitration was properly denied by the trial court for the reason that the court must first determine the defense of laches. There is solid authority for the view that since an application to a court to compel enforcement of an agreement to arbitrate is in the nature of an equity suit for specific performance of a contract, the equitable defense of laches is cognizable, and is for disposition by the court rather than the arbitrators. Reconstruction Finance Corp. v. Harrison & Crosfield , 204 F.2d 366 (2 Cir. 1953), cert. denied 346 U.S. 854, 74 S. Ct. 69, 98 L. Ed. 368 (1953); Nortuna Shipping Company v. Isbrandtsen Company , 231 F.2d 528 (2 Cir. 1956), cert. denied 351 U.S. 964, 76 S. Ct. 1028, 100 L. Ed. 1484 (1956); Petition of Ropner Shipping Co. , 118 F. Supp. 919 (S.D.N.Y. 1954); New York Central Railroad Co. v. Erie Railroad Co. , 30 Misc. ...

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