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Kahan Jewelry Corp. v. Yilmaz

A-7131-96T5 (N.J. Super. App. Div. 1998) (Unpublished)

ARBITRATION; SCOPE—An arbitration award will be honored even if the losing party asserts that, had he appeared, his defense would have been that the subject matter was outside of the scope of the arbitration provision.

An arbitration award was granted in New York and a New York court entered judgment upon it. The award dealt with a personal guarantee given by an individual covering full payment of any merchandise sold to his incorporated business. The guarantee included a specific arbitration provision and was to be governed by New York law. In addition, the guarantor consented to the jurisdiction of courts within New York. The seller filed an arbitration proceeding against the guarantor and his company. The guarantor contended that the sale in question was made to a different one of his companies, and, therefore, was not covered by the guarantee. For that reason, although the guarantor signed a receipt for the certified mail arbitration notice, he did not respond to the Demand for Arbitration. Also, he did not appear in the arbitration proceeding. Similarly, when the arbitration award was presented to the New York courts for judgment, the guarantor did not respond. The seller then brought an action in the New Jersey courts, seeking collection of the judgment.

In the New Jersey action, the guarantor claimed that the New York judgment was not entitled to full faith and credit because it was not based on an arbitration award pertaining to the company whose debt he had guaranteed and that neither he nor his other company ever agreed to arbitrate such a claim. The seller responded that its arbitration demand asserted that the purchases in question, while nominally in the name of the unguaranteed company were, in fact, made by the guaranteed company and/or the guarantor. The essence of the seller’s claim was that the second company was a shill, covering for the guarantor and the company whose debts he had guaranteed. Both the Appellate Division and the lower court noted that to accept the guarantor’s position, an investigation of the merits of that position would require the Court to set aside and go behind the determination of the arbitrator on an issue which was expressly assigned to him by agreement of the parties. Such an argument would amount to a defense on the merits, which could have been, and should have been, submitted to the arbitrator. Consequently, the Court would not allow such a defense and the judgment of the New York court was honored.


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