Doughboy Industries, Inc., Application of

• Citation: 17 A.D.2d 216,233 N.Y.S.2d 488
• Parties: , 1 UCC Rep.Serv. 77 Application of DOUGHBOY INDUSTRIES, INC., Petitioner-Appellant, To stay the arbitration proceedings initiated by The Pantasote Company, Respondent-Respondent.
• Decision Date: 13 November 1962
• Court: New York Supreme Court — Appellate Division

Page 488

233 N.Y.S.2d 488

17 A.D.2d 216, 1 UCC Rep.Serv. 77

Application of DOUGHBOY INDUSTRIES, INC. Petitioner-Appellant, To stay the arbitration proceedings initiated by The Pantasote Company, Respondent-Respondent.

Supreme Court, Appellate Division, First Department.

Nov. 13, 1962.

Edwin H. Baker, New York City, of counsel (Gilbert & Segall, New York City, attorneys), for appellant.

Charles H. Cohen, New York City, of counsel (Kaye, Scholer, Fierman, Hays & Handler, New York City, attorneys), for respondent.

Before BOTEIN, P. J., and BREITEL, VALENTE, McNALLY, and EAGER, JJ.

BREITEL, Justice.

This case involves a conflict between a buyer's order form and a seller's acknowledgment form, each memorializing a purchase and sale of goods. The issue arises on whether the parties agreed to arbitrate future disputes. The seller's form had a general arbitration provision. The buyer's form did not. The buyer's form contained a provision that only a signed consent would bind the buyer to any terms thereafter transmitted in any commercial form of the seller. The seller's form, however, provided that silence or a failure to object in writing would be an acceptance of the terms and conditions of its acknowledgment form. The buyer never objected to the seller's acknowledgment, orally or in writing. In short, the buyer and seller accomplished a legal equivalent to the irresistible force colliding with the immovable object.

Special Term denied the buyer's motion to stay arbitration on the ground that there was no substantial issue whether the parties had agreed to arbitrate. For the reasons to be stated, the order should be reversed and the buyer's motion to stay arbitration should be granted. As a matter of law, the parties did not agree in writing to submit future disputes to arbitration (Civil Practice Act, §§ 1448, 1449).

Of interest in the case is that both the seller and buyer are substantial businesses--a 'strong' buyer and a 'strong' seller. This is not a case of one of the parties being at the bargaining mercy of the other.

The facts are:

During the three months before the sale in question the parties had done business on two occasions. On these prior occasions the buyer used its purchase order form with its insulating conditions, and the seller used its acknowledgment form with its self-actuating conditions. Each ignored the other's printed forms, but proceeded with the commercial business at hand.

The instant transaction began with the buyer, on May 6, 1960, mailing from its office in Wisconsin to the seller in New York City two purchase orders for plastic film. Each purchase order provided that some 20,000 pounds of film were to be delivered in the future on specified dates. In addition, further quantities were ordered on a 'hold basis', that is, subject to 'increase, decrease, or cancellation' by the buyer. On May 13, 1960 the seller orally accepted both purchase orders without change except to suggest immediate shipment of the first part of the order. The buyer agreed to the request, and that day the seller shipped some 10,000 pounds of film in partial fulfillment of one purchase order. On May 16, 1960, the buyer received the seller's first acknowledgment dated May 13, 1960, and on May 19, 1960 the seller's second acknowledgment dated May 16, 1960. Although the purchase orders called for written acceptances and return of attached acknowledgments by the seller no one paid any attention to these requirements. Neither party, orally or in writing, objected to the conditions printed on the other's commercial form. Later, the buyer sent change orders with respect to so much of the orders as had been, according to the buyer, on a 'hold basis'. The dispute, which has arisen and which the parties wish determined, the seller by arbitration, and the buyer by court litigation, is whether the buyer is bound to accept all the goods ordered on a 'hold basis'. The arbitration would take place in New York City. The litigation might have to be brought in Wisconsin, the buyer's home state.

The buyer's purchase order form had on its face the usual legends and blanks for the ordering of goods. On the reverse was printed a pageful of terms and conditions. The grand defensive clause reads as follows:

'ALTERATION OF TERMS--None of the terms and conditions contained in this Purchase Order may be added to, modified, superseded or otherwise altered except by a written instrument signed by an authorized representative of Buyer and delivered by Buyer to Seller, and each shipment received by Buyer from Seller shall be deemed to be only upon the terms and conditions contained in this Purchase Order except as they may be added to, modified, superseded or otherwise altered, notwithstanding any terms and conditions that may be contained in any acknowledgment, invoice or other form of Seller and notwithstanding Buyer's act of accepting or paying for any shipment or similar act of Buyer.'

The buyer's language is direct; it makes clear that no variant seller's acknowledgment is to be binding. But the seller's acknowledgment form is drafted equally carefully. On its front in red typography one's attention is directed to the terms and conditions on the reverse side; and it advises the buyer that he, the buyer, has full knowledge of the conditions and agrees to them unless within 10 days he objects in writing.

The seller's clause reads:

'IMPORTANT

'Buyer agrees he has full knowledge of conditions printed on the reverse side hereof; and that the same are part of the agreement between buyer and seller and shall be binding if either the goods referred to herein are delivered to and accepted by buyer, or if buyer does not within ten days from date hereof deliver to seller written objection to said conditions or any part thereof.'

On the reverse side the obligations of the buyer set forth above are carefully repeated. Among the conditions on the reverse side is the general arbitration clause.

This case involves only the application of the arbitration clause. Arguably, a different principle from that applied here might, under present law ¹, govern other of the terms and conditions in either of the commercial forms. The reason is the special rule that the courts have laid down with respect to arbitration clauses, namely, that the agreement to arbitrate must be direct and the intention made clear, without implication, inveiglement or subtlety (Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N.Y. 288, 289, 291, 118 N.E.2d 104, 105, 41 A.L.R.2d 867; Matter of Lehman v. Ostrovsky, 264 N.Y. 130, 132, 190 N.E. 208, 209; see, also, Matter of American Rail & Steel Co. [India Supply Mission], 308 N.Y. 577, 579-580, 127 N.E.2d 562, 563; Matter of Princeton Rayon Corp. [Gayley Mill Corp.], 309 N.Y. 13, 127 N.E.2d 729, involving conflicting forms). The severability of arbitration clauses from other provisions in commercial documentation would, of course, follow, if it be true that the threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms (see Matter of General Silk Importing Co., Inc., 198 App.Div. 16, 189 N.Y.S. 391; s. c. 200 App.Div. 786, 194 N.Y.S. 15, aff'd 234 N.Y. 513, 138 N.E. 427; see also, Matter of Arthur Philip Exp. Corp. [Leathertone, Inc.], 275 App.Div. 102, 104-105, 87 N.Y.S.2d 665, 666; but cf. Matter of Albrecht Chemical Co. [Anderson Trad. Corp.], 298 N.Y. 437, 440-441, 84 N.E.2d 625, 626).

It should be evident, as the buyer argues, that a contract for the sale of goods came into existence on May 13, 1960 when the seller made a partial shipment, especially when following upon its oral acceptance of the buyer's purchase order (Restatement, Contracts, § 63; Williston on Sales [rev. ed.] § 5b; Personal Property Law, § 85, subd. 1[b]). The contract, at such time, was documented only by the buyer's purchase order form. However, that is not dispositive. It is equally evident from the prior transactions between these parties, and general practices in trade, that more documents were to follow. Such documents may help make the contract, or modify it (12 Am.Jur., Contracts, § 405; 10 N.Y.Jur., Contracts, § 403). Whether the subsequent documents were necessary to complete the making of the contract (as would be true if there had been no effective or valid acceptance by partial shipment), or whether they served only to modify or validate the terms of an existing contract (as would be true if there had been a less formal written acceptance, merely an oral acceptance, or an acceptance by partial shipment of goods) is not really too important once the commercial dealings have advanced as far as they had here. By that time, there is no question whether there was a contract, but only what was the contract.

Recognizing, as one should, that the business men in this case acted with complete disdain for the 'lawyer's content' of the very commercial forms they were sending and receiving, the question is what obligation ought the law to attach to the arbitration clause. And in determining that question the traditional theory is applicable, namely, that of constructive knowledge and acceptance of contractual terms, based on prior transaction and the duty to read contractual instruments to which one is a party (Matter of Level Export Corp. [Wolz, Aiken & Co.], 305 N.Y. 82, 86-87, 111 N.E.2d 218, 221; Matter of Wachusett Spinning Mills [Blue Bird Silk], 7 A.D.2d 382, 183 N.Y.S.2d 601, aff'd 6 N.Y.2d 948, 190 N.Y.S.2d 1011, 161 N.E.2d 222; cf. Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N.Y. 288, 118 N.E.2d 104, 41 A.L.R.2d 867, supra).

But, and this is critical, it is not only the seller's form which should be given effect, but also the buyer's form, for it too was used in the prior transactions, and as to it too, there was a duty to read. Of course, if the two commercial forms are given effect, they cancel one another. (Certainly, the test is not...