Schubtex, Inc. v. Allen Snyder, Inc.

• Decision Date: 27 November 1979
• Citation: 399 N.E.2d 1154,49 N.Y.2d 1,424 N.Y.S.2d 133
• Parties: , 399 N.E.2d 1154, 27 UCC Rep.Serv. 1166 SCHUBTEX, INC., Appellant, v. ALLEN SNYDER, INCORPORATED, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 133

424 N.Y.S.2d 133

49 N.Y.2d 1, 399 N.E.2d 1154, 27 UCC

Rep.Serv. 1166

SCHUBTEX, INC., Appellant, v. ALLEN SNYDER, INCORPORATED, Respondent.

Court of Appeals of New York.

Nov. 27, 1979.

Myron J. Meadow and Michael K. Stanton, New York City, for appellant.

Cecil A. Citron and Michael Wexelbaum, New York City, for respondent.

OPINION OF THE COURT

JASEN, Judge.

The significant issue on this appeal is the applicability of this court's decision in Matter of Marlene Inds. Corp. (Carnac Textiles), 45 N.Y.2d 327, 408 N.Y.S.2d 410, 380 N.E.2d 239, to the arbitration case before us.

Respondent Allen Snyder, Inc., a converter of yarn, had various dealings with petitioner, Schubtex, Inc., a jobber, in connection with the sale and purchase of certain synthetic textiles. The orders were taken orally at petitioner's place of business, typed at respondent's office on its printed order/contract form, and mailed to petitioner. The confirmation of order form used in all of these dealings, including the one in controversy, contained the statement that the "contract is subject to the terms on the * * * reverse side hereof, including the provisions for arbitration".

Pursuant to the terms of the agreement in controversy, respondent shipped some of the textiles to petitioner and requested that the latter assort the remaining goods. Petitioner refused to do so. A demand for arbitration and notice of intention to arbitrate respondent's claim for damages arising out of the alleged breach of contract was served upon petitioner, who thereupon sought a stay of arbitration, denying the existence of an express agreement to arbitrate. A temporary stay of arbitration was issued, pending the outcome of a trial which was ordered to resolve the issues of fact involved.

Following trial, Supreme Court determined that a valid agreement to arbitrate was made. The court found that on the basis of the history of the parties' relationships, petitioner was aware that the agreement to purchase textiles would be subject to the arbitration clause contained in the written confirmation of order and that petitioner "adopted it, accepted it and undertook to be bound by it with full knowledge of its provisions and with full knowledge of the obligations which it entailed." As a result, Supreme Court vacated the previous stay of arbitration. On appeal, the Appellate Division unanimously affirmed the judgment of Supreme Court, without opinion, but granted leave to appeal to this court. We would reverse.

Although our scope of review is limited when issues of fact have been resolved by affirmance at the Appellate Division (see Matter of Hofbauer, 47 N.Y.2d 648, 654, 419 N.Y.S.2d 936, 939, 393 N.E.2d 1009, 1012; Estate of Canale v. Binghamton Amusement Co., 37 N.Y.2d 875, 378 N.Y.S.2d 362, 340 N.E.2d 729; CPLR 5501, subd. (b); see, also, Cohen and Karger, Powers of the New York Court of Appeals, § 108, pp. 453-455), such findings are conclusive on this court only if there is evidence in the record to support them. In our opinion, the evidence adduced at trial is insufficient as a matter of law to support a finding of an express agreement to arbitrate.

In Matter of Marlene Inds. Corp. (Carnac Textiles) (supra), we held that an arbitration clause printed on the back of a written acknowledgment of order was a material alteration of the proposed purchase order and that it, therefore, could not be binding upon the prospective purchaser merely by virtue of the prospective purchaser's retention, without objection, of the acknowledgment of order form containing the clause. (See Uniform Commercial Code, § 2-207, subd. (2), par. (b).) The rationale underlying Marlene was that a litigant ought not to be forced into arbitration and, thus, denied the procedural and substantive rights otherwise available in a judicial forum, absent evidence of an express intention to be so bound. In other words, unless it can be shown that the parties contemplated the use of arbitration, they will not be held to have relinquished their right to litigate their disputes in the courts.

Applying this rule to the case before us, we conclude that there has been no such showing. The trial court, in determining that a valid agreement to arbitrate was made, based its finding solely upon the prior dealings of the parties. Although evidence of a prior course of dealing is relevant in determining whether the parties have agreed to submit their dispute to arbitration and a determination that their oral agreement included a provision for arbitration could in a proper case be implied from a course of past conduct or the custom and practice in the industry, such a determination must be supported by evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. As the concurring members of the court concede, "evidence of a trade usage or of a prior course of dealings may normally be utilized to supplement the express terms of a contract for the sale of goods" (p. ----, p. ---- of --- N.Y.S.2d, p. ---- of --- N.E.2d). We would note also that this doctrine has been held to be applicable to arbitration agreements. (E. g., Matter of Acadia Co. (Edlitz), 7 N.Y.2d 348, 197 N.Y.S.2d 457, 165 N.E.2d 411; Matter of Helen Whiting, Inc. (Trojan Textile Corp.), 307 N.Y. 360, 121 N.E.2d 367.) However, a determination that a written provision for arbitration has, in fact, been incorporated in the oral agreement of the parties in consequence of either trade usage or a prior course of dealings must be supported by evidence in the record. We conclude that there was no such evidence in this case.

Here, in each of the two prior dealings relied upon by the courts below, the only reference to arbitration appears in the written confirmation of order form sent to the buyer after the negotiation of an oral contract. There is no evidence that in their prior dealings the parties ever arbitrated any dispute pursuant to the arbitration clause or that the clause was material in their negotiations. In this situation, as our decision in Marlene clearly indicates, no binding agreement to arbitrate could have arisen. Moreover, inasmuch as the mere retention by the buyer of the form containing the arbitration clause failed to create such an agreement in the first instance, repeated use of the same ineffective form should not be held to have done so in subsequent transactions. Therefore, the trial court's finding that the prior dealings of the parties created an express agreement to arbitrate is unsupported by the evidence and the stay of arbitration, sought by petitioner, was improperly denied.

Accordingly, the order of the Appellate Division should be reversed, with costs, and petitioner's application for a stay of arbitration granted. The question certified is not answered as unnecessary.

GABRIELLI, Judge (concurring).

I concur in result, but am unable to join in the majority opinion because of the erroneous suggestion contained therein, in dicta, that a court may impose an agreement to arbitrate upon the parties to a contract, despite the absence of any express agreement, solely on the basis of past dealings or a trade custom. I consider such a rule to be an abrupt departure from prior settled law in this State, and am especially disturbed by the fact that the majority has apparently chosen to adopt this principle without any expressed justification.

Petitioner Schubtex, Inc. (Schubtex), appeals to this court, pursuant to leave granted by the Appellate Division, from an order of that court which affirmed a judgment of Supreme Court vacating a stay of arbitration. The order of the Appellate Division should be reversed, for there exists no agreement to arbitrate this dispute.

The controversy between these parties is based on an alleged breach by Schubtex of a contract to purchase fabrics from respondent Allen Snyder, Inc. (Snyder). Schubtex initiated the transaction by placing an oral order for fabrics with Snyder. Subsequently, Snyder mailed Schubtex a printed "confirmation of order" form containing an arbitration agreement. Schubtex simply retained that form and neither objected to its contents nor signed it. At no time did the parties discuss the inclusion of an arbitration agreement. When Schubtex subsequently refused to accept certain fabrics, Snyder sought to arbitrate the dispute. Schubtex then commenced this proceeding seeking to stay the arbitration, on the ground there was no agreement to arbitrate.

Upon the trial of this issue, Snyder presented evidence of several similar prior transactions between it and Schubtex. In each of those transactions, as here, Schubtex had verbally placed an order, Snyder had sent Schubtex a form containing an arbitration provision, and Schubtex had retained that form in silence. It was Snyder's contention that by failing to object to the arbitration clause contained in the form in this instance, and in light of the prior course of dealings between the parties, this contract should be deemed to include an agreement to arbitrate. Supreme Court appears to have adopted this analysis, concluding in an oral decision that "on the basis of the history of their relationships with the respondent, the petitioners were fully aware of the arbitration clause. They adopted it, accepted it and undertook to be bound by it with the full knowledge of its provisions and with full knowledge of the obligations which it entailed". The Appellate Division affirmed the judgment of Supreme Court without opinion, and petitioner appeals to this court by permission of the Appellate Division.

The majority of this court has concluded that there must be a reversal because there is no evidence to support a finding either that the parties had entered into a consistent course of past dealings including the use of arbitration as their normal method of dispute resolution, or that arbitration is so prevalent in the textile industry as to constitute a trade usage. I agree...