Tanbro Fabrics Corp. v. Deering Milliken, Inc.

• Decision Date: 14 January 1971
• Citation: 35 A.D.2d 469,318 N.Y.S.2d 764
• Parties: TANBRO FABRICS CORPORATION, Plaintiff-Respondent, v. DEERING MILLIKEN, INC., Defendant-Appellant, and Mill Fabrics Corporation, Defendant.
• Court: New York Supreme Court — Appellate Division

Page 764

318 N.Y.S.2d 764

35 A.D.2d 469

TANBRO FABRICS CORPORATION, Plaintiff-Respondent, v. DEERING MILLIKEN, INC., Defendant-Appellant, and Mill Fabrics Corporation, Defendant.

Supreme Court, Appellate Division, First Department.

Jan. 14, 1971.

Frederic P. Houston, New York City, of counsel (Melvin Liebowitz and Gerald A. McCarville, New York City, on the brief; Otterbourg, Steindler, Houston & Rosen P.C., New York City, attorneys), for appellant.

Bernard Beitel, New York City, of counsel (Gainsburg, Gottlieb, Levitan & Cole, New York City, attorneys), for respondent.

Before EAGER, J.P., and McGIVERN, TILZER, and MACKEN, JJ.

MACKEN, Justice.

The question presented is whether respondent, Tanbro Fabrics Corporation (Tanbro), is required to arbitrate its claim against appellant, Deering Milliken, Inc. (Milliken). Tanbro and defendant, Mill Fabrics Corporation (Mill), are fabric converters. Milliken is a major supplier of textiles. In 1968 Mill bought 510,000 yards of fabric from Milliken and paid for it. The fabric was to be held for Mill's account at a mill in South Carolina owned or controlled by Milliken. A year later Tanbro bought from Mill and paid for 260,000 yards, being the balance of the fabric at the South Carolina mill, there to remain subject to Tanbro's further instructions. Tanbro alleges that it first sought to purchase the goods from Milliken and was told that production of the particular fabric had been discontinued but that it was available for sale by Mill. In January 1970 Tanbro requested Milliken and Mill to deliver the then balance of 203,000 yards and Milliken refused, claiming to have a security interest in the goods in excess of their value.

The purchase contract between Milliken and Mill contained a broad arbitration clause as did that between Tanbro and Mill. There was no agreement, written or otherwise, between Milliken and Tanbro and in fact Milliken disclaims any knowledge of the sale by Mill to Tanbro prior to Tanbro's demand for delivery of the goods. Tanbro commenced this action against Milliken and Mill for damages arising from their failure to deliver and Milliken moved to stay the action and compel Tanbro to arbitrate. (CPLR 7503(a).) Special Term denied the motion.

The contract between Milliken and Mill provided:

'Any property of Buyer, including but not limited to, merchandise billed and held (whether paid for or not) at any time in Seller's (including any parent, subsidiary or affiliate company of Seller) possession, either as principal or agent, shall be deemed held as security for, and may at Seller's option be set-off against any and all of Buyer's obligations to Seller or any parent, subsidiary, affiliate, principal or agent of Seller.'

Milliken asserts that after and without knowledge of Mill's sale to Tanbro and in reliance on the foregoing clause of its contract with Mill, it advanced credit to Mill resulting in the latter's being indebted to it for over $300,000 at the time Tanbro demanded delivery of the goods. It urges that Tanbro stands in the same position as an assignee of Milliken's contract with Mill and as such is bound by the arbitration and security provisions of that contract and that Tanbro's defense to the motion based on the absence of a written agreement with Milliken to arbitrate is 'artificial' and 'inequitable'. Neither position is tenable.

Of course, the assignee of a contract acquires the assignor's rights therein and assumes its obligations including an agreement to arbitrate. (Matter of Lowenthal, 199 App.Div. 39, 191 N.Y.S. 282, affd. 233 N.Y. 621, 135 N.E. 944; Matter of Lipman (Haeuser Shellac Co.) 289 N.Y. 76, 43 N.E.2d 817.) Its obligation to arbitrate arises not by implication but by established contract law. But Tanbro was not Mill's assignee but a purchaser of goods to which Mill had title. There being no express agreement between Milliken and Tanbro concerning the transaction, Milliken perforce was required to resort to evidence dehors the contracts between Milliken and Mill and Mill and Tanbro. To that end, it has established that in several prior purchases by Tanbro from Milliken the contracts contained the same security interest and arbitration clauses as the present contract between Milliken and Mill and that Tanbro knew or should have known of the existence of the security agreement when it undertook to purchase from Mill. But assuming that it knew of the existence of the agreement, Tanbro would not stand in the position of an assignee of Milliken. Tanbro purchased the goods from Mill and its position in this action is that it was a 'buyer in ordinary course of business' as defined by Section 1--201(9) of the Uniform Commercial Code and as such took the goods free of Milliken's security interest. (Uniform Commercial Code, § 9--307.) There is no evidence that in selling to Tanbro, Mill violated its security agreement with Milliken and, on the contrary, Milliken alleges that the extension of credit forming the basis of its present claim was made after that sale. (Cf. Embassy Men's Apparel, Inc. v. Lyman Printing and Finishing Co., 247 S.C. 471, 148 S.E.2d 158, cited by appellant; Practice Commentary, par. 3, McKinney's U.C.C. § 9--307.) But determination of the merits of the controversy should not be considered on this motion (see CPLR 7501). In any event, under the circumstances, there is no basis for Milliken's contention that Tanbro's legal status vis-a-vis Milliken's contract is such to require Tanbro to arbitrate as an assignee.

Milliken argues that because Tanbro may be required to arbitrate with Mill and the latter with Milliken, Tanbro's claim of lack of privity is artificial and inequitable. If there be anything artificial, it is the assumption that Mill has any real dispute with Tanbro or Milliken. The basic issue here is the right to possession of the goods. It is clear that as between Tanbro and Mill, Tanbro is entitled to possession and Milliken is so entitled as against Mill. The real issue is between Tanbro and Milliken. (Alpert v. Admiration Knitwear Co., Inc., 304 N.Y. 1, 2, 105 N.E.2d 561, 562.)

Arbitration may not be compelled unless agreed to in writing by clear language and such an agreement 'will not be extended by construction or implication.' (Matter of Riverdale Fabrics Corp. (Tillinghast-Stiles Co.), 306 N.Y. 288, 289, 118 N.E.2d 104; Matter of ITT Avis, Inc. v. Tuttle, 27 N.Y.2d 571, 313 N.Y.S.2d 394; Matter of Levin-Townsend Computer Corp. (Holland), 29 A.D.2d 925, 289 N.Y.S.2d 12.) Nothing here shown warrants departing from these established principles.

In cases cited in the dissent (e.g. Matter of Blum Folding Paper Box Co., 27 N.Y.2d 35, 313 N.Y.S.2d 375; Vigo Corp. (Marship Corp. of Monrovia), 26 N.Y.2d 157, 309 N.Y.S.2d 165; Merrill Lynch, Pierce, Fenner & Smith Incorporated v. Griesenbeck, 28 A.D.2d 99, 281 N.Y.S.2d 580, affd. 21 N.Y.2d 688, 287 N.Y.S.2d 419, 234 N.E.2d 456; Matter of Exercycle Corp. (Maratta), 9 N.Y.2d 329, 214 N.Y.S.2d 353, 174 N.E.2d 463; Matter of Helen Whiting, Inc. (Trojan Textile Corp.), 307 N.Y. 360, 121 N.E.2d 367) the litigants concededly or by holding of the court were parties to written agreements to arbitrate and the disputes involved were found to be encompassed within such agreements. There was no agreement of any kind between Tanbro and Milliken concerning the transaction here involved and a custom among members of the textile industry to incorporate arbitration agreements in contracts between themselves may not be equated with by-laws of trade associations binding their members to arbitration (cf. Merrill Lynch, supra). While recognizing that presented with the same dispute a court and arbitrators might reach differing judgments, we do not share the dissenter's apparent concern that resolution by a court of law of this controversy, essentially involving a question of law, may work an injustice on either party.

The order appealed from should be affirmed with costs and disbursements.

Order, Supreme Court, New York County (Warner, J.), entered on June 3, 1970, affirmed. Respondent shall recover of appellant $30 costs and disbursements of this appeal.

All concur except McGIVERN, J., who dissents in an Opinion.

McGIVERN, Justice (dissenting).

In my view there is an impress of arbitration in the dealings between these parties. Matter of Blum Folding Paper Box Co., 27 N.Y.2d 35, 313 N.Y.S.2d 375; Trafalgar Square, Ltd. v. Reeves Brothers, Inc., 35 A.D.2d 194, 315 N.Y.S.2d 239; Matter of National Equipment Rental, Ltd. (Amer. Pecco), 35 A.D.2d 132, 314 N.Y.S.2d 838; Braten Apparel Corp. v. Rutger Fabrics Corp., 35 A.D.2d 921, 318 N.Y.S.2d 771; Matter of Exercycle Corp. (Maratta), 9 N.Y.2d 329, 214 N.Y.S.2d 353, 174 N.E.2d 463; Merrill Lynch, Pierce, Fenner & Smith, Incorporated v. Griesenbeck, 28 A.D.2d 99, 281 N.Y.S.2d 580, aff'd 21 N.Y.2d 688, 287 N.Y.S.2d 419, 234 N.E.2d 456. All of their interrelating contracts had arbitration clauses. Tanbro permitted Milliken, as the known supplier, to retain the goods for the credit of Mill; and the suit of Tanbro against Mill has already been stayed and arbitration directed. Milliken need only demand arbitration against Mill to justify a clear right to consolidation of the...