Schubtex, Inc. v. Allen Snyder, Inc., 49 N.Y.2d 1 (1979)
An agreement to arbitrate must be express; it cannot be inferred solely from a prior course of dealing where the arbitration clause was merely printed on the back of order confirmations without explicit negotiation or prior arbitration.
Summary
Schubtex, Inc. sought to stay arbitration demanded by Allen Snyder, Inc., arguing there was no express agreement to arbitrate. The trial court found a valid agreement based on the parties’ prior dealings, where order confirmations contained an arbitration clause. The Appellate Division affirmed. The Court of Appeals reversed, holding that an arbitration agreement requires an express intention to be bound, not just repeated inclusion of an arbitration clause in unobjected-to order confirmations. The court emphasized that absent explicit agreement, parties retain the right to litigate disputes in court.
Facts
Allen Snyder, Inc. (seller) and Schubtex, Inc. (buyer) engaged in several transactions for synthetic textiles. Orders were taken orally, and Snyder sent written order confirmations containing an arbitration clause on the reverse side. A dispute arose regarding a specific order when Schubtex refused to assort the remaining goods. Snyder demanded arbitration based on the clause in the order confirmation. Schubtex sought a stay of arbitration, denying any agreement to arbitrate.
Procedural History
The Supreme Court initially issued a temporary stay of arbitration pending a trial to determine the existence of an arbitration agreement. After the trial, the Supreme Court determined a valid agreement existed and vacated the stay. The Appellate Division affirmed without opinion, but granted leave to appeal to the Court of Appeals.
Issue(s)
Whether a valid agreement to arbitrate exists solely based on the prior course of dealings between parties, where the arbitration clause was included on the reverse side of written order confirmations sent after oral agreements, and no prior disputes were arbitrated.
Holding
No, because evidence of a prior course of dealing alone is insufficient to establish an express agreement to arbitrate; there must be affirmative evidence that the parties expressly agreed to arbitrate their disputes.
Court’s Reasoning
The court relied on its prior decision in Matter of Marlene Inds. Corp. (Carnac Textiles), which held that an arbitration clause on the back of an acknowledgment of order is a material alteration and not binding unless expressly agreed upon. The court reiterated that parties should not be forced into arbitration without evidence of an express intention to be bound, emphasizing the importance of preserving the right to litigate in court absent clear consent to arbitrate.
The court acknowledged that prior dealings can be relevant, stating, “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.” However, it found no evidence that the parties ever arbitrated a dispute or that the clause was material in their negotiations. The court reasoned that repeated use of an ineffective form (the order confirmation with the arbitration clause) does not create an agreement to arbitrate where none existed initially.
The court distinguished the case from situations where a course of conduct clearly demonstrates an agreement to arbitrate, such as previous arbitrations or explicit negotiations regarding the clause. The absence of such evidence led the court to conclude that there was no express agreement to arbitrate in this instance. The ruling underscores that while trade usage or prior dealings can supplement a contract, they cannot substitute for an express agreement to arbitrate, protecting parties from unknowingly waiving their right to a judicial forum.