Matter of Gaynor-Stafford Industries, Inc. v. Mafco Textured Fibers, 42 N.Y.2d 897 (1977)

A party can be bound to an arbitration clause in a contract, even without explicitly agreeing to it, through ratification by retaining the contract, accepting delivery of goods under it, and acknowledging the contract’s existence.

Summary

Gaynor-Stafford Industries (buyer) sought to avoid arbitration with Mafco Textured Fibers (seller), arguing it never expressly agreed to the arbitration clause in the contract. A broker, acting for both parties, sent a sale note with an arbitration clause. The seller then sent a contract form containing a similar clause, and the buyer accepted goods delivered under the agreement. The New York Court of Appeals held that the buyer’s retention of the documents, acceptance of delivery, and subsequent acknowledgment of the contract constituted ratification of the entire agreement, including the arbitration clause, thus requiring the buyer to proceed with arbitration.

Facts

A broker, Associated Textile Brokers Co., acted as an intermediary for Gaynor-Stafford Industries (buyer) and Mafco Textured Fibers (seller). The broker sent both parties a memorandum sale note that included a broad arbitration clause, pursuant to the rules of the General Arbitration Council of the Textile Industry. The seller then sent the buyer a contract form with the same date and contract number as the sale note, also containing a similar arbitration clause. The seller commenced delivery of the goods. The buyer retained both the sale note and the seller’s contract form and subsequently accepted delivery of, and paid for, the goods.

Procedural History

The seller demanded arbitration based on the clause in the sale note and contract form. The buyer sought to avoid arbitration, arguing it never explicitly agreed to it. The Appellate Division held that the buyer was obligated to proceed to arbitration. The New York Court of Appeals affirmed the Appellate Division’s order.

Issue(s)

Whether a buyer is bound by an arbitration clause in a contract when the buyer retains the contract documents, accepts delivery of goods pursuant to the contract, and acknowledges the existence of the contract, even if the arbitration clause was never expressly discussed.

Holding

Yes, because retention by the buyer of the sale note and the seller’s contract form, along with the subsequent acceptance of delivery and payment for goods as contemplated by the sale note, constituted ratification of the agreement made on their behalf by the broker, including the provision for arbitration.

Court’s Reasoning

The court reasoned that the broker acted as an intermediary for both the buyer and seller. By retaining the sale note and contract form, accepting delivery of the goods, and paying for them, the buyer manifested assent to the terms of the agreement, including the arbitration clause. The court cited Matter of Huxley [Reiss & Bernhard], 294 NY 146 in support of its decision. The court also emphasized the buyer’s subsequent conduct in acknowledging the contract by number and objecting to late delivery as further evidence of ratification. As the court stated, the buyer addressed a letter to the seller identifying their contract by number and objecting to late delivery of one “portion of the above contract.” This acknowledgment further solidified the buyer’s agreement to the terms, including arbitration. The court found that this conduct was sufficient to bind the buyer to the arbitration agreement, even if it was never expressly discussed. The court distinguished this case from instances involving an exchange of different contract forms, emphasizing that the broker served as an intermediary and the seller’s contract form mirrored the terms of the sale note. There were no dissenting or concurring opinions.