New York Law Review

Tag: enforceability

  • Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 35 N.Y.2d 290 (1974): Enforceability of Arbitration Agreements

    Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 35 N.Y.2d 290 (1974)

    An agreement to arbitrate, even if unsigned, is enforceable if there is proof that the parties actually agreed to it, and courts may consider undisputed facts outside the initial record to resolve protracted litigation and promote the speedy resolution of arbitrable controversies.

    Summary

    James Crawford, a former registered representative of Merrill Lynch, sought to recover commissions. Merrill Lynch moved to compel arbitration based on Crawford’s employment contract. Crawford then served a notice demanding arbitration before the American Arbitration Association, while simultaneously opposing Merrill Lynch’s motion. The Court of Appeals held that Crawford was required to arbitrate before the New York Stock Exchange (NYSE) based on his agreement to abide by NYSE rules when he became a registered representative, and the court considered NYSE rules submitted on appeal to resolve the issue.

    Facts

    James Crawford, a former Merrill Lynch registered representative, sued Merrill Lynch to recover commissions allegedly owed to him. Merrill Lynch moved to dismiss the action and compel arbitration before the NYSE, citing Crawford’s employment contract. Crawford then served Merrill Lynch with a “Notice of Intention to Arbitrate” before the American Arbitration Association (AAA), referencing the same agreement and Pierson’s affidavit that arbitration was the exclusive remedy. The notice was sent to Merrill Lynch’s headquarters in New York City.

    Procedural History

    The Supreme Court granted Merrill Lynch’s motion to compel arbitration before the NYSE and vacated Crawford’s arbitration before the AAA. The Appellate Division reversed, holding that Merrill Lynch’s failure to move to stay arbitration within 10 days precluded them from objecting to the validity of the agreement. The Court of Appeals reversed the Appellate Division’s order, directing the parties to arbitrate before the NYSE and vacating the AAA arbitration.

    Issue(s)

    1. Whether Merrill Lynch’s failure to move to stay arbitration within 10 days after receiving Crawford’s notice precluded them from objecting to the validity of the arbitration agreement.
    2. Whether the arbitration clause in Crawford’s Stock Exchange application constituted a “written agreement” to arbitrate, even though it was not signed by Merrill Lynch.
    3. Whether the court can consider the Exchange rules, submitted for the first time on appeal, to determine the forum for arbitration.

    Holding

    1. No, because the notice was misleading and did not provide Merrill Lynch with a fair opportunity to respond.
    2. Yes, because the statute only requires “a written agreement” and does not require that the writing be signed, “so long as there is other proof that the parties actually agreed on it”.
    3. Yes, because considering the rules would resolve the protracted litigation and further the policy favoring speedy resolution of arbitrable controversies.

    Court’s Reasoning

    The Court found that the notice of intention to arbitrate was misleading, suggesting Crawford was merely joining Merrill Lynch’s motion to compel arbitration before the Exchange, and that serving the notice at Merrill Lynch’s New York City headquarters effectively deprived Merrill Lynch of a fair opportunity to respond within the 10-day period. The Court noted, “.If this service is effective to bar contest to the arbitration, [a party who] did a nationwide business could be served anywhere, with the practical certainty that it be precluded from opposing arbitration. Such practice should not be countenanced, on the principle that service not designed to give notice cannot be grounds for a default.”
    Regarding the written agreement, the Court emphasized that CPLR 7501 only requires “A written agreement” to arbitrate and that there is no requirement that the writing be signed. The court cited to Matter of Helen Whiting, Inc. [Trojan Textile Corp.], 307 N.Y. 360, 368, stating that a signature is unnecessary “so long as there is other proof that the parties actually agreed on it”. The Court distinguished this case from Johnson v. Equitable Life Assur. Soc. of U. S. because accepting the Exchange rules would not generate factual questions needing resolution by other courts, and would instead conclude the protracted litigation and return the case to arbitrators. The Court found that the rules of the NYSE were properly before the court to ensure the speedy resolution of the case.

  • In re Eoseman, 21 N.Y.2d 143 (1967): Enforceability of Contract Modification with Agreement to Agree

    In re Eoseman, 21 N.Y.2d 143 (1967)

    An agreement to agree in the future is unenforceable, but if that portion of the agreement is excised, the remaining valid terms of the contract remain in effect if they can be reasonably construed.

    Summary

    This case concerns the interpretation of a contract modification regarding payments to a widow. The original agreement stipulated weekly payments. A subsequent modification temporarily reduced the weekly rate with a clause stating the parties would discuss raising the rate later. The court held that the ‘agreement to agree’ on future rates was unenforceable due to indefiniteness. However, the temporary modification was valid and enforceable. The court reasoned that the temporary modification clause, when read in conjunction with the clause maintaining the original contract’s force, indicated an intent to revert to the original payment terms after the modification period ended.

    Facts

    Plaintiff’s husband, prior to his death in 1959, had an agreement with defendant Eoseman that the surviving partner in their accounting firm would employ the widow of the deceased partner for $100 per week until $52,000 (or $40,000 in case of remarriage) was paid.

    In 1962, plaintiff and defendant Eoseman modified the agreement, reducing the weekly payments to $70 from September 17, 1962, to March 17, 1964. The modification stated that after March 17, 1964, the future weekly payments would be discussed for revision upwards. The modification also stipulated that except as expressly modified, all other terms of the 1959 agreement remained in effect.

    Procedural History

    The Supreme Court awarded the plaintiff arrearages at the rate of $70 per week. The plaintiff appealed.

    Issue(s)

    Whether the 1962 modification agreement constituted a temporary modification of the original 1959 agreement, or a complete rescission and replacement of the payment terms, considering the clause regarding future rate discussions.

    Holding

    No, the 1962 modification was a temporary modification because the clause regarding future rate discussions, while unenforceable, did not invalidate the clearly defined period of reduced payments, and the original agreement remained in effect except as expressly modified.

    Court’s Reasoning

    The court found that the portion of the 1962 modification agreement that stated the parties would discuss future weekly salary for upward revision was an unenforceable agreement to agree because it was indefinite and uncertain, citing Bogy v. Berlage, 265 App. Div. 249, 251. The court applied the principle that a void portion of an agreement can be excised without affecting the validity of the remainder, referencing 1 Williston, Contracts [3d ed.], § 48.

    The court reasoned that the change in weekly rate, specified to commence on September 17, 1962, and continue to March 17, 1964, indicated a temporary modification rather than a rescission of the original agreement. The modification explicitly stated that “except as herein expressly modified, all other terms, covenants and conditions of the said agreement dated July 9, 1959, shall remain in full force and effect.”

    The court concluded that the salary should revert to $100 on March 17, 1964, and plaintiff was entitled to arrearages at that rate. This was a matter of construing the intent of the parties from the contract language. The Court held that the plaintiff was due $9,400 plus interest instead of the $6,500 originally awarded. The court’s holding suggests a preference for interpreting contracts to give effect to all their provisions where reasonably possible, avoiding findings of complete rescission when a partial modification is a more plausible interpretation.