Just In-Materials Designs, Ltd. v. I.T.A.D. Associates, Inc., 61 N.Y.2d 882 (1984)

A party can be bound by an arbitration clause in a contract even if the clause was never expressly discussed, if the party ratifies the agreement through its conduct, such as retaining the contract, accepting delivery of goods, and making payments.

Summary

Just In-Materials Designs, Ltd. (buyer) appealed a decision compelling it to arbitrate a dispute with I.T.A.D. Associates, Inc. (seller). A broker negotiated a sale between the parties, sending a sale note with a broad arbitration clause to both. The seller then sent the buyer a contract form with a similar clause. The buyer retained both documents, accepted delivery of goods, and made payments. When a dispute arose, the seller demanded arbitration, which the buyer resisted. The Court of Appeals held that the buyer’s conduct constituted ratification of the agreement, including the arbitration clause, even though it was never expressly discussed. The buyer’s letter acknowledging the contract further confirmed the agreement.

Facts

1. Associated Textile Brokers Co. acted as a broker for both Just In-Materials Designs, Ltd. (buyer) and I.T.A.D. Associates, Inc. (seller).
2. The broker negotiated a sale between the buyer and seller and sent a memorandum sale note to each party.
3. The sale note included a broad clause for arbitration pursuant to the rules of the General Arbitration Council of the Textile Industry.
4. The seller then forwarded a contract form to the buyer bearing the same date and contract number as the sale note, also containing a similar broad arbitration clause.
5. The seller commenced delivery of the goods as contemplated by the sale note.
6. The buyer retained both the sale note and the seller’s contract form.
7. The buyer accepted delivery of, and made payment for, the goods.
8. Three months later, the buyer sent a letter to the seller referencing the contract by number and complaining about late delivery of one portion of the contract.

Procedural History

1. The seller demanded arbitration of a dispute arising from the contract.
2. The buyer refused to arbitrate.
3. The lower court ordered the buyer to proceed with arbitration.
4. The Appellate Division affirmed the lower court’s decision.
5. The buyer appealed to the Court of Appeals of the State of New York.

Issue(s)

1. Whether the buyer, by retaining the sale note and contract form, accepting delivery of goods, and making payments, ratified the agreement negotiated by the broker, including the arbitration clause, even though the arbitration clause was never expressly discussed.

Holding

1. Yes, because the buyer’s conduct constituted ratification of the agreement made on their behalf by the broker, including the provision for arbitration.

Court’s Reasoning

The Court of Appeals reasoned that the broker acted for both the buyer and seller in negotiating the agreement. The sale note, sent to both parties, evidenced this agreement and included the arbitration clause. The seller’s subsequent contract form further solidified the terms. The court emphasized that this wasn’t merely an exchange of different contract forms, but a negotiated agreement memorialized in two documents, both containing arbitration clauses.

The court relied on the principle that a party can ratify an agreement through conduct. Here, the buyer’s retention of the sale note and contract form, acceptance of delivery, and payment for goods demonstrated an intent to be bound by the agreement. The court stated, “Retention by the buyer of the sale note and the seller’s contract form and the subsequent acceptance of delivery of and payment for goods as contemplated by the sale note constituted ratification of the agreement between the parties made on their behalf by the broker, including the provision therein for arbitration, even though the latter provision had never been expressly discussed with either party.”

Furthermore, the buyer’s later letter referencing the contract by number and complaining about late delivery confirmed its acknowledgment of the agreement. The court concluded that, in these circumstances, the buyer was obligated to arbitrate the dispute as demanded by the seller. The court cited Matter of Huxley [Reiss & Bernhard], 294 N.Y. 146 to support the holding that express discussion of the arbitration clause is not required for it to be binding when the agreement is ratified through conduct.