New York Law Review

Tag: Textile Industry

  • Itoman (U.S.A.), Inc. v. Daewoo Corp., 80 N.Y.2d 925 (1992): Determining Agreement to Arbitrate When Using Brokers

    Itoman (U.S.A.), Inc. v. Daewoo Corp., 80 N.Y.2d 925 (1992)

    When a transaction involves conflicting arbitration clauses in a broker’s salesnote and a signed confirmation, determining which document controls depends on resolving factual issues, including the broker’s authority and the timing of document execution and receipt.

    Summary

    Itoman, a textile importer, agreed to purchase fabric from Daewoo, a Korean exporter, through broker New. Daewoo sent a Confirmation with a Korean arbitration clause, which New signed. New also sent its own salesnote with a New York arbitration clause, which both parties retained without objection. A dispute arose, and Itoman sought arbitration in New York, while Daewoo sought it in Korea. The Court of Appeals reversed the lower courts’ decision to compel arbitration in New York, finding unresolved factual issues regarding the broker’s authority and the controlling document.

    Facts

    Itoman (U.S.A.), Inc. agreed to purchase textiles from Daewoo Corporation through R.D. New & Co., a broker. Daewoo sent New a “Confirmation of Order/Sales Note” with an arbitration clause requiring arbitration in Korea. New added “For the Account of Itoman (U.S.A.) Inc.” to the confirmation, signed it, and returned it to Daewoo. New also sent a separate salesnote to both Daewoo and Itoman, stipulating arbitration in New York. Both parties retained the salesnote without objection and proceeded with the transaction. A dispute later arose regarding the quality of the fabric.

    Procedural History

    Itoman petitioned to compel arbitration in New York under CPLR 7503(a). Daewoo cross-petitioned to compel arbitration in Korea. Special Term granted Itoman’s motion, holding that both parties submitted to the salesnote’s terms. The Appellate Division affirmed. The Court of Appeals reversed and remitted the matter to the Supreme Court, New York County.

    Issue(s)

    1. Whether the broker’s salesnote or Daewoo’s signed Confirmation of Order controls the arbitration agreement between Itoman and Daewoo.

    2. Whether the broker, New, had the authority to bind Itoman to arbitration in Korea through the signed Confirmation.

    Holding

    1. No, because the record contains unresolved issues of fact regarding the timing and circumstances surrounding the execution and receipt of the Confirmation, and its consistency with the salesnote.

    2. Cannot be determined on the present record, because Itoman disputes that the broker had authority to bind it to arbitration in Korea.

    Court’s Reasoning

    The Court of Appeals reasoned that while typically, retaining a broker’s salesnote without objection implies agreement to its terms, including an arbitration clause, the signed Confirmation from Daewoo, if binding on Itoman, could supersede the salesnote. The court highlighted conflicting evidence in the record. It noted the presence of three different Confirmation forms, discrepancies in their terms, and a lack of clarity regarding when the Confirmation was received and returned. The Court also considered Itoman’s claim that it was unaware of the signed Confirmation and that the broker lacked authority to bind it to arbitration in Korea. The Court found it impossible to determine which document controlled without resolving these factual disputes. The Court emphasized the need to determine New’s authority, citing Michel & Co. v Anabasis Trade, 50 NY2d 951. The Court stated, “No choice between the conflicting documents can be made on the present record…In such circumstances, we have no basis for upholding the conclusion below that the salesnote was the first and controlling document, and no choice but to remit the matter for factual determinations necessary for a proper application of the law.”

  • Danleigh Fabrics, Inc. v. Gaynor-Stafford Industries, Inc., 62 N.Y.2d 678 (1984): Factor’s Right to Charge-Back for Disputed Invoices

    62 N.Y.2d 678 (1984)

    A factor may charge back the full amount of unpaid and disputed invoices to the seller, even if the customer’s dispute relates to both the goods in question and previously paid goods.

    Summary

    Danleigh Fabrics, a textile converter, entered into a factoring agreement with Chemical Bank. When a customer, Gaynor-Stafford, disputed invoices for Style 536 fabric, Chemical Bank charged back the unpaid amount to Danleigh. Danleigh sued, arguing that the dispute partially related to previously paid Style 579 fabric. The court held that Chemical Bank was entitled to the charge-back. The agreement allowed charge-backs for any dispute on unpaid invoices, and the court refused to require Chemical to verify the merits or allocate the dispute across different invoices or goods. The risk of collecting disputed accounts rested with the seller (Danleigh), not the factor (Chemical Bank).

    Facts

    Danleigh Fabrics sold Style 579 fabric to Gaynor-Stafford, factoring the invoices through Chemical Bank. Gaynor-Stafford paid these invoices in full. Later, Danleigh sold Style 536 fabric to Gaynor-Stafford, factoring those invoices through Chemical Bank as well. Gaynor-Stafford failed to pay invoices totaling $161,286.64 for Style 536 shipments. Gaynor-Stafford notified Danleigh that it disputed the quality of the Style 536 goods and would stop all payments to factors.

    Procedural History

    Chemical Bank charged back $161,286.64 to Danleigh’s account. Danleigh sued Chemical Bank and Gaynor-Stafford. Chemical Bank moved to dismiss, arguing its right to charge-back was unconditional when unpaid receivables were disputed. Danleigh cross-moved for summary judgment. Special Term denied both motions. The Appellate Division modified, granting Chemical Bank’s motion. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether a factor, under a factoring agreement, has the right to charge back the full amount of unpaid invoices to the seller when the customer disputes the quality of the goods related to those invoices, even if the customer’s dispute also relates to previously paid invoices for different goods.

    Holding

    Yes, because the factoring agreement places the risk of collecting disputed accounts on the seller, not the factor, once a dispute arises concerning the goods that are the subject of the unpaid accounts.

    Court’s Reasoning

    The court distinguished this case from Duobond Corp. v. Congress Factors Corp., 41 N.Y.2d 177 (1977), where the dispute concerned only goods for which the factor had already been paid. Here, the unpaid invoices related to the disputed Style 536 goods. The court stated that neither the factoring agreement nor the Duobond decision required the factor to verify the merits of the dispute or allocate the charge-back. The court emphasized that “[o]nce there is such a dispute concerning goods that are the subject of unpaid accounts, the parties’ agreement places the risk of collecting those accounts on the seller, not the factor.” The court rejected Danleigh’s argument that the charge-back should be limited to the portion of the unpaid invoices directly related to the Style 536 dispute, finding no such limitation in the agreement.

  • Schubtex, Inc. v. Allen Snyder, Inc., 49 N.Y.2d 1 (1979): Arbitration Agreements Require Express Intent

    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.

  • Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632 (1976): Defining ‘Buyer in Ordinary Course’ Under UCC § 9-307

    Tanbro Fabrics Corp. v. Deering Milliken, Inc., 39 N.Y.2d 632 (1976)

    A buyer in the ordinary course of business, as defined by UCC § 9-307(1), takes goods free of a security interest created by the seller, even if the buyer knows of the security interest, provided the buyer does not know that the sale violates the terms of the security agreement.

    Summary

    Tanbro Fabrics, a textile converter, sued Deering Milliken, a textile manufacturer, for conversion after Deering refused to release goods Tanbro had purchased from Mill Fabrics, another converter. Deering claimed a perfected security interest in the goods due to Mill Fabrics’ outstanding debt. The New York Court of Appeals held that Tanbro was a buyer in the ordinary course of business because Mill Fabrics occasionally sold excess goods to other converters, a practice known in the trade. Therefore, Tanbro took the goods free of Deering’s security interest. The court emphasized that the key is whether the sale is of the variety reasonably expected in the regular course of an ongoing business.

    Facts

    Deering Milliken manufactured textile fabrics and sold them to Mill Fabrics on a “bill and hold” basis, retaining a security interest in the goods to secure Mill Fabrics’ account balance.
    Mill Fabrics resold some of these goods to Tanbro Fabrics, also on a “bill and hold” basis, while the goods remained in Deering’s warehouse.
    Deering executives recommended that Tanbro purchase a specific blended fabric from Mill Fabrics, knowing Mill Fabrics had an excess supply.
    Tanbro purchased the fabric from Mill Fabrics and paid in full, but Deering refused to deliver the remaining fabric to Tanbro due to Mill Fabrics’ outstanding debt to Deering.

    Procedural History

    Tanbro sued Deering in the Supreme Court and received a favorable verdict, including compensatory and punitive damages.
    The Appellate Division modified the judgment, striking the punitive damages but otherwise affirming the lower court’s decision.
    Both parties appealed to the New York Court of Appeals.

    Issue(s)

    Whether Tanbro’s purchase of the goods from Mill Fabrics was a purchase “in the ordinary course of business” under UCC § 9-307(1), thereby freeing the goods from Deering’s security interest.

    Holding

    Yes, because the sale was of a variety reasonably expected in the regular course of an ongoing business, and Tanbro did not know the purchase violated Deering’s security agreement. Therefore, Tanbro took the goods free of Deering’s security interest.

    Court’s Reasoning

    The court reasoned that UCC § 9-307(1) protects buyers who purchase goods from a seller’s inventory in the ordinary course of business. The key inquiry is whether the sale was of the variety reasonably expected in the regular course of an ongoing business. The court noted that it was customary for converters like Mill Fabrics to sell off excess goods to other converters, making the sale to Tanbro within the ordinary course of Mill Fabrics’ business, even if such sales were infrequent. The court distinguished this case from situations involving bulk sales, distress sales, or sales of commodities outside the seller’s usual inventory.

    The court cited the official comment to § 9-307, stating that a sale by Mill Fabrics was impliedly authorized under the code if its indebtedness to Deering was to be liquidated. The court stated, “All subdivision (1) of section 9-307 requires is that the sale be of the variety reasonably to be expected in the regular course of an on-going business”.

    Regarding punitive damages, the court found no evidence that Deering acted with wanton or willful obstruction to Tanbro’s rights, or with fraud or high moral turpitude. Deering could have believed in good faith that its security interest survived the sale. Therefore, the court upheld the Appellate Division’s decision to strike the punitive damages award.