In re the Arbitration between Riverdale Fabrics Corp. & Tillinghast-Stiles Co.

Van Voorhis, J.

The question is whether the contract entered into between these parties contains an arbitration clause, precluding resort to actions at law or in equity. Westchester County Special Term denied a stay of arbitration. This order was reversed by the Appellate Division, Second Department, which unanimously granted the application for a stay (281 App. Div. 831), in reliance on Matter of Level Export Corp. (Wolz, Aiken & Co.) (280 App. Div; 211), but following reversal of the Level case in the Court of Appeals (305 N. Y. 82), a reargument was granted. Upon reargument, the Special Term order was affirmed by a divided court, which allowed the controversy to proceed to arbitration. (281 App. Div. 983.)

There is a substantial distinction between this contract and the one which was involved in the Level case. The rule is that a party is not to be compelled to surrender his right to resort to the courts, with all of their safeguards, unless he has agreed in writing to do so (Matter of Philip Export Corp. [Leathertone, Inc.], 275 App. Div. 102, 104), and by clear language (Matter of Lehman v. Ostrovsky, 264 N. Y. 130, 132). Although one may by contract bargain away his right to resort to the courts in matters which might be the subject of a civil action (Civ. Prac. Act, § 1448), “ the agreement to do so will not be extended by construction or implication ” (Western Assur. Co. v. Decker, 98 F. 381, 382).

This controversy turns on a sales memorandum of yarn, which contained a printed sentence: “ This contract is also subject to the Cotton Yarn Buies of 1938 as amended ”. This language evidently referred to regulatory rules adopted by certain well-known trade associations of cotton yarn dealers in the United States. This contract contains no arbitration clause, nor does it mention the settlement of disputes by arbitration. The clause in question is similar to the one in the contract involved in Matter of General Silk Importing Co. (Gerseta Corp.) (198 App. Div. 16) wherein the following statement was made in'the sales memoranda: “ Sales are governed by Baw Silk Buies adopted by the Silk Association of America. ’ ’ The raw silk rules, to which reference was made, contained exclusive arbitration articles and many other detailed provisions concerning the sale of such merchandise. The court held that this language failed to show with sufficient definiteness that the minds of the parties met on arbitration, or that they intended to adopt the rules of the Silk Association of America ‘ ‘ not merely to insure performance of the contract in accordance with those rules, but that in the event of a controversy, it should be arbitrated in accordance therewith.” (Pp. 20-21.) The court said further: ‘1 The parties could have provided for such arbitration without setting forth all or any of the rules of the Silk Association of America if they had merely added to the provision incorporated in the contract to the effect that the sales are to be governed by those rules a provision that in the event of a controversy between the parties it should be arbitrated as provided by the rules, or if the contract had provided in any manner by appropriate phraseology that the reference to the rules was intended to include those providing for arbitration.” (P. 21. Italics from original.) The Special Term order denying application to compel arbitration in the raw silk case was affirmed (198 App. Div. 16), but it contained leave to renew. On renewal, and on a full record showing that the rules provided that “ All differences arising between buyer and seller must be submitted to the Arbitration Committee of the Silk Association of America ” and that both parties were members of the Association, the petition to compel arbitration was again denied at Special Term, and its order was unanimously affirmed by the Appellate Division (200 App. Div. 786) and by the Court of Appeals (234 N. Y. 513).

That case is in point here. It was distinguished in the opinion in the Level case, by stating that the phraseology in the sales note in the General Silk Importing Co. case “ indicated that the parties had not clearly expressed an intention that the raw silk rules should apply to anything more than the completion of sales under the agreement.” (305 N. Y. 88.) The Level contracts were in the form of salesnotes, each of which contained a clause reading: “ This Salesnote is subject to the provisions of Standabd Cotton Textile Salesnote which, by this reference, is incorporated as a part of this agreement and together herewith constitutes the entire contract between buyer and seller.” The standard cotton textile salesnote was thus incorporated verbatim by reference, which contained an exclusive arbitration clause. The Level opinion pointed up this distinction by stating further at page 86: “ The effect of the foregoing contract provisions was to adopt, and to integrate into each purchase agreement, the terms of the standard cotton V textile salesnote.”

The present contract contains no “incorporation” clause, and is almost identical with the language of the memorandum in Matter of General Silk Importing Co. (Gerseta Corp.), which was distinguished in the Level case. Paraphrasing what was there said of the Silk Association contract, these parties are not deemed necessarily to have contemplated anything more than that the cotton yarn rules should apply to the completion of sales under the agreement.

The intent must be clear to render arbitration the exclusive remedy; parties are not to be led into arbitration unwittingly through subtlety. The intention to do that is reasonably clear from the draftsmanship of the cotton yarn rules, which aimed to avoid mentioning arbitration in the sales memoranda themselves, where the contracting parties could see it. This could have been done briefly, since no set form of words is required if the intent to arbitrate is made clear. Nevertheless, these rules were elaborately drafted so as to state that a clause contained in a sales memorandum which says “ ‘ This Contract is subject to the provisions of the Cotton Yarn Rules,’ ” means that “ such rules become a part of the contract ”, and that “ By this reference the 1 Cotton Yarn Rules ’ are incorporated as a part of an agreement and altogether therewith constitutes the entire contract between buyer and seller. No variation therefrom shall be valid unless accepted in writing.” Rule 31 contains an elaborate exclusive arbitration clause. All of this awaited the / unwary trader if he assented to the clause that the contract would be subject to the Cotton Yarn Rules.

If this clause, or a much simpler one, had been set forth in the memorandum of sale, unquestionably arbitration would have been the exclusive remedy. If part of the care exhibited in drafting the rules had been used in mentioning arbitration in the contract, there would be no difficulty in affirming the order appealed from. Instead, the form of words favored by these trade associations appears to have been designed to avoid any resistance that might arise if arbitration were brought to the attention of the contracting parties as the exclusive remedy in case of disputes.

The order of the Appellate Division and that of Special Term should be reversed, and appellant’s motion to stay arbitration granted, with costs in all courts.