C. Itoh & Co. v. Jordan Int'l Co.

552 F.2d 1228 (7th Cir. 1977)

 

RULE:

The use of the word "shall" rather than "may" in § 3 of the Federal Arbitration Act indicates that a district court, when presented with an application for a stay of proceedings pending arbitration, must grant the requested stay where two conditions are satisfied: (1) the issue is one which is referable to arbitration under an agreement in writing for such arbitration, and (2) the party applying for the stay is not in default in proceeding with such arbitration.

FACTS:

Itoh sent Jordan a purchase order for steel coils, and the latter replied with a conditional acceptance of the offer, stating: “seller’s acceptance is expressly conditional on the buyer’s assent to that additional or different terms and conditions set forth below. If not accepted, byer should notify seller at once.” On the other side of the correspondence was an arbitration clause, which had no counterpart to Itoh’s order. The latter did not formally accept nor object to the clause, but both parties commenced the performance of the contract. However, on account of the poor quality of steel coils delivered, Itoh sued Jordan. The latter, however moved to apply the arbitration clause in order to say the lawsuit pending arbitration proceedings. The district court denied the motion.

ISSUE:

Is Itoh bound by the arbitration clause?

ANSWER:

No.

CONCLUSION:

Jordan’s request to stay the proceeding pending arbitration under the Federal Arbitration Act (the Act), 9 U.S.C.S. § 3 was denied, because sound judicial administration requires that the entire litigation be resolved in a single judicial forum. If appellant was entitled to stay the proceedings pending arbitration, it was error to deny its application on the ground that the controversy had to be resolved in the judicial, not the arbitral, forum. The "supplementary terms" contemplated by the Uniform Commercial Code (U.C.C.) § 2-207(3) were limited to those supplied by the standardized "gap-filler" provisions of Art. 2 of the U.C.C. In this case, no written arbitration provision existed in the contract created under § 2-207(3) when the parties proceeded to performance. The Act required that there be a written agreement to arbitrate. Pertinently, it was held by the court that while a seller might take advantage of “expressly conditional terms” by not sending the product(s) without consent, he must accept the potential risk under §3 of non-compliance with the additional terms when he chooses to proceed with the performance without first obtaining the buyer’s approval to the said terms.

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