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Current Developments in the Commercial Divisions of the
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Posted: February 18, 2015

Non-Signatories Bound By Arbitration Provision in Contract That Was Signed By Their Agent And From Which They Received A Direct Benefit

On January 23, 2015, Justice Schmidt of the Kings County Commercial Division issued a decision in Oceana Home Owners Assoc., Inc. v. Statewide Disaster Restoration, Inc., 2015 NY Slip Op. 30073(U), ruling that non-signatories were bound by an arbitration provision in a contract that was signed by their agent, and from which they received a direct benefit.

In Oceana Home Owners, the plaintiffs (a condominium home owners association and the individual unit owners) moved to stay an arbitration proceeding brought against them by a storm damage repair and restoration company for breach of a contract signed by the condominium’s managing agent for services following Hurricane Sandy. Justice Schmidt rejected the condominium plaintiffs’ argument that they were not bound by the contract’s arbitration clause because they had not signed the agreement, finding that they were bound by all the terms of the agreement signed by their agent. The court explained:

Under traditional principles of agency law, one who has not personally signed a contract will nonetheless be bound by it if he or she has signed it through an authorized agent. In order to bind a principal to an agreement signed by its purported agent, that agent must have actual or apparent authority to act on behalf of the principal. Here, CSR had the actual authority to enter into this agreement on behalf of all of the plaintiffs pursuant to the management agreement provision. CSR, as agent for plaintiffs, entered into this agreement which included an arbitration provision and plaintiffs are bound by it. Moreover . . . plaintiffs, who received a direct benefit from the agreement, are estopped from challenging its obligation to arbitrate a dispute arising from the agreement. Under the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory “knowingly exploits” the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement.

(Citations omitted.)

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