## Facts

- Kaufman (buyer) contracted with Crest‑Tex (seller) to purchase textile goods under a written agreement containing an arbitration clause covering any controversy arising under or related to the contract.
- Crest‑Tex used Iselin as its factor and assigned to Iselin the accounts/invoices and the merchandise described in those invoices.
- The invoices directed that payment was payable only to Iselin and that notice of any returns or claims (shortage, non-delivery, or other grounds) be given to Iselin.
- Kaufman received the goods and paid the invoices directly to Iselin.
- After delivery and payment, Kaufman discovered defects and notified Crest‑Tex, Crest‑Tex’s selling agent, and Iselin.
- Kaufman sought to compel arbitration not only against Crest‑Tex but also against Iselin, arguing the assignment of invoices and merchandise operated as a partial assignment of the underlying sales contract, including its arbitration clause.

## Issues

1. Whether a factor that receives an assignment of a seller’s invoices/accounts and related merchandise, but is not a party to the sales contract, can be compelled to arbitrate under the contract’s arbitration clause.
2. Whether the invoice language requiring claims notice to the factor constitutes assent by the factor to arbitrate buyer-seller disputes.

## Decision

- The Appellate Division, First Department reversed the order compelling arbitration as to Iselin.
- The court held Iselin was not bound by the arbitration clause because it was not a party to the sales contract and did not assume an obligation to arbitrate.
- The court construed the assignment as transferring payment rights (and related interests described in the invoices), not substituting the factor for the seller as a contracting party for all purposes.

## Legal Principles

- Arbitration is based on consent; a party may not be required to arbitrate absent an agreement to do so.
- An assignment of invoices/accounts (and references to related merchandise) does not, by itself, constitute an assignment of the underlying sales contract or its arbitration provision.
- Language in invoices directing that claims be reported to a factor functions as a notice mechanism to protect the assignee’s interest in the receivable, not an implied assumption of the seller’s contract duties or dispute-resolution terms.

## Conclusion

The court declined to treat a factoring assignment of invoices and referenced merchandise as a transfer of the sales contract’s arbitration obligation, holding that a non-signatory factor cannot be compelled to arbitrate without clear agreement or assumption of that duty.


Kaufman v. William Iselin & Co., 74 N.Y.S.2d 23 (App. Div. 1st Dep’t 1947)