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Legal Memorandum: Validity of an Arbitration Agreement

Issue: Is an arbitration agreement valid if it is induced by fraud?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration agreement; Valid; Fraud
Jurisdiction: Federal
Cited Cases: 575 N.Y.S.2d 861; 196 S.W.3d 18; 355 F.3d 485; 55 Cal. Rptr. 660; 808 A.2d 206
Cited Statutes: None
Date: 12/01/2008

Case law is clear that in order for a signature or affirmative action to constitute a ratification, the signature or affirmative action (1) must be specifically tied to the original agreement; and (2) must be made with full awareness of the result such that there can be no question that the party allegedly ratifying intended to do so.  A purported ratification that suffers from the same problems that would tend to invalidate the original agreement cannot be a legal ratification.  Gold v. Greenwald, 247 Cal. App. 2d 296, 55 Cal. Rptr. 660 (1966).  “It is clear that a beneficiary can be deemed to have effected a ratification only after having full knowledge of all the facts bearing upon the decision.”  Id. at 312, 55 Cal. Rptr. At 672.  See In re First Winthrop Props., Inc., 575 N.Y.S.2d 861(App. Div. 1991) (holding that the petitioner did not ratify agreement in that it failed to assent to the agreement obligating parties to arbitrate disputes, notwithstanding that petitioner received benefits under the agreement). 

Thus, when a party makes clear and deliberate attempts not to be bound by an arbitration agreement, subsequent acts do not invalidate those attempts unless the alleged ratification is specific.  See Gen. Steel Corp. v. Collins, 196 S.W.3d 18, 20 (Ky. Ct. App. 2006) (holding that party was not bound by arbitration agreement that he obliterated by marking out entirely that portion of the contract and his […]

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