Bayway Refining Co. v. Oxygenated Marketing and Trading A.G.
215 F.3d 219 (2nd Cir. 2000) (2000)
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Rule of Law:
Under U.C.C. § 2-207(2)(b), the party opposing the inclusion of an additional term in a contract between merchants bears the burden of proving that the term constitutes a material alteration. An additional term that is consistent with industry custom and practice does not cause objective surprise and therefore is not a material alteration.
Facts:
- Oxygenated Marketing and Trading A.G. (OMT) faxed Bayway Refining Company (Bayway) a confirmation letter to purchase 60,000 barrels of a gasoline blendstock called MTBE.
- The following day, Bayway sent its own confirmation fax, which acted as an acceptance.
- Bayway's acceptance stated that its 'General Terms and Conditions' were incorporated by reference, though they were not physically attached to the fax.
- Paragraph 10 of Bayway's General Terms and Conditions (the 'Tax Clause') required the buyer to pay the seller for any federal excise taxes incurred on the sale.
- OMT did not object to Bayway's acceptance or the incorporation of its terms.
- OMT accepted delivery of the MTBE.
- After the sale, Bayway discovered OMT was not registered with the IRS for a tax exemption, which triggered a federal excise tax liability of $464,035.12 on the transaction.
- Bayway paid the tax and then demanded reimbursement from OMT, invoking the Tax Clause.
Procedural Posture:
- Bayway Refining Company sued Oxygenated Marketing and Trading A.G. in the U.S. District Court for the Southern District of New York for breach of contract.
- Bayway, the plaintiff, moved for summary judgment.
- The district court granted summary judgment in favor of Bayway, finding the Tax Clause was part of the contract and did not materially alter it.
- OMT, the defendant, appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does a contract clause in a seller's acceptance, which shifts liability for excise taxes to the buyer, materially alter the contract under N.Y. U.C.C. § 2-207(2)(b) when such clauses are customary in the industry?
Opinions:
Majority - Jacobs, Circuit Judge
No, the Tax Clause does not materially alter the contract. Under N.Y. U.C.C. § 2-207(2)(b), the party opposing the inclusion of an additional term bears the burden of proving it is a material alteration. A material alteration is one that would result in 'surprise or hardship.' OMT failed to carry its burden because it could not demonstrate objective surprise, which is the key element. Bayway provided compelling and unrebutted evidence that shifting tax liability to the buyer is the custom and practice in the petroleum industry. A reasonable merchant in the industry would not be surprised by such a term. Furthermore, OMT failed to show hardship, as the liability was not open-ended and was self-inflicted due to OMT's own failure to register for the tax exemption.
Analysis:
This case clarifies the application of the 'material alteration' exception in U.C.C. § 2-207's 'battle of the forms' provision. It firmly places the burden of proof on the party opposing the new term. The court's holding emphasizes that the 'surprise' element of the material alteration test is objective; a party cannot claim surprise over a term that is standard in its own industry. This decision reinforces the principle that merchants are presumed to be aware of the customs and practices of their trade, making industry usage a critical factor in determining the terms of a commercial contract.
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