Commerce & Industry Insurance v. Bayer Corp.
433 Mass. 388 (2001)
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Rule of Law:
When a contract for the sale of goods is formed by the conduct of the parties under UCC § 2-207(3) because their writings do not agree, the terms of the contract consist only of those terms on which the writings agree. Any term included in one party's form but not the other's, such as an arbitration clause, is excluded.
Facts:
- Malden Mills Industries, Inc. (Malden Mills) purchased nylon tow from Bayer Corporation (Bayer) for use in manufacturing fabrics.
- Malden Mills initiated purchases using its standard form purchase order, which included a clause on the reverse side requiring arbitration for any disputes.
- Malden Mills's purchase order also stated it was the entire agreement and could only be modified in writing.
- In response to the orders, Bayer shipped the goods and then sent its own form invoices for payment.
- Bayer's invoices stated that acceptance of the order was 'expressly conditioned on [Malden Mills’s] assent to any additional or conflicting terms' contained in the invoice.
- Bayer's invoices were silent on the subject of arbitration.
- An explosion and fire occurred at Malden Mills's facility, which the company alleged was caused by the ignition of the nylon tow supplied by Bayer.
Procedural Posture:
- Malden Mills Industries, Inc. and its insurers sued Bayer Corporation in the Massachusetts Superior Court, alleging negligence and breach of warranty.
- In the Superior Court, Bayer filed a motion to compel arbitration and to stay the litigation, citing the arbitration provision in Malden Mills's purchase orders.
- The Superior Court judge denied Bayer’s motion.
- Bayer appealed the denial, and the Supreme Judicial Court of Massachusetts granted Bayer's application for direct appellate review.
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Issue:
Does an arbitration provision, included in a buyer's purchase order but absent from the seller's responsive invoice, become part of a contract for the sale of goods that is formed by the parties' conduct under UCC § 2-207(3)?
Opinions:
Majority - Greaney, J.
No, the arbitration provision does not become part of the contract. A contract was not formed under UCC § 2-207(1) because Bayer's invoice was an express counteroffer that Malden Mills never accepted, and Malden Mills's offer expressly limited acceptance to its own terms. Instead, a contract was formed by the parties' conduct under UCC § 2-207(3), as Bayer shipped the goods and Malden Mills accepted and paid for them. When a contract is formed by conduct, its terms are determined exclusively by § 2-207(3), which states that the contract consists of 'those terms on which the writings of the parties agree,' along with any UCC gap-fillers. Because Bayer's invoice was silent on arbitration, the writings did not agree on that term, and therefore the arbitration clause is 'knocked out' and does not become part of the final contract. The analysis in § 2-207(2), which deals with additional terms, is inapplicable to contracts formed by conduct under § 2-207(3).
Analysis:
This decision provides a clear interpretation of the 'knock-out' rule under UCC § 2-207(3) in a 'battle of the forms' scenario. It firmly establishes that the subsections of § 2-207 are mutually exclusive; the method of contract formation dictates which subsection's rules apply to determine the contract's terms. By holding that § 2-207(2) cannot be used to analyze terms when a contract is formed by conduct under § 2-207(3), the court creates a bright-line rule that simplifies the resolution of conflicting forms. This precedent reinforces that parties cannot enforce their own unagreed-upon boilerplate terms if their subsequent conduct is the sole basis for the contract's existence.
