Union Carbide Corp. v. Oscar Mayer Foods Corp.
947 F.2d 1333 (1991)
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Rule of Law:
Under Uniform Commercial Code § 2-207, an additional term in an acceptance that creates an open-ended and unforeseeable liability, such as indemnifying the seller for its own tax mistakes discovered years later, constitutes a material alteration of the contract and is unenforceable without the other party's express consent.
Facts:
- Union Carbide Corp. sold plastic sausage casings to Oscar Mayer Foods Corp. and included two 1% Chicago sales taxes on its invoices.
- In 1980, after learning a competitor was offering Oscar Mayer a 1% discount by avoiding one of the taxes, Union Carbide instructed Oscar Mayer to send orders to an out-of-city address.
- Union Carbide then stopped paying both sales taxes and removed them from its invoices, giving Oscar Mayer a 2% price reduction.
- The back of Union Carbide's invoices contained a boilerplate clause stating that the buyer would pay the seller for any governmental taxes the seller "may be required to pay."
- Eight years later, in 1988, Illinois tax authorities determined the sales taxes were still due on the sales to Oscar Mayer.
- The authorities assessed Union Carbide for $88,000 in back taxes and $55,000 in interest related to these sales, which Union Carbide paid.
Procedural Posture:
- Union Carbide Corp. filed a diversity suit for breach of contract against Oscar Mayer Foods Corp. in the U.S. District Court.
- The district court resolved the case in Oscar Mayer's favor by granting its motion for summary judgment.
- Union Carbide Corp., as the plaintiff-appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a clause printed on a seller's invoice, purporting to make the buyer liable for all taxes the seller may be required to pay in the future, constitute a material alteration of the contract under UCC § 2-207 when the buyer's purchase order did not include such a term?
Opinions:
Majority - Posner, Circuit Judge
Yes, the clause constitutes a material alteration. A term in an acceptance that materially alters the offer does not become part of the contract between merchants unless assented to. An alteration is material if consent to it cannot be presumed, meaning it would result in unreasonable surprise to the other party. Shifting the liability for the seller's own tax errors, discovered years after the transaction, from the seller (the party best positioned to prevent the mistake) to the buyer creates an open-ended, incalculable, and surprising liability. It is fundamentally different from agreeing to pay a known tax listed on an invoice at the time of purchase. Therefore, the indemnity clause is a material alteration under UCC § 2-207(2) and did not become part of the contract, as Oscar Mayer never expressly consented to it.
Analysis:
This case provides a clear example of what constitutes a 'material alteration' under UCC § 2-207, focusing on the concepts of unreasonable surprise and economic efficiency. The court's analysis establishes that boilerplate terms shifting significant, unforeseeable risks from the party better able to control them are presumptively material alterations. This decision reinforces the principle that consent to such burdensome terms cannot be inferred from mere silence or a course of dealing involving the exchange of standard forms. It guides future courts to scrutinize additional terms that create open-ended, retroactive liabilities, protecting parties from being bound by unexpected obligations hidden in fine print.
