Marlene Industries Corp. v. Carnac Textiles, Inc.

• Citation: 408 N.Y.S.2d 410,45 N.Y.2d 327,380 N.E.2d 239
• Parties: , 380 N.E.2d 239, 24 UCC Rep.Serv. 257 In the Matter of the arbitration between MARLENE INDUSTRIES CORP., Appellant, and CARNAC TEXTILES, INC., Respondent.
• Decision Date: 11 July 1978
• Court: New York Court of Appeals

Page 410

408 N.Y.S.2d 410

45 N.Y.2d 327, 380 N.E.2d 239, 24 UCC

Rep.Serv. 257

In the Matter of the arbitration between MARLENE INDUSTRIES CORP., Appellant and CARNAC TEXTILES, INC., Respondent.

Court of Appeals of New York.

July 11, 1978.

Richard Weinberger, New York City, for appellant

Martin W. Fogel, New York City, for respondent.

OPINION OF THE COURT

GABRIELLI, Judge.

This appeal involves yet another of the many conflicts which arise as a result of the all too common business practice of blithely drafting, sending, receiving, and filing unread numerous purchase orders, acknowledgments, and other divers forms containing a myriad of discrepant terms. Both parties agree that they have entered into a contract for the sale of goods; indeed, it would appear that there is no disagreement as to most of the essential terms of their contract. They do disagree, however, as to whether their agreement includes a provision for the arbitration of disputes arising from the contract.

Petitioner Marlene Industries Corp. (Marlene) appeals from an order of the Appellate Division which, one Justice dissenting, affirmed a judgment of Supreme Court denying an application to stay arbitration. There should be a reversal and arbitration should be stayed, for we conclude that the parties did not contract to arbitrate.

The dispute between the parties, insofar as it is relevant on this appeal, is founded upon an alleged breach by Marlene of a contract to purchase certain fabrics from respondent Carnac Textiles, Inc. (Carnac). The transaction was instituted when Marlene orally placed an order for the fabrics with Carnac. Neither party contends that any method of dispute resolution was discussed at that time. Almost immediately thereafter, Marlene sent Carnac a "purchase order" and Carnac sent Marlene an "acknowledgement of order". Marlene's form did not provide for arbitration; it did declare that it would not become effective as a contract unless signed by the seller, and that its terms could not be "superceded by a(n) unsigned contract notwithstanding retention". Carnac's form, on the other hand, contained an arbitration clause placed in the midst of some 13 lines of small type "boilerplate". It also instructed the buyer to "sign and return one copy of this confirmation". However, neither party signed the other's form. When a dispute subsequently arose, Carnac sought arbitration, and Marlene moved for a stay.

The courts below have denied the application to stay arbitration, the Appellate Division reasoning that "as between merchants where 'a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents' written notice of objection should be given within 10 days after it is received" (59 A.D.2d 359, 360, 399 N.Y.S.2d 229, 231, quoting Uniform Commercial Code, § 2-201, subd. 2). Since Marlene had retained without objection the form containing the arbitration clause, the court concluded that Marlene was bound by that clause. We disagree.

This case presents a classic example of the "battle of the forms", and its solution is to be derived by reference to section 2-207 of the Uniform Commercial Code, which is specifically designed to resolve such disputes. The courts below erred in applying subdivision (2) of section 2-201, for that statute deals solely with the question whether a contract exists which is enforceable in the face of a Statute of Frauds defense; it has no application to a situation such as this, in which it is conceded that a contract does exist and the dispute goes only to the terms of that contract. In light of the disparate purposes of the two sections, application of the wrong provision will often result in an erroneous conclusion. As has been noted by a recognized authority on the code, "(t)he easiest way to avoid the miscarriages this confusion perpetrates is simply to fix in mind that the two sections have nothing to do with each other. Though each has a special rule for merchants sounding very much like the other, their respective functions are unrelated. Section 2-201(2) has its role in the context of a challenge to the use of the statute of frauds to prevent proof of an alleged agreement, whereas the merchant rule of section 2-207(2) is for use in determining what are the terms of an admitted agreement" (Duesenberg, General Provisions, Sales, Bulk Transfers and Documents of Title, 30 Business Law 847, 853). ¹

Subdivision (2) of section 2-207 is applicable to cases such as this, in which there is a consensus that a contract exists, but disagreement as to what terms have been included in that contract. Subdivision (1) of section 2-207 was intended to abrogate the harsh "mirror-image" rule of common law, pursuant to which any deviation in the language of a purported acceptance from the exact terms of the offer transformed that "acceptance" into a counter-offer and thus precluded contract formation on the basis of those two documents alone (see Poel v. Brunswick-Balke-Collender Co., 216 N.Y. 310, 110 N.E. 619). Under subdivision (1) of section 2-207, however, an acceptance containing additional terms will operate as an acceptance unless it is "expressly made conditional on assent to the additional or different terms". ² Having thus departed from the common-law doctrine, it became necessary for the code to make some provision as to the effect upon the contract of such additional terms in an acceptance. Subdivision (2) was designed to deal with that problem.

Before continuing, we would note that the section speaks of both acceptances and written confirmations. It is thus intended to include at least two distinct situations: one in which the parties have reached a prior oral contract and any writings serve only as confirmation of that contract; and one in which the prior dealings of the parties did not comprise actual formation of a contract, and the writings themselves serve as offer and/or acceptance. In either case the writing or writings may contain additional terms, and in either case the effect of such additional terms under the code is the same. Thus, on this appeal, since the prior discussions of the parties did not reach the question of dispute resolution, it is unnecessary to determine whether those discussions rose to the level of contract formation, or whether no contract was created until the exchange of forms. ³ Therefore, whether Marlene's form is an offer and Carnac's an acceptance, or whether both are mere confirmations of an existing oral contract, the result in this case is the same, and that result is dependent upon the operation of subdivision (2) of section 2-207.

Subdivision (2) of section 2-207 provides that any additional terms in an acceptance or a written confirmation are to be considered merely proposals for additions to the contract, and that such terms normally will not become a part of the contract unless expressly agreed to by the other party. As with many sections of the code, however, there is a special provision for merchants:

"(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

"(a) the offer...