Wilson Fertilizer & Grain, Inc. v. ADM Mill. Co.

• Decision Date: 17 August 1995
• Docket Number: No. 49A05-9411-CV-462,49A05-9411-CV-462
• Citation: 654 N.E.2d 848
• Parties: 27 UCC Rep.Serv.2d 801 WILSON FERTILIZER & GRAIN, INC., Appellant-Plaintiff, v. ADM MILLING COMPANY, Appellee-Defendant.
• Court: Indiana Appellate Court

Page 848

654 N.E.2d 848

27 UCC Rep.Serv.2d 801

WILSON FERTILIZER & GRAIN, INC., Appellant-Plaintiff, v. ADM MILLING COMPANY, Appellee-Defendant.

No. 49A05-9411-CV-462.

Court of Appeals of Indiana.

Aug. 17, 1995.

Transfer Denied Jan. 11, 1996.

A. Christopher Lee, Rochester, Charles R. Grahn, Indianapolis, for appellant.

Jere L. Humphrey, Kizer & Neu, Plymouth, for appellee.

OPINION

BARTEAU, Judge.

Wilson Fertilizer & Grain, Inc. (Wilson) appeals the trial court's order dismissing its action against ADM Milling Company (ADM) and ordering the parties to arbitration.

FACTS

Wilson and ADM entered into a contract under which Wilson shipped grain to ADM. A broker facilitated the deal between Wilson and ADM, and sent each party a confirmation of trade. The confirmation of trade did not contain an arbitration provision. ADM sent a purchase confirmation to Wilson that contained boiler plate language which states: "This contract is also subject to the Trade Rules of the National Grain and Feed Association currently in effect." Wilson did not object to this language and did not respond to ADM's purchase confirmation.

A dispute arose under the contract and Wilson filed suit against ADM in the Fulton Circuit Court. ¹ ADM moved to dismiss the action, claiming that the Trade Rules of the National Grain and Feed Association require the parties to arbitrate the dispute. Wilson argued that the arbitration provisions were not included within the terms of its agreement with ADM. The trial court granted ADM's motion and ordered the parties to arbitration.

DISCUSSION

A party seeking to compel arbitration must satisfy a two-prong burden of proof. First, the party must demonstrate an enforceable agreement to arbitrate the dispute. Second, the party must prove that the disputed matter is the type of claim that the parties agreed to arbitrate. See St. John Sanitary Dist. v. Town of Schererville (1993), Ind.App., 621 N.E.2d 1160, 1162. In this case, the second prong of our analysis is not in dispute, since neither party contends that the arbitration provisions do not encompass Wilson's claim. The only question presented herein is under the first prong: whether the additional terms are included in the contract between Wilson and ADM.

Whether the additional provisions are part of the contract is controlled by Ind.Code 26-1-2-207, which provides in part:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(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 expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

The parties agree that a contract has been formed and that the disputed provisions in ADM's confirmation form are additional terms. The parties further agree that they are merchants, and that the only challenge in this appeal rises under I.C. 26-1-2-207(2)(b), whether the additional terms materially alter the agreement. ²

Indiana Code 26-1-2-207(2) presumes that additional terms become part of a contract between merchants in the absence of one of the exceptions listed in that statute. "Between merchants such terms become part of the contract unless: ... (b) they materially alter it." I.C. 26-1-2-207(2)(b) (emphasis added). "As between merchants, paragraph 2-207(2)(b) presumes the inclusion of the additional clause unless one of the three exceptions is met. Therefore, ... the party opposing such inclusion ... [bears] the burden of proving the exception." Comark Merchandising, Inc. v. Highland Group, Inc. (7th Cir.1991), 932 F.2d 1196, 1201 (citing Dale R. Horning Co. v. Falconer Glass Indus., Inc. (S.D.Ind.1990), 730 F.Supp. 962, 966 n. 2). ADM's burden of proving the existence of an agreement to arbitrate is satisfied by our presumption under § 2-207(2) that the additional provisions in its confirmation form are included in its agreement with Wilson. Under § 2-207(2) the burden is on Wilson to prove that the additional arbitration provisions are not part of the contract--i.e. that inclusion of the arbitration provisions would materially alter the agreement. I.C. 26-1-2-207(2)(b).

The test for whether additional terms materially alter an agreement is whether their "incorporation into the contract without express awareness by the other party would result in surprise or hardship." Maxon Corp. v. Tyler Pipe Indus., Inc. (1986), Ind.App., 497 N.E.2d 570, 576, reh'g denied, trans. denied. The Uniform Commercial Code Comments to § 2-207 provide examples of terms that do and do not materially alter agreements.

4. Examples of typical clauses which would normally "materially alter" the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties as that of merchantibility or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer's failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.

5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given are: a clause setting forth and perhaps enlarging slightly upon the seller's exemption due to supervening causes beyond his control, similar to those covered by the provision of this Article on merchant's excuse by failure of presupposed conditions or a clause fixing in advance any reasonable formula of proration under such circumstances; a clause fixing a reasonable time for complaints within customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; a clause providing for interest on overdue invoices or fixing the seller's standard credit terms where they are within the range of trade practice and do not limit any credit bargained for; a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance "with adjustment" or otherwise limiting a remedy in a reasonable manner.

I.C. 26-1-2-207, Uniform Commercial Code Comment 4, 5. Neither of these Comments specifically mention arbitration provisions.

Some jurisdictions that have considered this issue have adopted the "New York rule" holding that additional arbitration provisions create a material alteration per se. See, e.g., Marlene Indus. Corp. v. Carnac Textiles, Inc. (1978), 45 N.Y.2d 327, 408 N.Y.S.2d 410, 380 N.E.2d 239; John Thallon & Co. v. M & N Meat Co. (E.D.N.Y.1975), 396 F.Supp. 1239; Frances Hosiery Mills, Inc. v. Burlington Indus., Inc. (1974), 285 N.C. 344, 204 S.E.2d 834. This rule is based on New York's well-established law that parties will not be compelled to arbitrate "in the absence of an express, unequivocal agreement to that effect; absent such an explicit commitment neither party may be compelled to arbitrate." Marlene, 380 N.E.2d at 242. The Marlene court reasoned:

[B]y agreeing to arbitrate a party waives in large part many of his normal rights under the procedural and substantive law of the state, and it would be unfair to infer a significant waiver on the basis of anything less than a clear indication of intent.

Id. The Marlene court concluded that, as a matter of law, additional arbitration provisions impose a hardship on a merchant and, therefore, materially alter agreements under § 2-207(2).

This approach is not without precedent in Indiana. We held in Maxon Corp. that, as a matter of law, the inclusion of an additional indemnity clause resulted in hardship and therefore materially altered an agreement.

There can be no doubt that Maxon's indemnity clause would impose serious hardship if incorporated without Tyler's express awareness. By its very nature, a clause which shifts liability from a negligent party to an innocent party imposes hardship. Accordingly, we hold that Maxon's indemnity clause constitutes a material alteration as a matter of law.

Maxon Corp., 497 N.E.2d at 576. Wilson argues that we should follow the New York rule and find that, like the indemnity clause in Maxon Corp., ADM's additional arbitration provisions materially alter the agreement as a matter of law.

Before addressing the merits of Wilson's argument, we turn to ADM's parallel but opposite assertion that, as a matter of law, additional arbitration provisions do not materially alter an agreement. In support of this, ADM points to the case of Continental Grain Co. v. Followell (1985), Ind.App., 475 N.E.2d 318, reh'g denied, trans. denied, and the following excerpt:

The phrase after the comma in 2-207(1) "unless acceptance is expressly made conditional on assent to the additional or different terms" must be construed as imposing a limitation upon how much an acceptance can differ and still be considered an acceptance at all. White & Summers state:

"We think that in the usual purchase order-acknowledgement context the forms do not approach this limit at least if the forms do not diverge as to price, quality, quantity, or delivery terms, but only as to the usual unbargained terms on the reversed side concerning remedies, arbitration and the like."

475 N.E.2d at 322 (citing White & Summers, Uniform Commercial Code, Chap. 1 (2d...