Opinion ID: 1387072
Heading Depth: 4
Heading Rank: 3

Heading: UCC Analysis: Was the Indemnification Clause Contained in ARCO's Purchase Order Confirmation Form Incorporated into the Parties' Agreement Under UCC Section 2-207?

Text: Western claims, pursuant to section 2-207 of the Uniform Commercial Code (UCC), that the indemnity provision constituted a material alteration of the parties' agreement and as such did not become a term of the parties' contract. Section 2-207 of the UCC, as codified in Alaska at AS 45.02.207 and Washington at Wash. Rev. Code § 62A.2-207 (1994), states: (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. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. We must first determine whether the small proviso contained on the front side of ARCO's confirmation form converts an otherwise valid acceptance into a de facto rejection and counteroffer. [15] That is, if ARCO's purchase order confirmation form operates as an acceptance, then the indemnification clause becomes incorporated only if it is not a material alteration of the parties' contract under section 2-207(2)(b); if it operates as a counteroffer, however, the relevant question becomes whether Western accepted ARCO's counteroffer, and thus the accompanying indemnification clause, when it accepted delivery of the beads. As previously observed, this issue must be analyzed under Washington law. In Hartwig Farms, Inc. v. Pacific Gamble Robinson Co., 28 Wash. App. 539, 625 P.2d 171 (1981), the court, without specifying what type of language constitutes a counteroffer, addressed a situation similar to the one now posed. In Hartwig Farms, the seller argued that the buyer was bound by a warranty disclaimer clause contained on an invoice delivered with the goods. The court held that because the warranty disclaimer clause was a material alteration, a buyer does not assent to it by merely accepting delivery of the goods. The court stated: In Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir.1962), the court held the disclaimer on a sales acknowledgement to be a material alteration and an acceptance conditional on the offeror's assent to the additional term. The Roto-Lith court also held a buyer, when he accepted goods, became bound by the additional terms set by the seller. This result has not been followed by all courts and we decline to follow it here. Id. at 174. [16] Thus, the court rendered moot any distinction between a counteroffer and an acceptance. That is, the court effectively held that when a buyer accepts delivery of goods, it does not assent to a warranty disclaimer clause, or any other clause which materially alters the contract, even if the invoice containing the clause is characterized as a counteroffer. In such cases, the only relevant question is whether the contested clause materially alters the contract under section 2-207(2)(b). Yet ARCO argues that Hartwig Farms is distinguishable since it involved a warranty disclaimer clause contained on an invoice sent with the shipment of goods, whereas the instant case concerns an indemnification clause contained on a confirmation sent some time before the shipment of goods. However, we note that in Rottinghaus v. Howell, 35 Wash. App. 99, 666 P.2d 899, review denied, 100 Wash.2d 1016 (Wash. 1983), the same court subsequently held that any distinction between an invoice and a confirmation is irrelevant. The court stated, [T]he fact that the limitations appeared on written confirmations signed by the parties rather than an invoice as in Hartwig or a label attached to the container as in Dobias [v. Western Farmer's Ass'n, 491 P.2d 1346 (Wash. App. 1971)] is irrelevant[.] Rottinghaus, 666 P.2d at 905. Consequently, under Washington law, the express indemnity clause contained on ARCO's purchase order confirmation form is enforceable only if it does not constitute a material alteration of the parties' contract. [17] Generally, materiality is a question of fact. [18] Comments four and five to section 2-207 provide that the test for materiality is whether the newly introduced clause would result in surprise or hardship to the non-assenting party. [19] In Washington, the burden of showing surprise is placed on the party against whom the term would operate. [20] However, courts have held that certain clauses are material as a matter of law. For instance, in Washington and elsewhere, clauses such as those listed in Code comment four, like warranty disclaimers, are routinely deemed material as a matter of law. [21] Similarly, though Washington courts have not had occasion to address the issue, other courts commonly hold that indemnification clauses like ARCO's are material as a matter of law. [22] Furthermore, we have found no case where an indemnity clause was held to be immaterial under section 2-207. These factors lead us to predict that Washington courts would hold that ARCO's indemnity clause was a material alteration of the parties' contract under section 2-207(2)(b) of the UCC. [23] Therefore, we hold that the clause is unenforceable as a matter of law.