Opinion ID: 1387072
Heading Depth: 3
Heading Rank: 2

Heading: The Superior Court Erred in Granting ARCO's Motion for Summary Judgment Against Western.

Text: The superior court granted ARCO's motion for summary judgment against Western on one basis: it held that an express indemnity provision between the parties barred Western's claim for implied indemnity. The indemnity provision was contained on the reverse side of purchase order confirmations routinely sent by ARCO to Western after Western had placed an order, but before the beads were sent. The indemnity provision states: 18. INDEMNIFICATION  Buyer [Western] agrees to defend, indemnify and save harmless Seller [ARCO] from any and all claims of whatsoever nature including but not limited to injuries to Buyer's or Seller's employees or to third parties (including death), or for damages to the property of Seller, or to the property of Buyer, or of third parties, caused by, arising directly or indirectly from, or occurring in a) any handling of said materials, including but not limited to, unloading railroad cars, tank cars, trucks, tank trucks, barges, or in handling containers of materials sold, and b) any use of said materials. Also of significance is the front side of each purchase order confirmation form. In addition to containing price and quantity information, it contains a proviso in small print at the bottom of the page which reads: ATTENTION: This order is accepted by us subject to the Terms and Conditions printed on the REVERSE SIDE OF THIS SHEET and your acceptance of delivery of the material set forth above constitutes acceptance of these Terms and Conditions. THE WARRANTY SET FORTH ON THE REVERSE HEREOF IS EXPRESSLY IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE AND ANY OTHER OBLIGATION ON THE PART OF SELLER. After determining that Washington law governed interpretation of the transaction, the superior court concluded that the express indemnity provision shielded ARCO from Western's implied indemnity claim. Western claims on appeal that the hold harmless indemnification provision was a material alteration of the parties' agreement and thus is not a term of the contract under the UCC. Though Western did not raise this issue below, we nonetheless consider it since, for reasons discussed below, it involves a question of law that is critical to a proper and just decision. Vest v. First Nat'l Bank of Fairbanks, 659 P.2d 1233, 1234 n. 2 (Alaska), aff'd on reh'g, 670 P.2d 707 (Alaska 1983). Additionally, there is a strong argument that the superior court's failure to consider the UCC issue constitutes plain error. See Sea Lion Corp. v. Air Logistics of Alaska, Inc., 787 P.2d 109, 115 (Alaska 1990). [12]
Before determining the legal effect of the express indemnity provision at issue here, it is necessary to resolve a choice of law question. In summarizing the arguments below, the superior court stated: The parties dispute whether Washington law or Alaska law governs the validity of the express indemnity clause. Western ... argues that Washington law applies because that is the place of negotiating, contracting, and performance of the sales contract containing the disputed clause. ARCO argues that the issue is whether Western ... is entitled to implied indemnity under Alaska's common law, which would be analyzed under Alaska law. When choice of law issues arise, we commonly refer to the Restatement (Second) of Conflicts for guidance. [13] In this instance, application of Restatement principles leads to the conclusion that Washington law controls. [14] As the Restatement directs, since ARCO's purchase order confirmation form does not contain a choice of law provision, section 188 of the Restatement governs. It instructs that we look to the place of contracting, negotiation, and performance of the contract, all of which took place in Washington. Consequently, Washington law governs disposition of this issue.
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.
Notwithstanding the above analysis, ARCO's indemnity clause may be part of the parties' contract provided they expressly agreed to it. That is, if the indemnity provision was expressly agreed to by Western, and thus the confirmation was merely a codification of the parties' earlier agreement, the clause is binding and section 2-207 analysis is unnecessary. [24] Whether ARCO and Western expressly agreed to the indemnity clause is a factual question. The entirety of the evidence presented by ARCO concerning the formation of its contract with Western consisted of an affidavit by a former order clerk stating that documents acknowledging or confirming a customer's order were sent to Western. Even ARCO acknowledged the absence of evidence concerning contract formation in its briefing of the issue of waiver: Had Western ... raised the issue about its negotiations with ARCO ... or otherwise called attention to this issue, ARCO ... would have had the opportunity to conduct discovery regarding the course of dealing and/or actual negotiations between the parties. Since Western ... conceded that the indemnity provision was a part of the contract, however, there was no need to try to develop such additional evidence. Since there is an absence of evidence of an oral agreement, it can not be determined whether the parties expressly negotiated for and agreed to the indemnity clause. Thus, we conclude that summary judgment on this alternative theory is not appropriate.