Iоnics, Inc. (“Ionics”) purchased thermostats from Elmwood Sensors, Inc. (“Elm-
I. Standard of Review
We review the grant or denial of summary judgment
de novo. See Borschow Hosp. & Medical Supplies v. Cesar Castillo, Inc.,
II. Background
The facts of the case are not in dispute. Elmwood manufactures and sells thermostats. Ionics makes hot and cold water dispensers, which it leases to its customers. On three separate occasions, Ionics purchased thermostats from Elmwood for use in its water dispensers. 1 Every time Ionics made a purchase of thermostats from Elmwood, it sent the latter a purchase order form which contained, in small type, various “conditions.” Of the 20 conditions on the order form, two are of particular relevance:
18. REMEDIES — The remedies provided Buyer herein shall be cumulative, and in addition to any other remedies provided by law or equity. A waiver of a breach of any provision hereof shall not constitute a waiver of any other breach. The laws of the state shown in Buyer’s address printed on the masthead of this order shall apply in the construction hereof.
19. ACCEPTANCE — Acceptance by the Seller of this order shall be upon the terms and conditions set forth in items 1 to 17 inclusive, and elsewhere in this order. Said order can be so accepted only on the exact terms herein and set forth. No terms which are in any manner additional to or different from those herein set forth shall become a part of, alter or in any way control the terms and conditions herein set forth.
Near the time when Ionics placed its first order, it sent Elmwood a letter that it sends to all of its new suppliers. The letter states, in part:
The information preprinted, written and/or typed on our purchase order is especially important to us. Should you take exception to this information, please clearly express any reservations to us in writing. If you do not, we will assume that you have agreed to thе specified terms and that you will fulfill your obligations according to our purchase order. If necessary, we will change your invoice and pay your invoice according to our purchase order.
Following receipt of each order, Elmwood prepared and sent an “Acknowledgment” form containing the following language in small type:
THIS WILL ACKNOWLEDGE RECEIPT OF BUYER’S ORDER AND STATE SELLER’S WILLINGNESS TO SELL THE GOODS ORDERED BUT ONLY UPON THE TERMS AND CONDITIONS SET FORTH HEREIN AND ON THE REVERSE SIDE HEREOF AS A COUNTEROFFER. BUYER SHALL BE DEEMED TO HAVE ACCEPTED SUCH COUNTEROFFER UNLESS IT IS REJECTED IN WRITING WITHIN TEN (10) DAYS OF THE RECEIPT HEREOF, AND ALL SUBSEQUENT ACTION SHALL BE PURSUANT TO THE TERMS AND CONDITIONS OF THIS COUNTEROFFER ONLY; ANY ADDITIONAL OR DIFFERENT TERMS ARE HEREBY OBJECTED TO AND SHALL NOT BE BINDING UPON THE PARTIES UNLESS SPECIFICALLY AGREED TO IN WRITING BY SELLER.
Although this passage refers to a “counteroffer,” we wish to emphasize that this language is not controlling. The form on which the language appears is labelled an “Acknowledgment” and the language comes un
It is undisputed that the Acknowledgment was received prior to the arrival of the shipment of goods. Although the district court, in its ruling on the summary judgment motion, states that “with each shipment of thermostats, Elmwood included an Acknowledgment Form,” Order of the District Court, August 23, 1995, this statement cannot reasonably be taken as a finding in support of the claim that the Acknowledgment and the shipment arrived together. First, in its certification order, the court states that “[t]he purchaser, after receiving the Acknowledgment, accepted delivery of the goods without objection.” Order Pursuant to 28 U.S.C. § 1292(b), Nov. 6, 1995 (emphasis added). This language is clearer and more precise than the previous statement and suggests that the former was simply a poor choice of phrаsing. Furthermore, Ionics has not disputed the arrival time of the Acknowledgment. In its Memorandum in Support of Defendant’s Motion for Partial Summary Judgment Elmwood stated, under the heading of “Statements of Undisputed Facts,” • that “for each of the three orders, Ionics received the Acknowledgment prior to receiving the shipment of thermostats.” Memorandum in Support of Defendant’s Motion for Pаrtial Summary Judgment, at 3. In its own memorandum, Ionics argued that there existed disputed issues of material fact, but did not contradict Elmwood’s claim regarding the arrival of the Acknowledgment Form. See Plaintiffs Memorandum in Support of its Opposition to Defendant’s Motion for Partial Summary Judgment at 4-10. Furthermore, in its appellate brief, Ionics does not argue that the time of arrival of the Acknowledgment Form is in disрute. Ionics repeats language from the district court’s summary judgment ruling that “with each shipment of thermostats, Elmwood included an Acknowledgment Form,” Appellee’s Brief at 7, but does not argue that the issue is in dispute or confront the language in Elmwood’s brief which states that “[i]t is undisputed that for each of the three orders, Ionics received the Acknowledgment prior to receiving the shipment of thermostats.” Appellant’s Brief at 6.
As we have noted, the Acknowledgment Form expressed Elmwood’s willingness to sell thermostats on “terms and conditions” that the Form indicated were listed on the reverse side. Among the terms and conditions listed on the back was the following:
9. WARRANTY
All goods manufactured by Elmwood Sensors, Inc. are guaranteed to be free of defects in material and workmanshiр for a period of ninety (90) days after receipt of such goods by Buyer or eighteen months from the date of manufacturer [sic] (as evidenced by the manufacturer’s date code), whichever shall be longer. THERE IS NO IMPLIED WARRANTY OF MERCHANTABILITY AND NO OTHER WARRANTY, EXPRESSED OR IMPLIED, EXCEPT SUCH AS IS EXPRESSLY SET FORTH HEREIN. SELLER WILL NOT BE LIABLE FOR ANY GENERAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION ANY DAMAGES FROM LOSS OF PROFITS, FROM ANY BREACH OF WARRANTY OR FOR NEGLIGENCE, SELLER’S LIABILITY AND BUYER’S EXCLUSIVE REMEDY BEING EXPRESSLY LIMITED TO THE REPAIR OF DEFECTIVE GOODS F.O.B. THE SHIPPING POINT INDICATED ON THE FACE HEREOF OR THE REPAYMENT OF THE PURCHASE PRICE UPON THE RETURN OF THE GOODS OR THE GRANTING OF A REASONABLE ALLOWANCE ON ACCOUNT OF ANY DEFECTS, AS SELLER MAY ELECT.
Neither party disputes that they entered into a valid contract and neither disputes the quantity of thermostats purchased, the price paid, or the manner and time of delivery. The only issue in dispute is the extent of Elmwood’s liability.
In summary, Ionics’ order included language stating that the contract would be governed exclusively by the terms included on the purchase order and that all remedies
We face, therefore, a battle of the forms. This is purely a question of law. The dispute turns on whether the contract is governed by the language after the comma in § 2-207(1) of the Uniform Commercial Code, according to the rule laid down by this court in
Roto-Lith, Ltd. v. F.P. Bartlett & Co.,
III. Legal Analysis
Our analysis begins with the statute. Section 2-207 reads as follows:
§ 2-207. Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or а 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 or different terms are to be construed as prоposals 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 chapter.
Mass. Gen. L. ch. 106, § 2-207 (1990 and 1996 Supp.).
In
Roto-Lith,
Roto-Lith sent a purchase order to Bartlett, who responded with an acknowledgment that included language purporting to limit Bartlett’s liability. Roto-Lith did not object.
Roto-Lith,
Ionics claims that the instant case is distinguishable because in Roto-Lith “the seller’s language limiting warranties implied at law was proposed as an addition to, but was not in conflict with, the explicit terms of the buyer’s form. [In the instant case] the explicit terms of the parties’ forms conflict with and rejeсt each other.” Appellee’s Brief at 21.
We do not believe that Ionics’ position sufficiently distinguishes Roto-Lith. It would be artificial to enforce language that conflicts with background legal rules while refusing to enforce language that conflicts with the express terms of the contract. Every contract is assumed to incorporate the existing legal norms that are in place. It is not required that every contract explicitly spell out the governing law of the jurisdiction. Allowing later forms to govern with respect to deviations from the background rules but not deviations from the terms in the contract would imply that only the terms in the contract could be relied upon. Aside from being an artificial and arbitrary distinction, such a standard would, no doubt, lead parties to include more of the background rules in their initial forms, making forms longer and more complicated. Longer forms would be more difficult and time consuming to read — implying that even fewer forms would be read than under the existing rules. It is the failure of firms to read their forms that has brought this case before us, and we do not wish to engender more of this type of litigation.
Our inquiry, however, is not complete. Having found that we сannot distinguish this case from Roto-Lith, we turn to the Uniform Commercial Code, quoted above. A plain language reading of section 2-207 suggests that subsection (3) governs the instant case. Ionics sent an initial offer to which Elmwood responded with its “Acknowledgment.” Thereafter, the conduct of the parties established the existence of a contract as required by section 2-207(3).
Furthermore, the case before us is squarely addressed in comment 6, which states:
6. If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict[,] each party must be assumed to object to a clause of the оther conflicting with one on the confirmation sent by himself. As a result[,] the requirement that there be notice of objection which is found in subsection (2) [of § 2-207] is satisfied and the conflicting terms do not become part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act.
Mass. Gen. L. ch. 106, § 2-207, Uniform Commercial Code Comment 6. This Comment addresses precisely the facts of the instant case. Any attempt at distinguishing the ease before us from section 2-207 strikes us as disingenuous.
We are faced, therefore, with a contradiction between a clear precedent of this court,
Roto-Lith,
which suggests that the language after the comma in subsection (1) governs, and the clear dictates оf the Uniform Commercial Code, which indicate that subsection (3) governs. It is our view that the two cannot coexist and the case at bar offers a graphic illustration of the conflict.
We hold, consistent with section 2-207 and Official Comment 6, that where the terms in two forms are contradictory, each party is assumed to object to the other party’s conflicting clause. As a result, mere acceptance of the goods by the buyer is insufficient to infer consent to the seller’s terms under the language of subsection (1). 5 Nor do such terms become part of the contract under subsection (2) because notification of objection has been given by the conflicting forms. See § 2-207(2)(e).
The alternative result, advocated by Elm-wood and consistent with Roto-Lith, would undermine the role of section 2-207. Elm-wood suggests that “a seller’s expressly conditional acknowledgment constitutes a counteroffer where it materially alters the terms proposed by the buyer, and the seller’s terms govern the contract between the parties when the buyer accepts and pays for the goods.” Appellant’s Brief at 12. Under this view, section 2-207 would no longer apply to cases in which forms have been exchanged and subsequent disputes reveal that the forms are contradictory. That is, the last form would always govern.
The purpose of section 2-207, as stated in
Roto-Lith,
“was to modify the strict principle that a response not precisely in accordance with the offer was a rejection and a counteroffer.”
Roto-Lith,
Applied to this case, our holding leads to the conclusion that the сontract is governed by section 2-207(3). Section 2-207(1) is inapplicable because Elmwood’s acknowledgment is conditional on assent to the additional terms. The additional terms do not become a part of the contract under section 2-207(2) because notification of objection to conflicting terms was given on the order form and because the new terms materiаlly alter those in the offer. Finally, the conduct of the parties demonstrates the existence of a contract, as required by section 2-207(3). Thus, section 2-207(3) applies and the terms of the contract are to be determined in accordance with that subsection.
We conclude, therefore, that section 2-207(3) prevails and “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 chapter.” Mass. Gen. L. eh. 106, § 2-207(3).
The reality of modern commercial dealings, as this case demonstrates, is that not all participants read their forms.
See
James J. White & Robert S. Summers,
Uniform Commercial Code
§ 1-3 at 6-7 (4th ed.1995). To uphold Elmwood’s view would not only fly in the face of Official Comment 6 to section 2-207 of the Uniform Commercial Code, and the overall purpose of that section, it would
IV. Conclusion
For the reasons stated herein, the district court’s order denying Elmwood’s motion for partial summary judgment is affirmed and the case is remanded to the district court for further proceedings.
Notes
. Orders were placed in March, June, and September 1990.
. There is some uncertainty on the question of whether Massachusetts or Rhode Island law governs. We need not address this issue, however, because the two states have adopted versions of section 2-207 of the Uniform Commercial Code that are virtually equivalent.
. Although panel decisions of this court are ordinarily binding on newly constituted panels, that rule does not obtain in instances where, as here, a departure is compelled by controlling authority (such as the interpreted statute itself). In such relatively rarе instances, we have sometimes chosen to circulate the proposed overruling opinion to all active members of the court prior to publication even though the need to overrule precedent is reasonably clear.
See, e.g., Wright v. Park,
.
See, e.g., Step-Saver Data Systems, Inc. v. Wyse Technology,
. See also Official Comment 3 ("If [additional or different terms] are such as materially to alter the original bargain, they vrahnot be included unless expressly agreed to by the other party.").