USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1554
IONICS, INC.,
Plaintiff - Appellee,
v.
ELMWOOD SENSORS, INC.,
Defendant - Appellant.
____________________
ERRATA SHEET
The opinion of this court issued on April 8, 1997 is amended
as follows:
Page 9, line 15 change "Roto-Lith's" to "Bartlett's"
Page 12, line 8 insert period between "(1)" and footnote "5"
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1554
IONICS, INC.,
Plaintiff - Appellee,
v.
ELMWOOD SENSORS, INC.,
Defendant - Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morris E. Lasker,* Senior U.S. District Judge] __________________________
____________________
Before
Torruella, Chief Judge, ___________
Bownes, Senior Circuit Judge, ____________________
and Stahl, Circuit Judge. _____________
_____________________
Daryl J. Lapp, with whom Thane D. Scott, Stephen L. Coco and _____________ ______________ _______________
Palmer & Dodge LLP were on brief for appellant. __________________
Tina M. Traficanti, with whom Anthony M. Doniger and ____________________ ____________________
Sugarman, Rogers, Barshak & Cohen, P.C. were on brief for ___________________________________________
appellee.
____________________
April 8, 1997
____________________
____________________
* Of the Southern District of New York, sitting by designation.
TORRUELLA, Chief Judge. Ionics, Inc. ("Ionics") TORRUELLA, Chief Judge. ____________
purchased thermostats from Elmwood Sensors, Inc. ("Elmwood") for
installation in water dispensers manufactured by the former.
Several of the dispensers subsequently caused fires which
allegedly resulted from defects in the sensors. Ionics filed
suit against Elmwood in order to recover costs incurred in the
wake of the fires. Before trial, the district court denied
Elmwood's motion for partial summary judgment. The District
Court of Massachusetts subsequently certified to this court "the
question whether, in the circumstances of this case, 2-207 of
M.G.L. c. 106 has been properly applied." Order of the district
court, November 6, 1995.
I. Standard of Review I. Standard of Review
We review the grant or denial of summary judgment de __
novo. See Borschow Hosp. & Medical Supplies v. C sar Castillo, ____ ___ __________________________________ _______________
Inc., 96 F.3d 10, 14 (1st Cir. 1996). ____
II. Background 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
the20 conditions onthe order form,two areof particular relevance:
____________________
1 Orders were placed in March, June, and September 1990.
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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 the
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
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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 under a heading that
reads "Notice of Receipt of Order." The form, taken as a whole,
appears to contemplate an order's confirmation rather than an
order's rejection in the form of a counteroffer.
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
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of phrasing. 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 Partial 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 ___
Plaintiff's 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 dispute.
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
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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 workmanship
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 available
under state law would be available to Ionics. In a subsequent
letter, Ionics added that Elmwood must indicate any objections to
these conditions in writing. Elmwood, in turn, sent Ionics an
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Acknowledgment stating that the contract was governed exclusively
by the terms in the Acknowledgment, and Ionics was given ten days
to reject this "counteroffer." Among the terms included in the
Acknowledgment is a limitation on Elmwood's liability. As the
district court stated, "the terms are diametrically opposed to
each other on the issue of whether all warranties implied by law
were reserved or waived." Order of the District Court, August
23, 1995.
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., 297 _______________ ___________________
F.2d 497 (1st Cir. 1962), or whether it is governed by subsection
(3) of the Code provision, as enacted by both Massachusetts,
Mass. Gen. L. ch. 106, 2-207 (1990 and 1996 Supp.), and Rhode
Island, R.I. Gen. Laws 6A-2-207 (1992).2 We find the rule of
Roto-Lith to be in conflict with the purposes of section 2-207 _________
and, accordingly, we overrule Roto-Lith and find that subsection _________
(3) governs the contract.3 Analyzing the case under section 2-
____________________
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 rare instances, we have sometimes chosen to circulate
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207, we conclude that Ionics defeats Elmwood's motion for partial
summary judgment.
III. Legal Analysis 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 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 or different 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
____________________
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, 5 F.3d ___ ____ ______ ____
586, 591 n.7 (1st Cir. 1994); Trailer Marine Transport Corp. v. _______________________________
Rivera V zquez, 977 F.2d 1, 9 n.5 (1st Cir. 1992). This _______________
procedure is, of course, informal, and does not preclude a
suggestion of rehearing en banc on any issue. We have followed
that praxis here and can report that none of the active judges of
this court has objected to the panel's analysis or to its
conclusion that Roto-Lith has outlived its usefulness as circuit _________
precedent.
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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, 297 F.2d at 498-99. This court held that _________
"a response which states a condition materially altering the
obligation solely to the disadvantage of the offeror is an
'acceptance * * * expressly * * * conditional on assent to the
additional * * * terms.'" Id. at 500. This holding took the ___
case outside of section 2-207 by applying the exception after the
comma in subsection (1). The court then reverted to common law
and concluded that Roto-Lith "accepted the goods with knowledge
of the conditions specified in the acknowledgment [and thereby]
became bound." Id. at 500. In other words, the Roto-Lith court ___ _________
concluded that the defendant's acceptance was conditional on
assent, by the buyer, to the new terms and, therefore,
constituted a counter offer rather than an acceptance. When
Roto-Lith accepted the goods with knowledge of Bartlett's
conditions, it accepted the counteroffer and Bartlett's terms
governed the contract. Elmwood argues that Roto-Lith governs the _________
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instant appeal, implying that the terms of Elmwood's
acknowledgment govern.
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 reject 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
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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 cannot 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
other 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 case before us from
section 2-207 strikes us as disingenuous.
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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 of the Uniform Commercial Code, which indicate that
subsection (3) governs. It is our view that the two cannot co-
exist and the case at bar offers a graphic illustration of the
conflict. We have, therefore, no choice but to overrule our
previous decision in Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 _______________ ___________________
F.2d 497 (1st Cir. 1962). Our decision brings this circuit in
line with the majority view on the subject and puts to rest a
case that has provoked considerable criticism from courts and
commentators and alike.4
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
____________________
See, e.g., Step-Saver Data Systems, Inc. v. Wyse Technology, ___ ____ ______________________________ _______________
939 F.2d 91, 101 (3d Cir. 1991); St. Charles Cable TV, Inc. v. ___________________________
Eagle Comtronics, Inc., 687 F. Supp. 820, 828 & n.19 (S.D.N.Y. _______________________
1988); Daitom v. Pennwalt Corp., 741 F.2d 1569, 1576-77 (10th _______ ______________
Cir. 1984); Luria Bros. v. Pietlet Bros. Scrap Iron & Metal, 600 ___________ _________________________________
F.2d 103, 113 (7th Cir. 1979); Dorton v. Collins & Aikman Corp., ______ ______________________
453 F.2d 1161, 1168 & n.5 (6th Cir. 1972); ; James J. White &
Robert S. Summers, 1 Uniform Commercial Code, 1-3, at 12, 16-17
(1995); Murray, Intention over Terms: An Exploration of UCC 2-207
& New Section 60, Restatement of Contracts, 37 Fordham L. Rev.
317, 329 (1969).
See also Official Comment 3 ("If [additional or different _________
terms] are such as materially to alter the original bargain, they
will not be included unless expressly agreed to by the other
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the contract under subsection (2) because notification of
objection has been given by the conflicting forms. See 2- ___
207(2)(c).
The alternative result, advocated by Elmwood and
consistent with Roto-Lith, would undermine the role of section 2- _________
207. Elmwood 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, 297 F.2d at 500; see also Dorton v. Collins & Aikman _________ _________ ______ ________________
Corp., 453 F.2d 1161, 1165-66 (6th Cir. 1972) (stating that _____
section 2-207 "was intended to alter the 'ribbon-matching' or
'mirror' rule of common law, under which the terms of an
acceptance or confirmation were required to be identical to the
terms of the offer"). Under the holding advocated by Elmwood,
virtually any response that added to or altered the terms of the
offer would be a rejection and a counteroffer. We do not think
____________________
party.").
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that such a result is consistent with the intent of section 2-207
and we believe it to be expressly contradicted by Comment 6.
Applied to this case, our holding leads to the
conclusion that the contract 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 materially 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. ch. 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 also fly in the face of good sense. The sender of the
last form (in the instant case, the seller) could insert
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virtually any conditions it chooses into the contract, including
conditions contrary to those in the initial form. The final
form, therefore, would give its sender the power to re-write the
contract. Under our holding today, we at least ensure that a
party will not be held to terms that are directly contrary to the
terms it has included in its own form. Rather than assuming that
a failure to object to the offeree's conflicting terms indicates
offeror's assent to those terms, we shall make the more
reasonable inference that each party continues to object to the
other's contradictory terms. We think it too much to grant the
second form the power to contradict and override the terms in the
first form.
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IV. Conclusion 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 affirmed remanded ________ ________
further proceedings.
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