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1 of 1 DOCUMENT
WILSON FERTILIZER & GRAIN, INC., Appellant-Plaintiff, v. ADM MILLING
COMPANY, Appellee-Defendant.
No. 49A05-9411-CV-462
COURT OF APPEALS OF INDIANA, FIFTH DISTRICT
654 N.E.2d 848; 1995 Ind. App. LEXIS 1012; 27 U.C.C. Rep. Serv. 2d (Callaghan) 801
August 17, 1995, Filed
SUBSEQUENT HISTORY: [**1] Transfer Denied January 11, 1996.
PRIOR HISTORY: APPEAL FROM THE MARION CIRCUIT COURT. The Honorable John M. Ryan, Judge. Cause No. 49C01-
9401-CP-121.
DISPOSITION: AFFIRMED.
CASE SUMMARY:
PROCEDURAL POSTURE: Plaintiff grain shipper brought claims based upon a sales contract dispute with defendant grain
purchaser in the Marion Circuit Court (Indiana). The purchaser answered the claims by stating the parties had agreed to arbitrate any
disputes and the trial court dismissed the shipper’s claims and ordered arbitration. The shipper appealed.
OVERVIEW: The grain shipper claimed that the arbitration provision was not part of the contract with the grain purchaser and
unenforceable. The purchaser claimed that the arbitration provision was contained in a purchase confirmation and the shipper did not
object to the added provision, which was then incorporated into their agreement. The court affirmed the trial court’s order and held that
under Ind. Code § 26-1-2-207(2) the added provision for arbitration became a part of the contract between the parties when the shipper
failed to object to the added terms within a reasonable time as required by Ind. Code § 26-1-2-207(2)(c) and as a consequence the grain
shipper was required to arbitrate any disputes that it had with the grain purchaser.
OUTCOME: The court affirmed the trial court’s order dismissing the grain shipper’s claim because the grain shipper had failed to
object to the additional terms to the contract stated by the grain purchaser in a purchase confirmation sent to the shipper and by failing
to object within a reasonable time after receiving the document, the shipper could not complain about the added provision requiring
arbitration.
CORE TERMS: confirmation, arbitration provision, grain, materially alter, hardship, arbitration, surprise, customary, material
alteration, Trade Rules, arbitrate, matter of law, question of fact, reasonable time, inclusion, merchant, farmer, usage of trade,
indemnity clause, awareness, elevator, fixing, time period, clause requiring, limitation period, shipped, broker, course of dealings,
materially, normally
LexisNexis(R) Headnotes
Civil Procedure > Alternative Dispute Resolution > Arbitrations > General Overview
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Civil Procedure > Alternative Dispute Resolution > Mandatory ADR
Contracts Law > Contract Conditions & Provisions > Arbitration Clauses
[HN1] 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.
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
Contracts Law > Contract Modifications > General Overview
[HN2] See Ind. Code § 26-1-2-207.
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
Contracts Law > Contract Modifications > General Overview
Contracts Law > Sales of Goods > Form, Formation & Readjustment > Formation > Additional & Different Terms
[HN3] Ind. 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 Ind. Code § 26-1-2-207. Between merchants such terms become part of the contract unless they materially alter
it. Ind. Code § 26-1-2-207(2)(b). As between merchants, § 26-1-2-207(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.
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
Commercial Law (UCC) > Sales (Article 2) > Subject Matter > General Overview
Contracts Law > Contract Modifications > General Overview
[HN4] 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.
Commercial Law (UCC) > Sales (Article 2) > Subject Matter > General Overview
[HN5] The phrase after the comma in Ind. Code § 26-1-2-207(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.
Civil Procedure > Alternative Dispute Resolution > Validity of ADR Methods
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
Contracts Law > Contract Conditions & Provisions > Arbitration Clauses
[HN6] Whether an additional arbitration clause creates hardship or surprise, and therefore materially alters an agreement under Ind.
Code § 26-1-2-207(2)(b), depends upon the circumstances of each case. Determining this requires the trial court to make a factual
evaluation of the parties’ positions in each case.
Civil Procedure > Trials > Bench Trials
Civil Procedure > Appeals > Standards of Review > Clearly Erroneous Review
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
[HN7] Since whether a term is a material alteration under Ind. Code § 26-1-2-207 is a question of fact to be resolved by the trial court,
the appellate court will overturn the court’s conclusion only if clearly erroneous.
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
Commercial Law (UCC) > Sales (Article 2) > Subject Matter > General Overview
[HN8] Contractually reducing the time period during which parties may bring complaints is permitted under the Uniform Commercial
Code.
Commercial Law (UCC) > Sales (Article 2) > Remedies > Statutes of Limitations > Time Limitations
Governments > Legislation > Statutes of Limitations > Time Limitations
[HN9] See Ind. Code § 26-1-2-725(1).
Civil Procedure > Alternative Dispute Resolution > Arbitrations > General Overview
Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview
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Contracts Law > Contract Conditions & Provisions > Arbitration Clauses
[HN10] Indiana’s Uniform Commercial Code requires a party to raise an objection to the inclusion of an additional provision in a sales
agreement within a reasonable time after receiving another party’s purchase confirmation, which includes the additional provision. Ind.
Code § 26-1-2-207(2)(c).
COUNSEL: FOR APPELLANT: A. CHRISTOPHER LEE, Rochester, Indiana. CHARLES R. GRAHN, Indianapolis, Indiana.
FOR APPELLEE: JERE L. HUMPHREY, Kizer & Neu, Plymouth, Indiana.
JUDGES: BARTEAU, Judge; SHARPNACK, C.J. CONCURS. KIRSCH, J. CONCURS AND DISSENTS WITH OPINION.
OPINION BY: BARTEAU
OPINION
% [*849] August 17, 1995
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 [**2] 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.
1 Venue of this matter was transferred to the Marion Circuit Court pursuant to Ind. Trial Rule 75(B).
DISCUSSION
[HN1] 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 [**3] 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 [HN2] Ind. Code 26-1-2-207, which provides in part:
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(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 [*850] 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 [**4] 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
2 The confirmation of trade did not limit acceptance to its terms under § 2-207(2)(a), and Wilson did not
object to ADM’s additional terms under § 2-207(2)(c).
[HN3] 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, [**5] 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).
[HN4] 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 [**6] 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 [**7] 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.
[*851] I.C. 26-1-2-207, Uniform Commercial Code Comment 4, 5. Neither of these Comments specifically mention arbitration provisions.
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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. (N.Y. 1978), 45 N.Y.2d 327, 380 N.E.2d 239, 408 N.Y.S.2d
410; 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.
(N.C. 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 [**8] “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:
By 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 [**9] 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:
[HN5] 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 [**10] 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 ed. 1980)) (court’s emphasis omitted). ADM
contends that our reference to arbitration provisions in that passage conclusively determines that its additional arbitration provisions do not
materially alter the agreement. However, ADM’s argument takes Continental Grain out of context.
Continental Grain defines the “limitation upon how much an acceptance can differ and still be considered an acceptance at all.” 475 N.E.2d
at 322. The question we faced in Continental Grain, and the “limit” to which White and Summers referred, is the degree to which the terms
of a confirmation form may differ from an offer and still operate as a valid acceptance. That is significantly different from the question
presented in this case – whether specific additional terms materially alter an agreement and therefore are not part of the contract. Here, the
parties agree that ADM’s confirmation form operated as a valid acceptance and that a contract has been formed, but dispute whether the
arbitration provisions [**11] are included within the [*852] terms of the agreement. We reject ADM’s argument that the inclusion of
additional arbitration provisions does not materially alter an agreement as a matter of law. 3
3 The Continental Grain case did not involve an arbitration provision. The decision only references an arbitration agreement in
dicta, as the reference was included in the citation from White & Summers.
Likewise, we reject Wilson’s argument that additional arbitration provisions do materially alter an agreement as a matter of law, and decline
to adopt the New York rule. Instead, whether included arbitration provisions result in hardship or surprise depends upon the facts and
circumstances of each case. This approach is in accord with the analysis suggested in the Uniform Commercial Code Comments.
[The Uniform Commercial Code Comments give] as examples of nonmaterial alterations “a clause fixing a
reasonable time for complaints within customary limits,” “a clause providing for interest . . . [**12] within the range
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of trade practice,” “a clause limiting the right of rejection for defects which fall within the customary trade tolerances.
. . .” Examples of material alterations are “a clause negating such standard warranties . . .,” “a clause requiring a
guaranty or 90% of 100% deliveries . . . where the usage of trade allows greater quantity leeways,” “a clause requiring
that complaints be made in a time materially shorter than customary or reasonable.”
Schulze & Burch Biscuit Co. v. Tree Top, Inc. (7th Cir. 1987), 831 F.2d 709, 714 (emphasis by 7th Circuit). The Comments suggest that
hardship or surprise may be created by terms that deviate from customary trade standards and practices, but may not be created by terms that
operate within the accepted norms of the parties’s particular trade.
Unlike the indemnity clause in Maxon Corp., requiring a party to arbitrate a dispute does not necessarily place a hardship on the party. To
the contrary, arbitration may work to the party’s benefit by facilitating an efficient and potentially favorable resolution to a dispute. Many
trades employ arbitration as a usual and customary dispute resolution [**13] mechanism. In light of this, even New York courts have
deviated from their per se rule and have held that an additional arbitration clause is not a material alteration if the party had reason to know
that such a clause was customarily used in the trade. See Schubtex, Inc. v. Allen Snyder, Inc. (N.Y. 1979), 49 N.Y.2d 1, 399 N.E.2d 1154,
424 N.Y.S.2d 133, reh’g denied; In re C.M.I. Clothesmakers, Inc. (N.Y. Sup. Ct. 1975), 85 Misc. 2d 462, 380 N.Y.S.2d 447.
[HN6] Whether an additional arbitration clause creates hardship or surprise, and therefore materially alters an agreement under § 2-207(2)
(b), depends upon the circumstances of each case. See N & D Fashions, Inc. v. DHJ Indus., Inc. (8th Cir. 1976), 548 F.2d 722; Dorton v.
Collins & Aikman Corp. (6th Cir. 1972), 453 F.2d 1161; Bergquist Co. v. Sunroc Corp. (E.D.Penn. 1991), 777 F. Supp. 1236; Dale R.
Horning Co., 730 F. Supp. 962. Determining this requires the trial court to make a factual evaluation of the parties’s positions in each case.
Luedtke Engineering Co. v. Indiana Limestone Co. (7th Cir. 1984), 740 F.2d 598, 600 (applying Indiana law). ” [HN7] Whether a term is a
material alteration under Ind.Code § [**14] 26-1-2-207 is a question of fact to be resolved by the trial court, and thus we will overturn the
court’s conclusion only if clearly erroneous.” Id.
Turning to the facts presented, Wilson argues that the trial court erroneously determined that the additional provisions did not materially
alter its agreement with ADM because the evidence conclusively shows that inclusion of the provisions imposes hardship on Wilson.
Specifically, Wilson argues that the National Grain and Feed Association Rules of Arbitration significantly reduce the time period during
which it may file its complaint against ADM from Indiana’s six-year statute of limitation to one year. Wilson argues that this results in
hardship because, now that its claim has been dismissed from the Marion Circuit Court, time has run for Wilson to file its [*853] claim
under the arbitration rules. 4 We disagree for two reasons.
4 We do not address the questions of whether the arbitration rules found in the Trade Rules of the National Grain and Feed
Association bars Wilson from submitting its claim for arbitration, or whether ADM’s Motion to Compel Arbitration estops ADM
from seeking a dismissal from arbitration. Once the court determines that a dispute is subject to arbitration, all additional
concerns, including issues regarding the merits of the underlying claim or procedural arbitrability, are for the arbitrator. See St.
John Sanitary Dist., 621 N.E.2d at 1162; Elzinga & Volkers, Inc. v. LSSC Corp. (N.D.Ind. 1993), 838 F. Supp. 1306, 1309.
[**15]
First of all, [HN8] contractually reducing the time period during which parties may bring complaints is permitted under the Uniform
Commercial Code. Comment 4 to I.C. 26-1-2-207 provides as an example of an additional term that does not result in hardship or surprise
“a clause fixing a reasonable time for complaints within customary limits. . . .” And further, [HN9] I.C. 26-1-2-725(1) states:
An action for breach of any contract for sale must be commenced within four (4) years after the cause of action has
accrued. By the original agreement the parties may reduce the period of limitation to not less than one (1) year, but
may not extend it.
Thus, Indiana law specifically permits parties to a contract for sale to reduce the time for filing claims to one year, and Wilson has not
shown that the one-year limitation is not within the customary limits of the trade. 5
5 We also note for the purpose of clarity that, under I.C. 26-1-2-725(1), the limitation period for Wilson’s claim is four years and
not six as Wilson contends.
[**16]
Second, and even more significantly, we are persuaded by Wilson’s apparent ability to have submitted its claim for arbitration within the
one-year limit. The contract between Wilson and ADM was formed on October 20, 1992. There is nothing in the record indicating when
Wilson delivered its grain to ADM, or when ADM’s alleged breach occurred. However, Wilson filed its complaint for damages in the Fulton
Circuit Court on September 24, 1993, within one year after the contract was formed. Thus, Wilson filed its complaint within one year after
the cause of action accrued because, as a matter of logic, an action for breach of contract can only accrue after the contract was formed. If
Wilson was able to file its complaint in court within one year after the cause of action accrued, we fail to see how a contract provision
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requiring Wilson to submit its claim for arbitration in the same time period imposes a hardship.
This is in accord with other jurisdictions that have considered reduced time periods for bringing actions included in contracts under § 2-207.
See, e.g., Therma-Coustics Mfg., Inc. v. Borden Inc. (Cal. Ct. App. 1985), 167 Cal. App. 3d 282, 213 Cal. Rptr. 611, 619; [**17] Aceros
Industriales, S.A. de C. V. v. Florida Steel (S.D.N.Y 1982), 528 F. Supp. 1156, 1158. The contractual one-year limitation period is expressly
permitted under Indiana law, and the evidence supports the conclusion that the one-year limitation on filing claims did not result in hardship.
Wilson’s argument that it is now time-barred from arbitrating its claim against ADM, and that it will suffer a hardship under the additional
provisions, considers the additional terms in the light of 20/20 retrospect, rather than focusing on the parties’s agreement and expectations at
the time the contract was formed. Only now, upon finding that the additional provisions do not work in its favor, does Wilson raise an
objection to the inclusion of the terms in the contract. Our [HN10] Uniform Commercial Code requires Wilson to have raised such an
objection within a reasonable time after receiving ADM’s purchase confirmation. I.C. 26-1-2-207(2)(c). Wilson did not do so.
However, Wilson argues that it “was ambushed by the ‘arbitration provision,'” because it was not expressly stated on the reverse side of
ADM’s purchase confirmation. Appellant’s Brief at 8. ADM’s confirmation form did not specify that [**18] the contract was subject to
arbitration, but rather incorporated by reference the trade rules, which include arbitration provisions. ADM did not attach the trade rules to
its confirmation, and the confirmation form does not specify a [*854] resource from which Wilson could obtain a copy of the trade rules.
Wilson complains that it was not a member of the National Grain and Feed Association, was not familiar with its rules, and was unaware
that the rules contained arbitration provisions. To the contrary, ADM argues that the fact that Wilson did not know the contents of the trade
association’s rules was all the more reason for it to have objected to the provisions under § 2-207(2)(c) or at least to have inquired as to the
contents of the rules.
Whether incorporating the trade association’s rules by reference resulted in surprise is a question of fact left to the trial court. To this end,
Wilson argues that “no evidence was presented concerning this contractual relationship that would indicate that Wilson, because of course of
business or usage of trade, should have had knowledge of the binding arbitration provisions contained in the National Grain and Feed
Association Rules.” [**19] Appellant’s Brief at 8. However, while evidence of usage of trade and course of dealings are not conclusive on
the question of surprise, see Maxon Corp., 497 N.E.2d at 576, such proof is significant to the issue. See Dixie Aluminum Products Co., Inc.
v. Mitsubishi International Corp. (N.D.Ga. 1992), 785 F. Supp. 157.
In short, a party should not be surprised to find in a confirmation a clause of a type that is customarily used within the
trade, whereas the clause is an unreasonable surprise where it represents an unreasonable or harsh deviation from
custom.
Schulze & Burch Biscuit Co., 831 F.2d at 714.
While Wilson is correct that ADM did not produce any evidence on usage of trade or course of dealings, we note that Wilson did not
produce any evidence of such either, and that the burden of proof was on Wilson to show that including the additional terms would
materially alter the agreement. While it is possible to prove surprise under § 2-207 without presenting evidence on usage of trade and course
of dealings, Wilson’s argument that ADM did not produce such evidence is to no avail in the absence of evidence presented by Wilson
sufficient to carry its burden. [**20]
Wilson argued to the trial court that surprise arose from the combination of the arbitration provisions being incorporated by reference into
the agreement and the hectic state of Wilson’s business at the time the contract was formed. As counsel argued to the trial court: 6
6 No citation to the record is provided because the pages in the transcript of the evidence are not numbered in accordance with
Ind. Appellate Rule 7.1(A) & 7.2(A)(3)(a). Also, Appellant has not provided margin notations, as required in App. R. 7.2(A)(3)
(a). We caution counsel for Appellant to attend to these oversights in future appeals.
[The contract] says that these rules are going to apply therefore in the middle of busy season, this was in October,
Wilson Fertilizer & Grains, a decent size local operation, and their hair is on fire in October. I mean, they’re making
transactions, they’re doing things left and right. They’re – if the Court determines that this sort of arbitration provision
is going to be binding on Wilsons, [**21] then . . . its putting way to [sic] much burden on small businesses like
Wilsons to read not only every single provision but then to go and do extra research to be able to determine exactly
what the meaning of this contract is. . . .
As was the trial court, we are unpersuaded by Wilson’s argument that it should not be made to bear the burden of objecting to the additional
terms in the contract or inquiring as to provisions incorporated by reference. In Continental Grain, a Brown County farmer who had never
before dealt in grain futures contracted to sell corn and soy beans to a grain elevator. After reaching an oral agreement, the grain elevator
company sent the farmer a confirmation form with additional language on its reverse side. Item six on the back of the form stated “Buyer
reserves right to change destination of shipments.” Upon reading this, the farmer telephoned the elevator company to voice his objection,
and was told that the term did not mean anything. Nevertheless, the farmer returned the form to the elevator company [*855] with the
notation “I do not agree with item 6.” 475 N.E.2d at 319-20.
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Perhaps the farmer in Continental Grain was unaware that [**22] he was acting in accordance with I.C. 26-1-2-207(2)(c) in notifying the
elevator company of his objection to the additional term within a reasonable time. However, it is clear that the farmer, upon entering the
unfamiliar business of grain futures, did so cautiously and, upon reading the form and finding what appeared to be a disagreeable term,
sought clarification and acted to protect his interest. We fail to see why Wilson, a “decent size local operation” that makes transactions “left
and right” should not be required to act in its own interest in the same manner as the Brown County farmer. Therefore, we reject Wilson’s
argument that it should not be made to bear the burden of standing vigilant over its own business affairs.
The trial court’s finding that the additional term in ADM’s purchase confirmation did not materially alter the agreement is supported by the
evidence and is not clearly erroneous.
AFFIRMED.
SHARPNACK, C.J. CONCURS
KIRSCH, J. CONCURS AND DISSENTS WITH OPINION
CONCUR BY: KIRSCH
DISSENT BY: KIRSCH
DISSENT
KIRSCH, Judge, concurring and dissenting
I fully concur with the rule of law set forth in the majority opinion. From its application to the facts of this case, [**23] however, I
respectfully dissent.
ADM Milling Company purchased 60,000 bushels of wheat from Wilson Fertilizer & Grain, Inc. on October 20, 1992. The order was
placed through a broker, Edward E. Smith & Co., Inc. The grain was shipped in two shipments: the first ten car loads were shipped the
day of the order (October 20th); the remaining eight car loads were shipped two days later. On the date of the order, the broker sent a
confirmation of the order; ADM also sent a confirmation the same day. The ADM confirmation contained the following language:
“This Contract is also subject to the Trade Rules of the National Grain and Feed Association currently in effect . . . .”The Trade Rules
were not set forth in the contract. Included in these Trade Rules were an arbitration provision and a one year limitation period. When
ADM did not pay as agreed, Wilson filed suit to collect the balance due. The response was a motion to dismiss based upon the
arbitration provision in the Trade Rules. When the court ultimately granted the motion, ADM informed Wilson that the Trade Rules
also provided a one year limitation period which had now expired.
The majority states: “The test for whether additional [**24] 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.'” Slip opinion at 4-5. “Whether a term is a
material alteration under Ind. Code § 26-1-2-207 is a question of fact to be resolved by the trial court . . . .” Id. at 10. “Whether
included arbitration provisions result in hardship or surprise depends on the circumstances of each case.” Id. at 8.
The United States Court of Appeals for the Seventh Circuit anticipated this holding in Luedtke Engineering Co.. v. Indiana Limestone
Co. (7th Cir. 1984), 740 F.2d 598, where the court stated:
“First, Comment 4 to Section 2-207 defines ‘material alteration’ as a term that would ‘result in surprise or hardship if incorporated without
express awareness by the other party.’ Determining this requires the trial court to make a factual evaluation of the parties’ positions in each
case. As one court stated, ‘The materiality of a change is to be judged in large party (sic) by the expectations of the parties involved in the
transaction. That is a determination uniquely within the province of a fact finder . . [**25] . .’ Ebasco Services, Inc. v. Pennsylvania Power
& Light Co., 402 F. Supp. 421, 442-43 (E.D.Pa.1975). Second, other courts interpreting UCC Section 2-207 uniformly have held that the
materiality of an alteration is a question of fact. . . . We hold that whether a term is a material alteration under Ind.Code § 26-1-2-
207 [*856] is a question of fact to be resolved by the trial court . . . .”
Id. at 600 (citations omitted).
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The holding by the majority in this case and by the Seventh Circuit in Luedtke are supported by Professor Hawkland in his treatise on
the Uniform Commercial Code. He states:
“Comments 4 and 5 [to UCC § 2-207] give examples of terms in the offeree’s form which do and do not materially alter the contract created
by the exchange of forms, but they are not particularly helpful since they involve the kinds of terms that normally would be included or
excluded from most agreements because of trade usage . . . . There are many additional terms to be found in the offeree’s form that neither
adopt nor reject trade usage, however, and it is those terms that section 2-207(b) mainly addresses. If they are substantially different from
the [**26] terms of the contract, silence will not constitute acceptance. If they differ only in minor respects, they can be accepted by silence.
Whether there is substantial or minor difference in this regard is said to be a question of fact and that summary judgment usually is not
appropriate where this question is an issue.”
Hawkland, Uniform Commercial Code Series § 2-207:03 (1995) (emphasis added).
Applying the foregoing to the present case, there are two factual issues which should be determined by the trial court: The first issue is
whether ADM’s confirmation even constituted an acceptance within the meaning of UCC § 2-207. If the confirmation sent by the
broker to Wilson was sent prior to ADM’s confirmation, it constitutes the acceptance of the offer; the contract was fully formed by that
confirmation. The later confirmation sent by ADM would only be a proposal to modify the contract as formed and UCC § 2-207 would
not apply. Second, even if ADM’s confirmation constitutes the acceptance and § 2-207 does apply, there is an unresolved question of
fact as to whether the additional term contained in such confirmation results in hardship or surprise and thus constitutes [**27] a
material alteration. In either event, these unresolved factual issues make the dismissal of this case inappropriate.
ADM Milling Company played the latest version of “Legal Gotcha.” And it won. It has received the grain which it ordered and
escaped paying for it.
I would reverse the dismissal and remand to the trial court to conduct an evidentiary hearing.
