New York Law Review

Marlene Industries Corp. v. Carnac Textiles, Inc., 45 N.Y.2d 344 (1978): Arbitration Clauses as Material Alterations Under UCC § 2-207

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Marlene Industries Corp. v. Carnac Textiles, Inc., 45 N.Y.2d 344 (1978)

Under UCC § 2-207, an arbitration clause included in a written confirmation or acceptance is a material alteration to the contract and does not become part of the agreement unless expressly agreed to by both parties.

Summary

Marlene Industries Corp. (Marlene) and Carnac Textiles, Inc. (Carnac) entered into a contract for the sale of fabrics. Marlene orally placed an order with Carnac, followed by Marlene sending a purchase order without an arbitration clause, and Carnac sending an acknowledgment with an arbitration clause. Neither party signed the other’s form. A dispute arose, and Carnac sought arbitration. The New York Court of Appeals held that the arbitration clause was a material alteration under UCC § 2-207(2)(b) and did not become part of the contract because Marlene never explicitly agreed to it.

Facts

Marlene orally placed an order for fabrics with Carnac. Shortly after, Marlene sent Carnac a purchase order that did not contain an arbitration clause. The purchase order stated that it would only become effective if signed by the seller and its terms couldn’t be superseded by an unsigned contract. Carnac then sent Marlene an acknowledgment of order containing an arbitration clause in small print and instructed Marlene to sign and return a copy, which Marlene did not do. A dispute arose regarding the contract, and Carnac sought to compel arbitration.

Procedural History

Carnac sought arbitration, and Marlene moved for a stay of arbitration. The Supreme Court denied the stay, and the Appellate Division affirmed. Marlene appealed to the New York Court of Appeals.

Issue(s)

  1. Whether UCC § 2-201(2) applies to disputes over contract terms when the existence of a contract is conceded.
  2. Whether an arbitration clause included in a written confirmation or acceptance constitutes a material alteration to the contract under UCC § 2-207(2)(b).

Holding

  1. No, because UCC § 2-201(2) deals solely with whether a contract exists and is enforceable under the Statute of Frauds, and is inapplicable when the contract’s existence is admitted.
  2. Yes, because an arbitration clause materially alters a contract for the sale of goods, and under UCC § 2-207(2)(b), it only becomes part of the contract if both parties explicitly agree to it.

Court’s Reasoning

The court reasoned that the Appellate Division erred in applying UCC § 2-201(2), which pertains only to Statute of Frauds defenses and not to disputes over contract terms when the existence of a contract is undisputed. The court emphasized that UCC § 2-207 governs situations where a contract exists, but the parties disagree on its terms.

The court applied UCC § 2-207, which addresses additional terms in an acceptance or written confirmation. Under § 2-207(2), such terms are proposals for additions to the contract and generally do not become part of the agreement unless expressly agreed to. However, between merchants, additional terms become part of the contract unless (a) the offer expressly limits acceptance to its terms, (b) they materially alter the contract, or (c) notification of objection has already been given or is given within a reasonable time.

The court held that an arbitration clause is a material alteration. The court emphasized the “New York Rule,” stating that parties will not be held to have chosen arbitration without an

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