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ContractsContract formation and modification under the UCCLaw School

Riverside Hospital sent MedPro Supplies a signed purchase order for 5,000 disposable surgical gowns. The order said nothing about indemnity or dispute resolution. MedPro mailed back its standard confirmation, repeating quantity and price but adding an indemnity clause and a requirement that disputes be arbitrated. Both are merchants. MedPro delivered the gowns, Riverside paid, and the gowns were used. Riverside later claimed a shipment was defective and filed suit in court. MedPro demanded arbitration under its confirmation form.

In Riverside's lawsuit, is a court likely to require Riverside to arbitrate its dispute with MedPro based on the arbitration clause in MedPro's confirmation form?

  • AYes, because arbitration clauses are always enforceable to promote efficient dispute resolution.
  • BYes, because additional written terms automatically become part of every sale-of-goods contract.
  • CNo, because Riverside's purchase order expressly rejected all additional boilerplate terms.
  • DNo, because the arbitration clause is an additional term that may materially alter.

Correct · D

D is correct. This transaction is a sale of goods between merchants, so the battle of the forms rules apply. Riverside's signed purchase order was the offer. MedPro's confirmation was a definite expression of acceptance. It repeated the dickered terms but added indemnity and arbitration provisions. Those are "additional terms," not part of the original offer. Between merchants, additional terms can become part of the contract only if certain conditions are met. One key limitation is that an additional term will not be incorporated if it would materially alter the contract. Clauses that change how disputes are resolved, such as mandatory arbitration provisions and broad indemnity requirements, often have significant practical and legal consequences. Courts frequently treat them as material alterations because they surprise or substantially shift risk. Here, the parties formed a contract for gowns based on the matching terms of the order and confirmation, and they performed under that contract. The arbitration clause was only a proposal for an added term. Because it is the kind of term that may materially alter the bargain, a court is unlikely to treat it as having silently become part of the contract. Riverside therefore cannot be compelled to arbitrate based solely on MedPro's boilerplate.

Rule tested

UCC § 2-207(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:

Related authority

UCC § 2-207(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.

UCC § 2-207(2)(b)

they materially alter it; or

UCC § 2-207(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.

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Business AssociationsShareholder and member litigation: direct, derivative, and class litigationLaw School

Priya, a shareholder of Valley Regional Hospital, filed a derivative action alleging that Valley's board approved above‑market leases with a real estate company owned by director Lopez. While the suit was pending, the board renegotiated the related‑party leases at significantly lower rates, saving Valley substantial annual costs. After the case was dismissed as moot, Priya moved for an order requiring Valley to reimburse her litigation expenses.

If the court finds that the derivative action produced a substantial benefit for Valley, how should it rule on Priya's motion for expenses?

ADeny the motion, because shareholders must always bear their own expenses.
BDeny the motion, because any benefit from the leases goes only to Priya.
CGrant the motion, because a substantial corporate benefit justifies shifting her expenses.
DGrant the motion, because the corporation expressly promised to reimburse Priya's costs.

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