Under UCC, Seller Must Make a Counteroffer to Add Arbitration Clause to Purchase Order

A federal district court in New York found that arbitration language in a sales acknowledgement form did not create a valid agreement to arbitrate where the purchase order did not mention arbitration because the acknowledgment form was not “expressly made conditional” on assent to the added provision for arbitration (i.e., it was not a counteroffer).

In Stemcor USA, Inc. v. Trident Steel Corp., No. 06 Civ. 585(JGK), 2006 WL 3161417 (S.D.N.Y. Oct. 25, 2006), Trident bought steel pipes from Stemcor for the purpose of threading the ends and re-selling them to third parties. The third-party buyers sued Trident for defects in the pipes, and Trident sued Stemcor for indemnification. Stemcor demanded arbitration, pursuant to a clause in the acknowledgement forms sent to Trident.

Trident objected to arbitration, noting that the original purchase orders did not mention arbitration. On that basis, Trident argued that no arbitration agreement existed because the acknowledgement forms merely accepted the substantive terms of the purchase orders. Stemcor countered by arguing that the acknowledgement forms were actually counteroffers that Trident accepted by performance.

Applying section 2-207 of the Uniform Commercial Code (UCC), the Court agreed with Trident’s position and found no valid agreement to arbitrate. The language of the acknowledgement forms indicated that they were meant as “final versions” of an agreement already reached – one without an arbitration clause. This result is consistent with other cases that have rejected attempts to modify a purchase order through the acknowledgment forms; such modification is effective only if the acknowledgment form is “expressly made conditional” on assent to the added terms. See CBS, Inc. v. Auburn Plastics, Inc., 67 A.D.2d 811 (N.Y. App. Div. 1979); Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1167 (6th Cir. 1972).