Battle of the Forms in a Flour Shipment
Cedar Mill Bakery faxes Northfield Grain a purchase order for 12,000 pounds of bread flour at $0.62 per pound, "delivery by March 3, F.O.B. Northfield's mill; buyer may reject nonconforming goods." Northfield's acknowledgment is silent on the delivery date but adds in small print: "Any dispute shall be resolved by binding arbitration, and seller disclaims the implied warranty of merchantability." Cedar Mill does not object. The parties have exchanged these same forms for six years, and every prior shipment was invoiced with the arbitration clause printed on the back. Northfield loads the flour on March 1; a rail delay means it reaches Cedar Mill on March 6. On inspection, Cedar Mill finds weevils in three of the 240 fifty-pound bags. It rejects the entire shipment and buys replacement flour locally at $0.79 per pound.
1. Is the arbitration clause part of the contract? Is the warranty disclaimer?
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Both turn on UCC § 2-207, but they come out differently.
Arbitration clause - likely included. Under § 2-207(1) the acknowledgment is a definite expression of acceptance even though it states additional terms; § 2-207(2) sends those terms into the contract between merchants unless they materially alter it, are objected to, or cause surprise or hardship. An arbitration clause is usually a material alteration because it waives a jury trial. Here, however, the clause appeared on every invoice for six years. Course of dealing (§ 1-303(d)) may explain or supplement the agreement, and comment 4 to § 2-207 treats terms that are customary in the trade as not surprising. Cedar Mill's silence plus six years of performance will likely be read as assent.
Merchantability disclaimer - likely excluded. A disclaimer of the implied warranty of merchantability must be conspicuous and, if in writing, must mention merchantability (§ 2-316(2)). Nothing in the six-year history shows Cedar Mill ever knowingly accepted it, and it is a material alteration. It probably drops out, leaving the warranty intact.
2. Can Cedar Mill reject the entire shipment because it arrived March 6 and three bags were infested?
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Split the two grounds.
Late arrival - no. "F.O.B. Northfield's mill" is a shipment contract. Risk of loss passes to the buyer when the seller tenders the goods to the carrier (§§ 2-319(1), 2-509(1)(a)). The rail delay is Cedar Mill's risk, and March 3 was not expressly made a condition. Cedar Mill could have bargained for a time-is-of-the-essence clause; it did not.
Weevils - yes, technically. Under the perfect tender rule, § 2-601, the buyer may reject the whole shipment if the goods "fail in any respect to conform." Three infested bags out of 240 is a literal failure. The rule is harsh but real for a single non-installment shipment.
Procedural limits cut it back:
- Rejection must occur within a reasonable time after delivery and with seasonable notice (§§ 2-602, 2-607).
- The buyer must hold the goods with reasonable care and follow seller instructions.
- A court may find rejection in bad faith if Cedar Mill keeps 237 good bags and uses them while rejecting all.
A safer route is to accept the conforming portion and cover for the rest.
3. If the rejection is effective, compute Cedar Mill's damages under the cover remedy.
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Section 2-712 lets a buyer who has rejected or revoked acceptance "cover" by making a reasonable good-faith purchase of substitute goods, then recover the difference between cover cost and contract price, plus incidental and consequential damages, less expenses saved.
Full-shipment rejection:
- 12,000 lbs × ($0.79 − $0.62) = 12,000 × $0.17 = $2,040.
Partial rejection (three bags = 150 lbs):
- 150 × $0.17 = $25.50.
The spread between $25.50 and $2,040 shows how much turns on the scope of rejection. Add reasonable inspection and storage costs under § 2-715. Lost profits from missed bakery orders require that Northfield had reason to know of them at contracting (§ 2-715(2)(a)); a flour supplier aware that the buyer is a commercial bakery may be charged with that knowledge. Cedar Mill may not recover both cover damages and the full price of replacement flour.