Introduction

The case of Bayway Refining Company v. Oxygenated Marketing and Trading A.G. ([215 F.3d 219](https://law.justia.com/cases/federal/appellate-courts/F3/215/219/533638/)) adjudicated by the United States Court of Appeals for the Second Circuit on June 8, 2000, delves into a contractual dispute centered around the allocation of federal excise taxes in the sale of petroleum products. Bayway Refining Company ("Bayway") and Tosco Corporation ("Tosco") sought to enforce a contractual term that required Oxygenated Marketing and Trading A.G. ("OMT") to bear the responsibility for federal excise taxes incurred on the sale of Methyl Tertiary Butyl Ether ("MTBE"). The crux of the dispute revolved around the “battle of the forms” under **U.C.C. §2-207**, specifically determining whether an additional contractual term constitutes a material alteration requiring rejection or can be presumed to be accepted.

Summary of the Judgment

The United States District Court for the Southern District of New York granted summary judgment in favor of Bayway, holding that the additional term—which allocated tax liability to OMT—did not materially alter the contract and was thus incorporated under **U.C.C. §2-207(2)(b)**. OMT appealed, contending that the term constituted a material alteration and that evidence of industry custom and practice was inappropriately admitted. The Second Circuit affirmed the district court’s decision, establishing that under **U.C.C. §2-207(2)(b)**, the burden of proving a term is a material alteration lies with the party opposing its inclusion. Additionally, the court upheld the admissibility of evidence regarding industry customs, even when introduced in reply briefs.

Analysis

Precedents Cited

The court referenced numerous precedents to substantiate its interpretation of **U.C.C. §2-207**. Key among these was **American Ins. Co. v. El Paso Pipe Supply Co.**, which clarified the dual elements of surprise and hardship in determining material alterations. **UNION CARBIDE CORP. v. OSCAR MAYER FOODS CORP.** was pivotal in distinguishing between open-ended tax liabilities and specific, invoice-based tax responsibilities. Furthermore, the court aligned its reasoning with established cases like **KULAK v. CITY OF NEW YORK**, emphasizing that conclusory statements do not suffice to establish genuine issues of fact necessary to overcome summary judgment.

Legal Reasoning

The court's decision hinged on interpreting **U.C.C. §2-207(2)(b)**, which addresses the incorporation of additional terms in contract formation between merchants. The central issue was whether the Tax Clause imposed by Bayway was a material alteration warranting rejection by OMT. The Second Circuit articulated that the initial burden of proving such a material alteration falls on the party opposing the inclusion—in this case, OMT. The court examined both subjective and objective elements of surprise, ultimately finding that OMT failed to demonstrate that the Tax Clause was not a customary practice within the petroleum industry. The court also addressed the admissibility of industry custom evidence, affirming that procedural proprieties were maintained despite the timing of its introduction.

Impact

This judgment carries significant implications for contract negotiations and the interpretation of **U.C.C. §2-207**. By clearly allocating the burden of proving material alterations to the party opposing additional terms, the decision reinforces the presumption of incorporation for merchants adhering to standard industry practices. This affects how businesses draft, negotiate, and contest contract terms, especially in industries with established customary practices. Future cases involving "battle of the forms" scenarios will likely reference this ruling to determine the applicability of additional terms and the responsibilities of each party in proving material alterations.

Complex Concepts Simplified

Battle of the Forms

The "battle of the forms" refers to a common scenario in contract law where two parties exchange documents (like purchase orders and confirmations) containing differing terms. Under **U.C.C. §2-207**, determining which terms become part of the final contract can be contentious, especially when additional or conflicting terms are introduced by either party.

Material Alteration

A material alteration is a change to the contract terms that would significantly impact one party, potentially causing surprise or hardship if not explicitly agreed upon. In this case, whether the Tax Clause significantly altered the contractual obligations was central to determining if it should be upheld or rejected.

Burden of Proof

This legal principle dictates which party is responsible for providing evidence to support their claims or defenses. The court clarified that under **U.C.C. §2-207(2)(b)**, the party opposing the inclusion of an additional term (OMT) must prove that the term constitutes a material alteration.

Conclusion

The Second Circuit's affirmation in Bayway Refining Co. v. OMT underscores the importance of the burden of proof in contract disputes involving additional terms under the U.C.C. §2-207 framework. By establishing that the onus lies with the party opposing the inclusion of such terms to demonstrate material alteration, the court reinforces the presumption in favor of contract formation based on standard industry practices. This decision provides clarity for merchants engaged in similar contractual negotiations, emphasizing the need for explicit objections when deviating from customary terms. Ultimately, the judgment promotes fairness and predictability in commercial transactions, aligning contractual obligations with established trade customs.