December 4, 2009
JERMAX, INC., D/B/A GULF & NORTHERN TRADING CORP., PLAINTIFF-RESPONDENT,
BAOSTEEL AMERICA, INC., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-6324-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 9, 2009
Before Judges Lisa and Baxter.
By leave granted, defendant Baosteel America, Inc. appeals from an April 3, 2009 order that denied its motion to dismiss plaintiff's Law Division complaint and submit the parties' commercial dispute to binding arbitration. Defendant also appeals from a May 1, 2009 order denying its motion for reconsideration. We agree with defendant's contention that the Law Division erred by disregarding the contract, which was signed by plaintiff, that required binding arbitration. We reverse.
Plaintiff Jermax, Inc. is a New Jersey corporation, located in Camden, which processes and resells stainless steel. Defendant Baosteel is the American division of a company owned by the Chinese government. Beginning in 2005, the parties began a business relationship, in which plaintiff placed orders with defendant for the purchase of stainless steel products. These orders were originated when plaintiff generated purchase orders, which specified the quantity of stainless steel ordered, purchase price, packaging and shipping details, and place and time of delivery. Plaintiff forwarded six such purchase orders to defendant between January and May 2008. Among the "Conditions of Supply" in those six purchase orders is paragraph eleven, which provided that
[t]his Purchase Order and the acceptance thereof shall be a contract made in New Jersey and governed by the laws thereof, and it shall supersede any provisions, terms and conditions contained in any confirmation or other writing [defendant] Seller has given or may hereafter give. The Order may be modified only by [plaintiff] Buyer's written change order. (emphasis added).
Upon receipt of each of plaintiff's six purchase orders, defendant faxed to plaintiff a confirming document entitled "Sales Contract." In addition to containing a description of the material, specifications, quantity, price, and place and time of delivery, the "contracts" contained an arbitration provision. The arbitration provision required that
[a]ll disputes in connection with this Contract or the execution thereof shall be settled amicably by negotiation. In case no settlement can be reached, the case under dispute may then be submitted to American Arbitration Association. The arbitration of the said Commission [sic] and the award made by the Commission [sic] shall be accepted as final [and] binding upon both parties for settling the disputes. The fees for arbitration shall be borne by the losing party unless otherwise agreed upon.
Seth Young, the president of Jermax, signed each of the six "contracts" forwarded by defendant without expressing any objection to the arbitration provision, without crossing it out, and without signifying, in any other manner, that he did not intend to be bound by the arbitration provision.
Because of fluctuations in the trading price of nickel, an alloy used in the manufacturing of stainless steel, a disagreement arose between the parties over the unit price defendant intended to charge plaintiff. Another dispute centered on plaintiff's claim that there were manufacturing defects in the stainless steel defendant had provided. On June 7, 2008, after the contracts had already been signed, and after the dispute arose, Young sent an email to one of defendant's principals, stating that "[m]y purchase order and its conditions are what govern the Supply Contract, not the other way around. Your Sales Contract comes as a result of our orders and those governing conditions of supply."
On December 23, 2008, plaintiff filed an eleven-count complaint, which, in addition to alleging that defendant had breached the pricing and quality provisions of the purchase orders, also alleged that defendant had breached a January 2006 "exclusivity agreement" that had given plaintiff the exclusive right to market products manufactured by defendant.
Instead of filing an answer, defendant responded by moving for the dismissal of plaintiff's complaint and for an order compelling arbitration. In opposition to defendant's motion, Young certified that "in light of paragraph eleven of the purchase orders, which specify that the purchase orders would supersede any provisions, terms and conditions contained in any confirmation or other writing [defendant] has given or may hereafter give," he believed the arbitration provision in defendant's contracts was null and void.
Young also asserted in his certification that he never agreed to the arbitration provision of the "Sales Contract," had engaged in no discussion concerning the arbitration provision, and had issued no change orders authorizing arbitration. Young maintained the only reason he signed the "contracts" was because the documents accurately stated the core provisions of his company's purchase of stainless steel from defendant and he wished to move the process along.
On April 3, 2009, following oral argument, the judge issued an order denying defendant's motion to compel arbitration. The judge reasoned that "while [plaintiff's] original purchase order limited acceptance by [defendant] to the terms [contained in plaintiff's purchase order],... defendant's faxed confirmation to [plaintiff] creat[ed] a contract pursuant to U.C.C. 2-207." The judge ordered defendant to proceed with the litigation and file an answer to plaintiff's complaint on or before May 1, 2009. Defendant's motion for reconsideration was denied on May 1, 2009. We granted defendant's motion for leave to appeal and stayed the April 3 and May 1, 2009 orders.
Our review of the "trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Thus, our review is de novo.
On appeal, defendant asserts that the trial judge's conclusion that defendant was not entitled to enforcement of the arbitration clause was reversible error, in light of the unambiguous language of the parties' executed Sales Contracts. In particular, defendant maintains that the Sales Contracts that are at the heart of the parties' dispute are signed by Seth Young, the president of Jermax. Moreover, Young affixed his signature to the page on each of the six contracts that contained the arbitration provision. Defendant also contends that the Law Division's reliance on the "battle of the forms" provisions of N.J.S.A. 12A:2-207*fn1 was misplaced. Last, defendant maintains that to the extent the judge accepted evidence of Young's subjective intent, such reliance was improper because applicable principles of contract law limit the contract's terms to its explicit terms without consideration of either party's subjective intent.
Plaintiff, in turn, asserts that where each party to a contract proposes terms, some of which are identical to those proposed by the other party and some of which are not, only the terms that are congruent will form the contract, with the terms proposed by only one side or the other becoming void and of no legal effect. Plaintiff also contends that when the contract terms are unclear, resort to parol evidence is permissible and an extrinsic document, such as his own email stating that he did not consider himself bound by defendant's arbitration provision, should be given effect. As we have already discussed, Young's email was forwarded after the contracts were signed by both parties and after the dispute arose.
We begin our analysis with one of the bedrock principles of contract law. "Because the offeree's action naturally indicates assent,... where an offeree signs a document [he] is generally held to be bound by the document's terms." Williston on Contracts § 6:44 (4th ed. 2007). Thus, absent fraud, duress, mutual mistake or unconscionability, none of which are alleged by Jermax, a signed contract will bind both parties. Ibid. Thus, Young's signature on behalf of Jermax, would generally be deemed an acceptance of the contract's terms.
Moreover, "when the terms of a contract are clear and unambiguous, there is no room for construction and the court must enforce those terms as written." Watson v. City of E. Orange, 175 N.J. 442, 447 (2003). A court will determine "a written agreement's validity by considering the intentions of the parties as reflected in the four corners of the written instrument." Leodori v. Cigna Corp., 175 N.J. 293, 302 (2003). When interpreting a contract, including a contractual agreement to arbitrate, "[i]t is not the real [or subjective] intent, but the intent expressed or apparent in the writing that controls." Id. at 300 (quoting Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 135 (2001)) (first alteration in original).
Thus, absent a finding that the arbitration provision was unclear or unenforceable, the signing of the contract by Young, on behalf of Jermax, obligated Jermax to be bound by the terms and conditions of those six contracts, including the arbitration provision. Nonetheless, despite Jermax's signature on each of the six contracts, freely given with full knowledge of the contract terms, the judge concluded that the arbitration provision was not enforceable. We turn to an analysis of the judge's reasoning.
The judge relied on U.C.C. section 2-207, codified at N.J.S.A. 12A:2-207, which applies in circumstances commonly known as a "battle of the forms." A "battle of the forms" occurs when the parties to a transaction exchange unsigned documents containing different contract provisions. The common law rule was that a binding contract could only come into existence when a party's acceptance was identical to the other party's offer. See Sun Coast Merch. Corp. v. Myron Corp., 393 N.J. Super. 55, 71 (App. Div. 2007), certif. denied, 194 N.J. 270 (2008).
However, with the adoption of U.C.C. section 2-207(1), the rules governing the formation of a contract for the sale of goods changed. In particular, U.C.C. section 2-207(1) provides that "[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[.]" The very next provision of the U.C.C., namely section 2-207(2), specifies that the "additional terms" must be viewed "as proposals for addition to the contract" that will "become part of the contract unless the offer," by its express terms, "limits acceptance to the terms of the offer." Thus, if the provisions of U.C.C. section 2-207(2) apply to this dispute, then Jermax's express statement -- that any non-conforming terms in Baosteel's acceptance would be null and void -- would result in the arbitration provision being excluded from the parties' contractual agreement. Therefore, the dispositive issue in this appeal is whether U.C.C. section 2-207 applies where, as here, the parties have entered into a signed contract.
To answer that question, both parties urge us to rely upon the decision of the United States District Court in Stemcor USA, Inc. v. Trident Steel Corp., 471 F. Supp. 2d 362, 364 (S.D.N.Y. 2006), in which that court was faced with a buyer's acknowledgment form, labeled a "sales contract," which included a provision requiring arbitration of all disputes. Like the situation here, the buyer's purchase order expressly provided that "[n]o terms or conditions, other than those stated herein, and no agreement or understanding in any way modifying the terms and conditions herein stated shall be binding upon purchaser, unless mutually agreed upon in writing." Ibid. Applying the New York statutory equivalent of U.C.C. section 2-207, the District Court concluded that the arbitration provision in the seller's acknowledgment forms, which were labeled as "sales contracts," did not become part of the contract because the buyer's purchase orders had expressly stated that any additional terms added by the seller were void, unless expressly accepted by the buyer. Id. at 369.
Thus, Jermax urges us to follow the reasoning and holding of Stemcor and thereby affirm the Law Division order that invalidated the arbitration provision. Baosteel, in contrast, argues that Stemcor has no bearing on the present matter because in Stemcor there was no signed contract, and consequently the motion judge's reliance on Stemcor was error.
Baosteel is correct that there was not a signed contract in Stemcor. The opinion contains no reference to a signed contract. Instead, the court's opinion merely specifies that in response to Trident's purchase orders, the seller, Stemcor, sent a "Sales Contract" and a "Sales Invoice," each containing an arbitration clause. Id. at 364. After the seller sent the acknowledgment form to the buyer, the seller delivered the requested steel casings. Ibid. There was no mention of a signed contract. Thus, in light of the absence of any reference to a signed contract, and in light of the court's description of the sequence of events, we conclude that Baosteel is correct that there was no signed contract in Stemcor. That being so, Stemcor is distinguishable, and, in fact, has absolutely no bearing on the issue before us.
We conclude that although U.C.C. section 2-207 generally prevents the enforcement of a contract provision that was inserted by one party in circumstances where the other party has expressly refused to be bound by any divergent terms proposed by the other party, that provision has no applicability where, as here, the parties have entered into a signed contract. Absent exceptions not relevant here, the provisions of a signed contract are enforceable. Watson, supra, 175 N.J. at 447. Thus, the Law Division's reliance on Stemcor was misplaced, as was its reliance on U.C.C. section 2-207. Jermax signed the contract sent by Baosteel, which contained a clear and unambiguous provision that required the submission of any disputes to arbitration. Baosteel is entitled to the enforcement of that provision.
Jermax's remaining argument concerned its president's subjective intent. In particular, Jermax argues that when Young signed the contract sent by Baosteel, he intended only to accept the core provisions of the parties' contractual undertaking, namely price, quantity, and time and place of delivery. Jermax maintains that even though Young signed the contract, and knew that it contained an arbitration provision, he did not consider himself bound by that provision. Jermax's claim that we should consider such extrinsic evidence in our resolution of the issue on appeal is unpersuasive. As we have already observed, when interpreting a contract, including a contractual agreement to arbitrate, a party's subjective intent is irrelevant because it is only the intent "expressed or apparent in the writing that controls." Leodori, supra, 175 N.J. at 300 (internal quotations omitted).
Reversed and remanded for the entry of an order directing the parties to arbitrate counts one through seven of plaintiff's complaint. The remaining counts are stayed pending the disposition of the arbitration of counts one through seven.*fn2