## Facts

- Bayway Refining Company (seller) and Oxygenated Marketing and Trading A.G. (buyer) were merchants dealing in petroleum products.
- The parties agreed on a sale of 60,000 barrels of MTBE, a gasoline blendstock.
- OMT faxed a February 12, 1998 confirmation that operated as the offer and stated it constituted the entire contract unless discrepancies were raised within two working days.
- Bayway faxed a February 13, 1998 confirmation treated as an acceptance; it incorporated by reference Bayway’s General Terms and Conditions.
- Bayway’s General Terms contained a Tax Clause requiring the buyer to reimburse the seller for any federal excise tax incurred on the transaction.
- OMT did not object to Bayway’s confirmation or the incorporated terms within the period specified in OMT’s offer.
- Because OMT was not registered for an excise-tax exemption, Bayway paid federal excise tax of about $464,000 on the sale and invoiced OMT for reimbursement under the Tax Clause.
- OMT refused to pay, asserting the Tax Clause materially altered the contract.
- Bayway presented evidence that tax-allocation clauses were customary in petroleum transactions; OMT offered evidence of its executives’ asserted surprise.

## Issues

1. Under N.Y. U.C.C. § 2-207(2)(b), did Bayway’s Tax Clause in its acceptance constitute a material alteration (and thus not become part of the contract) or an additional term that became part of the contract between merchants?
2. Which party bears the burden of proving that an additional term is a material alteration under § 2-207(2)(b)?
3. Could the district court consider industry custom evidence submitted with the moving party’s summary-judgment reply papers?

## Decision

- The Second Circuit affirmed summary judgment for Bayway.
- The court held that the party opposing inclusion of an additional term under § 2-207(2)(b) bears the burden to prove material alteration.
- The court held the Tax Clause did not materially alter the contract because it did not cause objective surprise or hardship in light of petroleum-industry custom and the buyer’s ability to obtain an exemption.
- The court held the district court properly considered evidence of industry custom and practice even though it was first proffered in reply papers.
- OMT was obligated to reimburse Bayway for the excise tax Bayway paid on the transaction.

## Legal Principles

- Between merchants, additional terms in a definite and seasonable acceptance become part of the contract unless the opposing party proves the term materially alters the agreement under U.C.C. § 2-207(2)(b).
- A term materially alters a contract if it would cause surprise or hardship if incorporated without the other party’s express awareness; the analysis turns on objective surprise.
- Evidence of trade usage and industry custom is relevant to whether an additional term is objectively expected and therefore not a material alteration.
- A clause allocating statutory excise tax to a non-exempt buyer in a market where such allocation is common is not a material alteration absent proof of objective surprise or unbargained-for hardship.

## Conclusion

The court enforced the seller’s tax-allocation clause under U.C.C. § 2-207, placing the burden on the buyer to prove material alteration and concluding that industry custom and foreseeable statutory tax consequences defeated any claim of surprise or hardship.


Bayway Refin. Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219 (2d Cir. 2000)