## Facts

- Malden Mills Industries, Inc. manufactured textiles and purchased nylon tow from Bayer Corporation for use in making flocked fabric.
- Malden Mills initiated purchases by sending standard purchase orders (sometimes after a telephone order), and Bayer shipped nylon tow and billed using standard invoices.
- Malden Mills’ purchase orders contained (1) an arbitration clause requiring arbitration in New York City or Boston under specified arbitration rules and (2) an integration clause stating the purchase order was the entire agreement notwithstanding the seller’s forms.
- Bayer’s invoices did not include an arbitration term but stated that acceptance was expressly conditioned on Malden Mills’ assent to any additional or different terms in the invoice.
- The parties completed the transactions through shipment and acceptance of the goods despite the inconsistent boilerplate terms.
- On December 11, 1995, an explosion and fire destroyed several buildings at Malden Mills’ manufacturing facility.
- Malden Mills and its property insurers sued Bayer in Massachusetts Superior Court for negligence and breach of implied warranties, alleging the fire was caused by ignition of nylon tow due to static electrical discharge.
- Bayer moved to compel arbitration and stay the litigation based on the arbitration clause in Malden Mills’ purchase orders; the Superior Court denied the motion.

## Issues

1. Under Mass. Gen. Laws ch. 106, § 2-207, whether the parties’ exchange of forms and subsequent performance created a contract whose terms included the arbitration clause contained only in Malden Mills’ purchase orders.
2. Whether the plaintiffs were estopped from refusing arbitration based on their use of purchase orders containing an arbitration clause and their course of dealing.

## Decision

- The Supreme Judicial Court of Massachusetts affirmed the order denying Bayer’s motion to compel arbitration and to stay litigation.
- The court held the parties’ writings did not establish a contract with agreed terms; a contract instead arose by conduct under § 2-207(3).
- Because the parties’ forms did not agree on arbitration, the arbitration clause was excluded from the contract formed by conduct.
- The court rejected Bayer’s estoppel argument because Bayer did not show Malden Mills intended to be bound to arbitrate absent a final written agreement incorporating that term.

## Legal Principles

- Under UCC § 2-207(3), when parties’ writings do not form a contract but their conduct recognizes one, the contract consists of terms on which the writings agree plus any statutory gap-fillers.
- In a contract formed by conduct under § 2-207(3), terms appearing in only one party’s form and not agreed to by the other are excluded rather than enforced.
- An arbitration clause contained only in one party’s boilerplate is not enforceable when the contract is formed by conduct and there is no mutual assent to arbitrate.
- Estoppel does not compel arbitration absent evidence that the resisting party intended to be bound to arbitrate notwithstanding the lack of an agreed written contract term.

## Conclusion

The court held that the parties’ performance created a sales contract under UCC § 2-207(3), but the arbitration clause appearing only in the buyer’s purchase orders was not part of the contract, and Bayer could not use estoppel to compel arbitration without proof of mutual intent to arbitrate.


Commerce & Indus. Ins. Co. v. Bayer Corp., 433 Mass. 388, 742 N.E.2d 567 (2001)