You’re spending your day off on Luna Pier beach in Monroe County, Michigan. You’ll swim in the morning, get lunch at Gander’s Family Restaurant, and rent jet skis in the afternoon. That morning, however, you wake up and decide that you will do the exact same activities at North Avenue Beach in Chicago, Illinois instead. Have your plans been materially altered?
According to the Court of Appeals, the answer is “yes.”
In a case of first impression, the Michigan Court of Appeals overturned a circuit court ruling enforcing a forum-selection clause by determining that the clause was not properly incorporated into the parties’ agreement. The ruling (Superior Roll, LLC v Machinery Marketing International, LLC) has broad implications for businesses in Michigan that engage in transactions governed by the uniform commercial code (UCC).
The Monroe County Circuit Court granted a defendant’s motion for summary disposition in Superior Roll, LLC v Machinery Marketing International, LLC, based on the application of a forum selection clause contained in the invoice for the sale of a piece of machinery to the plaintiff.
The plaintiff (a Michigan LLC) sued the defendant (an Illinois LLC) in Monroe County Circuit Court, claiming that the piece of machinery sold by the defendant to the plaintiff was defective, and that the defendant breached its warranty obligations (among other things) resulting in damages to the plaintiff exceeding $25,000. The defendant moved for summary disposition based on a forum selection clause included in the invoice sent to the plaintiff, which the plaintiff paid.
The parties negotiated for the sale of the machinery by and through e-mail and telephone. The final e-mail from the defendant to the plaintiff prior to the sale read:
As part of my inventory and at the $80,000 price, I am willing to accept a 30-day return/repair warranty on all mechanical and electrical parts of the machine…
***
Please let me know if you are interested or if you have any questions for me.
The plaintiff thereafter agreed to purchase the machine. Notably, there was no discussion between the parties about the proper forum for dispute resolution. Less than a month later, the defendant provided the plaintiff with an invoice containing a forum selection clause requiring disputes to be resolved in Illinois.
In granting the defendant’s motion for summary disposition and enforcing the forum selection clause in the invoice, the circuit court explained that the invoice contained both warranty conditions (which were included in the final e-mail from the defendant to the plaintiff) and the forum selection clause (which appeared for the first time in the invoice), the court would enforce the forum selection clause.
The Court of Appeals analyzed whether the forum selection clause in the invoice was deemed part of the agreement between the parties under the UCC. First, it acknowledged that the Michigan Revised Judicature Act (RJA) contains a provision requiring courts to enforce forum selection clauses as a general matter and providing for five exceptions to that general rule. MCL § 600.475(3). The court went on to explain, however, that an analysis of the forum selection clause under the RJA is unnecessary where the clause fails to become part of the parties’ agreement under the uniform commercial code (UCC).
Thus, the court turned to UCC 2-207 (MCL § 440.2207) to determine whether the forum selection clause contained on the invoice became part of the parties’ agreement. Under UCC 2-207, additional terms included in a writing between merchants relating to the sale of goods become part of the parties’ agreement unless:
- the offer expressly limits acceptance thereof to the terms of the offer;
- the additional term(s) materially alter the agreement; or
- notification of objection to the added terms(s) has been given or is given within a reasonable time after notice of the same is received.
MCL § 440.2207(2)(a)-(c). The Court of Appeals found that the parties reached an agreement for the purchase and sale of the machine either orally by phone or through informal e-mail communications or both. It also found that the parties did not address the issue of forum selection until the defendant included it in the invoice. It found, therefore, that this is exactly the type of scenario that UCC 2-207 was intended to address.
The Court of Appeals then turned its analysis to subsection (b) of UCC 2-207. It noted that no Michigan court has previously addressed the issue of whether the addition of a forum selection clause constitutes a material alteration of an agreement. It then turned to a federal district court opinion from the Eastern District of Michigan, which explained that “if faced with the issue, the Michigan Supreme Court would rule that unilateral addition of a forum selection clause to a contract . . . is a material alteration of the contract.” Metropolitan Alloys Corp v State Metal Industries, Inc, 416 F Supp 2d 561, 567 (E D Mich, 2006). Accordingly, the Court of Appeals concluded that the addition by the defendant of the forum selection clause in the invoice materially altered the agreement between the plaintiff and the defendant, and therefore did not become a part of the agreement and could not be enforced against the plaintiff.
Businesses in Michigan that engage in transactions governed by the UCC should therefore be cautious to include a forum selection clause (and any other material term) in the original agreement between parties. Such businesses must avoid the practice of including such a clause (or any other material term of an agreement) in an invoice or other subsequent communication to the party with which it is doing business.
