Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories
724 F.Supp. 605 (1989)
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Rule of Law:
Under U.C.C. § 2-206(1)(b), a seller's shipment of non-conforming goods does not constitute an acceptance of a buyer's offer if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation. Such a shipment constitutes a counteroffer.
Facts:
- Lederle Laboratories, a pharmaceutical manufacturer, regularly sold DTP vaccine to Corinthian Pharmaceutical Systems, Inc., a distributor.
- A previous 1984 settlement agreement between the parties stipulated that future orders by Corinthian would be subject to Lederle's terms and conditions of sale in effect at the time of the order.
- Lederle's standard price lists and invoices stated that prices were subject to change without notice and all orders were subject to acceptance by Lederle.
- In early 1986, Lederle decided to increase the price of its DTP vaccine from approximately $64 per vial to $171 per vial, effective May 20, 1986.
- On May 19, 1986, having learned of the impending price increase, Corinthian used Lederle's automated telephone ordering system to place an order for 1,000 vials at the old price.
- On June 3, 1986, Lederle shipped 50 vials to Corinthian at the old price of $64.32.
- Accompanying the shipment was a letter from Lederle stating that the partial shipment was an exception, the balance of the order would be priced at $171 per vial, and Corinthian could cancel the remainder of the order by June 13.
Procedural Posture:
- Corinthian Pharmaceutical Systems, Inc. filed a diversity action against Lederle Laboratories in the U.S. District Court for the Southern District of Indiana.
- Corinthian's amended complaint sought specific performance for 950 vials of DTP vaccine.
- Lederle Laboratories filed a motion for summary judgment, arguing no contract was formed.
- The case is before the District Court for a ruling on the defendant's motion for summary judgment.
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Issue:
Under U.C.C. § 2-206, does a seller's shipment of a small, non-conforming portion of goods ordered, accompanied by a notice explaining the shipment is an accommodation and the remainder will be priced differently, constitute an acceptance of the buyer's original offer?
Opinions:
Majority - McKinney, J.
No. A seller's shipment of non-conforming goods does not form a contract when the seller timely notifies the buyer that the shipment is merely an accommodation. Corinthian made the first offer when it placed its order, as Lederle's price lists were mere invitations to treat, not offers. Lederle did not accept this offer. Instead, it shipped non-conforming goods—50 vials instead of the 1,000 ordered. Under U.C.C. § 2-206(1)(b), this shipment of non-conforming goods would typically constitute acceptance, but it does not if the seller 'seasonably notifies the buyer that the shipment is offered only as an accommodation.' Lederle's accompanying letter, which explicitly stated the partial shipment was an exception and offered the remainder at the higher price, served as this required notification. Therefore, the shipment was not an acceptance but a counteroffer, which Corinthian was free to accept or reject.
Analysis:
This case provides a clear judicial interpretation of the U.C.C. § 2-206(1)(b) 'accommodation shipment' rule, which is a key exception to the general principle that performance constitutes acceptance. It establishes that a seller can effectively reject an offer for goods while still maintaining a business relationship by shipping a smaller quantity as a 'favor' or accommodation. This decision clarifies that such an action, when coupled with clear and contemporaneous communication, legally functions as a counteroffer, thereby protecting sellers from being bound to terms they find unacceptable, particularly in the face of sudden market changes or last-minute orders before a price increase.
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