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Mid-South Packers, Inc. v. Shoney's, Inc.

United States Court of Appeals, Fifth Circuit
761 F.2d 1117 (1985)
ELI5:

Rule of Law:

For a requirements contract to be binding, the buyer must promise to purchase exclusively from the seller. Additionally, under UCC § 2-207, additional terms in a written confirmation, such as an invoice, become part of a contract between merchants unless they are objected to or materially alter the agreement.


Facts:

  • In April 1982, Mid-South Packers, Inc. (Mid-South) submitted a written 'Proposal' to Shoney's, Inc. (Shoney's) for the sale of pork products, which included a provision for a 45-day notice before any price adjustment.
  • The proposal did not specify a duration or quantity, nor did it require Shoney's to purchase exclusively from Mid-South.
  • Shoney's began purchasing pork from Mid-South in July 1982 by initiating individual purchase orders.
  • On August 12, 1982, Mid-South informed Shoney's that due to a computation error, the price of bacon would be increased immediately.
  • Shoney's objected to the price increase, citing the 45-day notice clause, but when Mid-South refused to ship at the old price, a Shoney's representative told Mid-South's representative to ship the order and note the new, higher price.
  • From August to October 1982, Shoney's continued to order bacon, and Mid-South shipped and invoiced at the new price, with Shoney's paying the new price for every order.
  • After each shipment, Mid-South sent an invoice containing additional terms for interest on late payments and collection costs.
  • On its final order, Shoney's deducted $26,208 from its payment, claiming this amount represented the total overcharge from the price increase that it argued violated the 45-day notice provision.

Procedural Posture:

  • Mid-South Packers, Inc. filed a diversity action against Shoney's, Inc. in the U.S. District Court to recover the amount Shoney's had offset from its payment.
  • Both parties filed cross-motions for summary judgment in the district court.
  • The district court entered summary judgment in favor of the plaintiff, Mid-South Packers, Inc.
  • The defendant, Shoney's Inc., appealed the district court's judgment to the United States Court of Appeals for the Fifth Circuit.

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Issue:

Does a price proposal that does not obligate the buyer to purchase exclusively from the seller create a binding requirements contract that prevents the seller from changing prices without providing the notice specified in the proposal?


Opinions:

Majority - Per Curiam

No. A proposal that lacks the buyer's promise of exclusivity does not create a binding requirements contract. An essential element of a requirements contract is the promise of the buyer to purchase exclusively from the seller, which provides the necessary consideration. Shoney's admitted it was free to buy from other suppliers, so no requirements contract was formed. The April proposal was, at most, a 'firm offer' under UCC § 2-205, irrevocable for a maximum of three months. After that period expired in July 1982, Mid-South was free to revoke the offer and propose new prices. Each purchase order placed by Shoney's and filled by Mid-South constituted a new, separate contract. When Shoney's directed Mid-South to ship goods at the new price, it accepted Mid-South's new offer, and its subsequent payments at that price confirmed this acceptance. Furthermore, the additional terms for interest and fees on Mid-South's invoices became part of the contracts under UCC § 2-207, as the invoices served as written confirmations between merchants and Shoney's never objected to the terms.



Analysis:

This case provides a clear application of the UCC's requirements for forming a requirements contract, underscoring that a buyer's promise of exclusivity is the crucial element of consideration. It solidifies the principle that a price quote lacking this commitment is merely a firm offer with a limited duration of irrevocability. The decision also affirms that under UCC § 2-207, an invoice sent after an agreement is made can function as a 'written confirmation' that adds non-material terms to the contract between merchants if the other party fails to object, thus clarifying the 'battle of the forms' doctrine in a post-agreement context.

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