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

United States Court of Appeals for the Fifth Circuit · Contracts

ContractsUCCRequirements contractsFirm offersBattle of the formsrequirements contractexclusive dealingconsideration

Facts

In April 1982, Mid-South gave Shoney's a written proposal listing prices and terms for meat sales, including a provision that Shoney's would be informed forty-five days before any price adjustment, but the proposal contained no quantity or durational terms. Shoney's later began buying meat by telephone orders and written purchase orders, while Mid-South sent invoices after shipment adding terms for 15% annual interest on delinquent accounts and reasonable collection costs including attorney's fees. On August 12, Mid-South raised the bacon price by $0.07 per pound after negotiations, and Shoney's thereafter ordered and paid for multiple shipments at the new price, though it internally tracked the old price as well. On the final order, Shoney's offset $26,208 for alleged overcharges based on its view that the forty-five day notice provision still governed.

Issue

Did the April 17 proposal create a binding requirements contract that prevented Mid-South from raising prices without forty-five days' notice, or was each later purchase order a separate contract at Mid-South's then-current price? Also, did the interest and attorney's fee terms contained in Mid-South's invoices become part of the contracts under UCC § 2-207?

Rule

A requirements contract requires the buyer's promise to purchase exclusively from the seller its entire requirements or up to a specified amount; absent that commitment, no requirements contract arises for want of consideration. A merchant's signed firm offer that assures it will be held open is irrevocable without consideration only for the stated time, but never more than three months under UCC § 2-205. When a seller's proposal invites assent by order, each purchase order or telephone order may create a separate contract at the seller's current offered price. Between merchants, a writing sent within a reasonable time as a written confirmation under UCC § 2-207(1) may add terms that become part of the contract unless the offer limits acceptance, the terms materially alter the contract, or timely objection is given under § 2-207(2).

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In Dallas, Prairie Crest Foods sent Bayline Cafes a signed pricing sheet for poultry, stating prices and promising 30 days' notice before any increase. Bayline estimated it would likely need 20,000 pounds per month but never promised to buy only from Prairie Crest and continued sourcing from other vendors.

If Prairie Crest later raises its prices four months later, which is the best argument that Bayline cannot enforce the earlier price sheet as a requirements contract?

Explanation. A requirements contract requires the buyer's commitment to purchase exclusively from the seller its requirements or up to a specified amount. A mere estimate of anticipated needs is not enough if the buyer remains free to buy elsewhere. Under the majority's reasoning, lack of exclusivity means no binding long-term requirements contract arose. (Derived from Mid-South Packers, Inc. v. Shoney's, Inc. (n.d.).)