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Mid-South Packers Inc. v. Shoney’s Inc.
Fifth Cir 1985
Red is Shoney’s argument.
The facts, as viewed in the light most favorable to Shoney’s are as follows.
In the spring of 1982, Midsouth and Shoney’s engaged in negotiations for the sale of various pork products.
At the meeting of April 17 Midsouth submitted a letter styled “Proposal’ that set forth prices and terms. The letter also provided provision that price could be changed only after forty-five days prior notice. There’s no quantity nor duration. Shoney’s expressed neither assent to nor rejection of the prices but estimated its needs of meat per week. The legal effect of the letter is the main issue of the case.
Businesspeople take very seriously the distinction between business documents that do not impose a commitment on the buyer to purchase goods, and business documents that require the buyer to purchase its requirements exclusively from the seller.
In this case, the businesspeople involved in the transaction understood this distinction.
ARTICLE: A NEW APPROACH TO THE IDENTIFICATION AND ENFORCEMENT OF OPEN QUANTITY CONTRACTS: REFORMING THE LAW OF EXCLUSIVITY AND GOOD FAITH, 43 Val. U.L. Rev. 871
Spring, 2009
Shoney’s began to purchasing goods.
August 12, when about four months later from the spring meeting Midsouth raised bacon price. Shoney did not accept the price raise apparently based on the 45days notice provision in the letter proposal at the spring meeting.
On the first Shoney’s order, Shoney’s representative Harmon requested shipment at the old lower price. Midsouth representative Ates told Harmon that they would only deliver at the new higher price.
From August 18 to October 5 numerous orders was made by the increased price but Showney’s off set allegedly overcharged amount from the final order.
Midsouth then brough this action to recover the amount offset plus interest and reasonable collection cost, including attorney’s fees as provided in the next day invoices following the shipment.
II
Shoney’s contends that they accepted Midsouth’s offer or letter proposal to supply meat to Shoney’s thereby forming a binding requirement contract between the two. Accordingly, Shoney’s argues that the 45days notice provision contractually bound.
On the other hand, Midsouth asserts that the proposal was at most a firm offer under Miss. Code §75-2-205 which is irrevocable but within three month, the offer must had expired when they increased the price when almost 4month had passed.
Section 75-2-205 provides, in part:
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three (3) months.
Requirement contracts are recognized in Mississippi.
The essential element of a requirements contract is the promise of buyer to purchase exclusively from seller either entire requirements or up to a specified amount. Absent such a commitment, the requirements contract fails for want of consideration.
According to Professor Blair, "nonexclusive open-quantity agreements are capable of being validated so long as there is sufficient evidence to persuade a factfinder that the parties actually bargained for such a contract." He emphasizes that for validation, nonexclusive open-quantity agreements must be "the product of true bargaining between the parties[,]" and that there must be sufficient evidence that the contract was actually bargained for, indicating that the factfinder must conduct a fact-intensive examination of parol evidence to determine whether negotiations took place over the contract terms and whether each party received something in exchange for the concessions given. Viewed this way, the concept of "bargained for" exchanges appears to be little more than the mutuality doctrine in disguise. It would be difficult to imagine a requirements contract surviving this "bargained for" test if the seller did not seek, in exchange for his promise to sell the buyer its requirements, a reciprocal promise from the buyer to purchase its requirements from the seller.
ARTICLE: A NEW APPROACH TO THE IDENTIFICATION AND ENFORCEMENT OF OPEN QUANTITY CONTRACTS: REFORMING THE LAW OF EXCLUSIVITY AND GOOD FAITH, 43 Val. U.L. Rev. 871
Spring, 2009
Harmon, Shoney’s agent maintained that Shoney’s at all times had the right to purchase goods from other suppliers, that Shoney’s continued to purchase from Midsouth because it was satisfied with its service and quality. Midsouth agrees that. Thus by Shoney’s own admission, no requirement contract could have made form April 17 letter proposal.
Majority’s view
Each purchase order stood on its own as a contract.
The letter proposal from the Midsouth was an offer in the sense that it was a promise to sell at the listed prices. Each time Shoney’s manifested its assent by purchase order or telephone calls; thus, bargain was made independently.
Accordingly, Midsouth offer was properly revoked by after three months after April 17th and replaced by the offer of a seven-cent price increase at the August 12.
At the first order after price raise Ates informed Harmon “Midsouth would not sell the meat at old low price”. Thereafter, Shoney’s created separate contracts and being obligated to pay the new price.
Shoney’s told Midsouth the old price on the purchase order had no contractual significance since that was only “a tracking procedure” used by Shoney’s internally.
In addition, Harmon admitted that Shoney’s ordered at new price with the intention of causing Midsouth to believe that Shoney’s had accepted the new price at that the shipment would continue. Shoney’s secret intent to later deduction could non bind Midsouth.
Only manifested assent is binding.
Agreement of the parties must be manifested either in language or conduct in the circumstances.
The only manifestation Shoney’s made was assent to Midsouth’s new offer.
No rational theory of the law of contracts could permit Shoney’s to induce Midsouth to sell the product by manifest acceptance to the offer made by Midsouth, and then revoke that acceptance and demand compliance with the terms of prior, withdrawn offer.
Hence the entire $26,208 offset is owing Midsouth.
III
Interest and attorney’s fees provision in Midsouth’s invoice
The terms provide for the payment of both interest of fifteen percent per annum as well as the reasonable costs of collection and attorney’s fees for delinquent accounts.
Shoney’s contends that these terms contained invoices sent one day after the shipment never became part of the contracts.
Miss.Code Ann. §75-2-207
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional an assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract between merchants such terms become part of the contract unless;
(a) The offer expressly limits acceptance to the terms of the offer;
(b) They materially alter it;
(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
The Midsouth invoices were not “expressions of acceptance.”
The first issue is therefore whether the invoice constituted “written confirmation”.
§75-2-207 applies to the situation in which an agreement has been previously reached either orally or by informal writings, and written confirmation was sent with added terms not discussed.
The written confirmation is recognized primarily as a writing required by SOF when the writing does not purport to contain the entire agreement.
This appears to be the primary bases for permitting a written confirmation as an acceptance under §2-207(1)
Here, Midsouth price raise offer was orally made. Thus, the contract, concluded by Shoney’s purchase order, was initially unenforceable because not evidenced by a writing. Midsouth’s invoice rendered the contract enforceable under the statute of frauds. By the same token, the extensive course of dealing clearly indicate that the interest and collection costs terms came as no surprise to Shoney’s
Moreover, Shoney’s purchase orders did not purport to contain all of the terms and the Midsouth’s invoice, following next day, added a certainty of the terms.
Finally, Shoney’s has the right to prevent the proposed terms from becoming part of the contract. Miss. Code Ann §75-2-207
Courts have expressed some doubt whether a writing sent subsequent to the closing of the bargain may operate as an acceptance under §2-207(1)
Cosden Oil & Chem. Co. v. Karl O. Helm Ag., (5th Cir. 1984)
(Monthly statement not written confirmation of contract concluded by seller's execution of purchase confirmation supplied by buyer);
Wheaton Glass Co. v. Pharmex Inc., (D.N.J.1982)
(seller's invoice sent after acceptance by conduct of seller and § 2-207(3), not "part of contract"; § 2-207(1) not in issue)
Trust Co. Bank v. Barrett Distribution, Inc., (S.D.Ind.1978)
(dictum: "There is a question whether an invoice is a 'written confirmation.'");
Preston Farm & Ranch Supply v. Bio-Zyme Enterprises, 625 S.W.2d 295, 299-300 (Tex.1981)
(end-of-month statement not "written confirmation").
Under the circumstances Midsouth’s invoices constituted “written confirmations”
Because Shoney’s does not contend that any of the exceptions of the §75-2-207(2) the terms added by the invoice became part of the contract and Shoney’s is obligated to pay interest and reasonable collection costs including attorney’s fees.
Brown Mach v. Hercules
Ct of app of Mo 1989
Brown Machine sold Hercules T-100 trim press, the machine manufacturing Cool Whip Bowls.
In Octo 1975 Hercules asked BM sales manager, Ryan, to send a quote for a trim press.
On Nov 7, 1975, BM submitted original proposal #51053 for the trim press.
(This proposal contained the indemnification provision)
On Jan 7, 1956, H telephoned BM’s Ryan. Ryan’s report reflected that H had prepared purchase order #03361 in response to original proposal #51054 but H objected 20% deposit.
Ryan told H “We could not waive the deposit.”
BM’s product manager Mr. Fassett issued work order.
On Jan 19. BM received written PO #03361 (which was made Jan6) which is read that “Except item 6.1.1 revers trim instead of standard regular...”
In blue box in the bottom “This order expressly limits Acceptance...”
“Delivering is constitute acceptance.”
No indemnification in this written PO. But BM didn’t sign it.
On Jan 20. Fassett issued second machine order to the shop according to the written PO.
On Jan 21. BM sent invoice requiring 20% deposit.
On Feb 5. BM’s Fassett sent order acknowledgement which said
“If specification are not in accordance with your understanding please advise us within 7days of receipt of this acknowledgement”
The acknowledgement was almost same as original proposal which has indemnification provision.
On Feb 9. H responded.
“Item 6.1.1 should be read Reverse trim instead of standard regular trim. All other specifications are correct.”
On Feb 16.
Fassett confirmed the change and informed shop of the modification.
H never paid 20% deposit
On April 14. BM sent H an invoice requesting final payment. BM eventually shipped the machine and H paid the price.
Sometime later James Miller, an employee of H suit BM for his injury sustained while he operating the machine.
BM demanded that H defend the Miller’s lawsuit, but H refused.
BM eventually settled the lawsuit and initiated this action to recover the settlement amount.
BM contended its initial proposal in 1975 constitutes an offer and the H’s verbally accepted by telephone on Jan 7 (written PO was made on Jan 6, it was received on Jan 19)
Article two of the UCC governs transactions involving the sale of goods. Because the term “offer” is not defined in the code, the common law remains relevant.
An offer is made when the offer leads the offeree to reasonably believe that an offer has been made.
Restatement (Second) of Contracts §24 defines “offer” as “the manifestation of willingness to enter into a bargain...”
The general rule is that a price quotation is not an offer, but rather is an invitation to enter into a negotiation.
However, price quotes, if detailed enough, can amount to an offer creating the power of acceptance...
In this case H could not have reasonably believed that BM quotation was intended to be an offer, but rather an offer to enter into negotiations. The cover letter mentioned that BM’s sales representative would contact Hercules to discuss this quote. The sale price also included the mechanical ejector which could be removed with deduced price with H’s approval.
Most importantly, the quote expressly provided “No order, sale, ... shall be binding upon Brown unless accepted by Brown... on Brown standard ‘Order Acknowledgement form.’
Thus, because the quotation reasonably appeared to be an offer to enter into negotiations for the sale, especially for the mechanical ejector, with acceptance only by Brown’s order acknowledgement form, no firm offer existed.
Even if we were to accept that the quotation is an offer, by its own terms, it expired thirty days after its issuance. H’s written purchase order was dated January 6, 1976, and the telephone conversation was dated January 7, 1976, both were well beyond the expiration of the price quote, Nov 7, 1975.
As a general rule, orders are considered as offers to purchase.
Then the second issue arises whether BM’s acknowledgement containing the indemnity provision constitutes a counteroffer or an acceptance of H’s offer with additional terms, i.e., the indemnity provision.
§ 400. 2-207, RSMo, which mirrors §2-207 of USC provides the workable rule in situation that independently drafted documents exchanged between the parties.
§ 400.2-207 provides as follows:
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract Between merchants such terms become part of the contract unless:
(a) The offer expressly limits acceptance to the terms of the offer;
(b) They materially alter it; or
(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such cases the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this act.
Under subsection (1) an offeree's response to an offer operates as a valid acceptance of the offer even though it contains terms additional to, or different from, the terms of the offer unless the "acceptance is expressly made conditional" on the offeror's assent to the additional or different terms. Where the offeree's acceptance is made "expressly conditional" on the offeror's assent, the response operates not as an acceptance but as a counteroffer ...
Restatement (Second) of Contract §59 (1981) expresses it succinctly: “An offeree’s reply which purports to accept an offer but makes acceptance conditional on the offeror’s assent to terms not contained in the original offer is effective as a counteroffer rather than acceptance.”
The General view is that, to convert an acceptance to a counter offer under UCC §2-207(1), the conditional nature of the acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract.
The conditional assent provision has been construed narrowly to apply only to an acceptance which clearly shows that the offeree is unwilling to proceed absent to the additional or different terms.
We find nothing in BM’s acknowledgement of Feb 5, 1976, which reflects its unwillingness to proceed unless it obtained H’s assent to the additional terms, i.e., the indemnity provision.
- Acceptance will be considered a counteroffer only if acceptance is expressly made conditional on assent to the additional terms.
- BM’s acknowledgement did not operate as a counteroffer within the scope of § 2-207(1).
Then, does BM’s acknowledgement operates as acceptance?
Under §2-207(2) additional terms become a part of the contract between merchants unless
(a) The offer expressly limits acceptance to the terms of the offer.
(b) They materially alter it.
(c) Notification of objection to them had already been given or is given within a reasonable time after notice of them is given.
Hercules’ purchase order here expressly limited acceptance to the terms of its offer. Given such an express limitation, the indemnification provision failed to become part of the contract.
Fair construction is that H intended the indemnity provision to become a part only if Hercules expressly assented to the additional terms.
While the §2-207 does not incorporate such a provision, Official comment of the provision states: “Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2).
If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party.”
The indemnification provision was clearly a material alteration to the parties’ agreement.
The evidence does not establish that H expressly assented to the BM’s additional terms. BM’s order acknowledgement of Feb 5, 1976, indicated that “if these specifications and terms and conditions of Sale are not in accordance with your understanding, please ADVISE US WITHIN SEVEN DAY...”
Hercules replied four days later advising BM that Provision 6.1.1 should be reverse trim instead of standard regular forward trim, followed by “all other specifications are correct.” The use of term “specifications” is unambiguous, only refers to the machine’s manufacturing.
Nothing in its response can be construed as express assent to Brown Machine’s additional “terms and conditions of sale” or the indemnification provision.
Express assent under §2-207(2) cannot be presumed by silence or mere failure to object.