Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories

Nature of the Case

Corinthian Pharmaceutical Systems (P) sought specific performance from Lederle Labs (D) requesting fulfillment of an alleged bargain and Lederle moved for summary judgment.

Facts

Lederle Laboratories is a manufacturer and distributor of drugs including DTP vaccine. Corinthian (P) is a distributor of drugs who buys from manufacturers and then resells the product to doctors and other providers. When Lederle filled Corinthian’s orders it sent an invoice which contained the specifications of the transaction and at the front along the bottom there was boiler plate that the transaction was governed by the seller’s standard terms and conditions of sale set forth on the back, notwithstanding any provisions submitted by the buyer. Acceptance of the order was expressly conditioned on buyer’s assent to seller’s terms and conditions.

Product liability lawsuits over DTP increased and insurance became difficult to procure. In 1986, Lederle decided to self-insure. To do this the company decided that a substantial increase in the price of the product was necessary. To that end, Lederle announced that effective May 20, 1986, the price of DTP would rise from $51.00 to $171.00 per vial. This notice was done by an internal pricing memo and Corinthian did not know of the existence of the letter until Lederle’s representative presented it to the company several weeks after May 20, 1986. Lederle wrote a customer letter on May 20, 1986 but Corinthian gained knowledge of that letter one day before.

In response to this impeding increase, Corinthian ordered 1,000 vials of DTP. This order was placed on Lederle’s telephone computer ordering system. Corinthian got a tracking number for the order and sent D two written confirmations and on each confirmation the plaintiff stated that its order was to get the $64.32 price per vial. On June 3, 1986, the defendant sent an invoice to Corinthian for 50 vials of DTP at $64.32 per vial.

Another letter was then sent regarding DTP and this letter stated that the enclosed was a partial shipment which was placed on May 19th and that the standard terms and conditions would be to invoice the order at the price when shipment was made but in light of the magnitude of the price increase, Lederle decided to make an exception and ship a portion of the order at the lower price. The letter then informed Corinthian that the balance of the order would be priced at $171.00 and that shipment would be made on June 16th. The letter also specified that cancellation of the order should be done on or before June 13th.

Corinthian sued Lederle for specific performance of the 950 vials that Lederle chose not to deliver. The defendant moved for summary judgment on the grounds that no contract for the sale of 1,000 vials had been formed, and that if a contract was formed, it was governed by its terms and conditions and it sent Corinthian the 50 vials as an accommodation.

Issue

May a seller be deemed not to have accepted the buyer’s original offer if the seller ships nonconforming goods and seasonably notifies the buyer that the shipment is offered as an accommodation to the buyer?

Holding and Rule of Law

Yes. A seller may ship nonconforming goods if the seller seasonably notifies the buyer that the shipment is offered as an accommodation and as such the seller will be deemed not to have accepted the buyer’s original offer.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment ‘shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.’ Further, Rule 56(e) provides: When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleadings, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

An offer is ‘the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.’ It is well settled that quotations are mere invitations to make an offer, particularly where, as here, the price lists specifically stated that prices were subject to change without notice and that all orders were subject to acceptance. Under the UCC Code, an acceptance need not be the mirror image of the offer. U.C.C. § 2-207. However, the offeree must still do some act that manifests the intention to accept the offer and make a contract.

This is a straightforward sales of goods issue. Sales of goods are covered by the UCC and under these facts both parties were merchants. Corinthian made an offer to buy when it placed its order for the 1,000 vials. The price list distributed by Lederle to its customers did not constitute an offer and it is well settled that quotations are mere invitations to make an offer.

Under these facts, this price list stated that the prices were subject to change without notice and that all orders were subject to acceptance by Lederle. Neither Lederle’s internal price memo nor its letter to customers on May 20th can be construed as an offer to sell 1,000 vials at the lower price. There is no evidence that defendant intended for the plaintiff to receive the internal price memo nor is there anything in the record to support the conclusion that the May 20th letter was an offer to sell. Both documents were mere invitations to offer. Thus as a matter of law, the first offer in this chain of events was Corinthian’s offer on the phone in order line.

We must now determine if Lederle accepted the offer. Under 2-206 an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. Lederle did nothing prior to the shipping of the 50 vials that could support a finding of an acceptance. The mere receipt of a tracking number does not constitute acceptance. Prior to the delivery of the 50 vials there was no acceptance of Corinthian’s order.

Under 2-206(b) we find how we should treat the shipment of the 50 units. An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. The shipment Lederle made was nonconforming in that the company refused to accept the order for the remaining 950 units unless they were shipped at the $171 price. This was a mere accommodation as Lederle’s letter further stated that Corinthian may reject such an accommodation and cancel the order.

An accommodation is an arrangement or engagement made as a favor to another. The term implies no consideration. Lederle had no obligation to make a partial shipment to Corinthian and did so only as a favor to the buyer. The accommodation letter clearly stated that the units were being shipped as an exception to Lederle’s general policy. Under these facts UCC 2-206(1)(b) was satisfied and the nonconforming shipment was merely a counteroffer.

Disposition

Summary judgment for defendant Lederle.