## Facts

- JM Smith Corporation, doing business as Smith Drug Company (SDC), distributed pharmaceutical products at wholesale.
- SDC entered into a supply contract with four related pharmacy entities: Cherokee Pharmacy and Medical Supply, Inc.; Cherokee Advanced Care Pharmacy; Cherokee Health Care Supply, Inc.; and Cherokee Pharmacy and Medical Supply of Dalton, Inc. (collectively, Cherokee Pharmacies).
- The contract set pricing terms for the pharmaceutical drugs SDC would supply to Cherokee Pharmacies.
- Cherokee Pharmacies ordered and accepted drugs from SDC and retained the shipments.
- Cherokee Pharmacies later stopped paying SDC’s invoices, asserting that SDC charged prices higher than the contract allowed.
- After Cherokee Pharmacies discovered—or should have discovered—the alleged improper pricing, they did not give SDC notice of the claimed breach within a reasonable time.
- SDC sued to recover amounts allegedly owed, and Cherokee Pharmacies asserted counterclaims based on improper pricing and fraud.
- SDC moved for summary judgment on the counterclaims, arguing the Uniform Commercial Code (UCC) barred any remedy because Cherokee Pharmacies accepted the goods but failed to provide timely notice of breach.

## Issues

1. Whether, after accepting goods, a buyer must provide the seller notice of an alleged breach within a reasonable time under UCC § 2-607(3)(a) as a condition to any remedy.
2. Whether the UCC notice requirement barred Cherokee Pharmacies’ counterclaims for improper pricing and fraud when the counterclaims arose from the alleged breach of the sales contract’s pricing terms.
3. Whether the summary-judgment record showed timely notice, or instead showed that notice was not given within a reasonable time as a matter of law.

## Decision

- The court granted SDC’s motion for summary judgment on Cherokee Pharmacies’ counterclaims.
- Because Cherokee Pharmacies accepted and kept the drugs, the court held UCC § 2-607(3)(a) required them to notify SDC of the alleged pricing breach within a reasonable time after discovery (or when discovery should have occurred).
- The court concluded Cherokee Pharmacies failed to provide the required notice within a reasonable time.
- As a result, Cherokee Pharmacies were barred from obtaining a remedy on their counterclaims tied to the alleged improper pricing, including counterclaims pleaded as fraud.

## Legal Principles

- Under UCC § 2-607(3)(a), a buyer that accepts goods must, within a reasonable time after discovering (or when it should have discovered) a breach, notify the seller of the breach or be barred from any remedy.
- Acceptance and retention of goods triggers the buyer’s post-acceptance duties, including the notice requirement for complaints about the seller’s performance under the sales contract.
- The notice requirement applies to contract-based disputes in a sale-of-goods transaction, including alleged nonconformity with agreed pricing terms.
- A buyer cannot preserve an otherwise barred remedy simply by labeling a breach-of-contract dispute as fraud when the claimed loss is based on the seller’s alleged failure to perform according to the sales contract.

## Conclusion

The court entered summary judgment for SDC on Cherokee Pharmacies’ counterclaims because Cherokee Pharmacies accepted and retained the pharmaceutical products yet failed to notify SDC of the alleged improper pricing within a reasonable time as required by UCC § 2-607(3)(a), which barred them from pursuing remedies on counterclaims arising from that alleged breach.


JM Smith Corporation v. Cherokee Pharmacy and Medical Supply Inc., 2016 WL 7971313 (2016)