Selling the Other White Meat under CISG

January 13, 2011, 10:33 AM

Perhaps you can tell that I wrote the prior post (involving chicken) and this post (involving pork back ribs) around lunch time. True, but I hope you share my appetite for some legal intrigue.

In Chicago Prime Packers, Inc. v. Northam Food Trading Co., the Seventh Circuit Court of Appeals affirmed a lower court's award of $178,200 in damages, plus prejudgment interest of $27,242.63, in favor of a U.S. vendor, Chicago Prime, against a Canadian meat wholesaler, Northam.

Northam had arranged for the ribs to be picked up from Chicago Primes supplier for delivery via Northams carrier directly to Northam's customer, all of which occurred in a timely manner. Payment from Northam did not arrive in a timely manner, however. Before Chicago Prime could collect payment, Northam's customer claimed that the ribs were in an "off condition". Northam's customer even called in the U.S.D.A. to inspect the product, which dutifully tagged the ribs as "yellow, green, . . . abused, spoiled".

The issue was whether the ribs were picked up by Northam's carrier and/or arrived at Northam's customer in good or foul condition. Although the ribs were transferred between locations in the United States, CISG (United Nations Convention on Contracts for the International Sale of Goods) governed the dispute because Chicago Prime is based in the United States and Northam is based in Canada. As a result, Chicago Prime had the obligation under Article 35 of CISG to "deliver goods which are of the quantity, quality and description required by the contract". CISG passes the risk of loss from the seller to the buyer when the goods are transferred to the buyer or to the buyer's carrier. Since neither Chicago Prime nor Northam ever saw the ribs (they were transferred directly from Chicago Primes supplier to Northrams customer), the outcome of the case depended on which party bore the burden of proof: Northam argued that Chicago Prime had the burden of proving that the ribs were in good condition when delivered, whereas Chicago Prime countered that Northam had the burden of proving non-conformity as an affirmative defense to its payment obligation.

The Seventh Circuit observed that CISG does not expressly state whether the seller or the buyer bears the burden of proof. With limited case law to review, the court relied on comparisons with the Uniform Commercial Code, which clearly imposes the burden on the buyer to prove non-conformity at the time of delivery. Under the UCC, the buyer has the burden to prove the seller's breach of the implied warranty of fitness as a defense to a payment claim brought by the seller. Fortunately for Chicago Prime, the trial court found, and the appeals court affirmed, that Northam failed to carry its burden of proving that the yellow, green and spoiled ribs were actually in that defective condition when delivered to Northam's carrier.

The lesson from this case is that the parties should strongly consider inspection procedures and timelines for insertion in their sales contract, especially a buyer which might need to prove later that goods were delivered in a defective condition. --Charles V. McPhillips