LOCAL COMMERCIAL CASE TAKES CUES FROM AROUND THE GLOBE

July 2, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

With increased international trade, litigating a commercial case in Illinois can require use of judicial precedent that has yet to be translated into English.

In a new ruling from the Northern District of Illinois, for example, U.S. Magistrate Judge Geraldine Soat Brown shows how you can use the UNILEX Web site (at www.unilex.info) to access foreign decisions that interpret the Convention on the International Sale of Goods. Chicago Prime Packers Inc. v. Northam Food Trading Co., No. 01 C 4447 (N.D. Ill., May 24).

Guided by rulings under the CISG that haven't even been put into English, Brown concluded that a buyer had to pay for tons of spoiled pork ribs because it failed to object fast enough.

As Brown recounted in her findings of fact and conclusions of law after a bench trial (with various omissions not noted in the quoted text):

"Chicago Prime is a Colorado corporation with its principal place of business in Avon, Colo. Northam is a Canadian corporation with its principal place of business in Montreal, Quebec. Chicago Prime and Northam are wholesalers of meat products.

"On March 30, 2001, Chicago Prime contracted with Northam to sell 1,350 boxes (40,500 pounds) of government-inspected pork back ribs, which Chicago Prime purchased from Brookfield, a meat processor.

"Mike Cline, on behalf of Chicago Prime, and Sandra Burdon, on behalf of Northam, negotiated the terms of the contract. The agreed upon price for the ribs was $178,200, and payment was required within seven days from the date of shipment.

"Chicago Prime sent Burdon a sale confirmation, which she signed and returned to Chicago Prime. The confirmation sets forth a description of the ribs, a price term and the date and location of pickup. However, the confirmation does not include a notice term or an inspection term.

"Chicago Prime also produced an invoice for the sale, which states that, 'No claim will be allowed unless [Chicago Prime] is notified upon receipt of the product.' Neither party signed the invoice. Although Chicago Prime faxed the invoice to Northam, it admittedly did not transmit the fax until after the ribs had been received by Northam.

"On April 24, 2001, Brown Brothers Trucking Co., acting on behalf of Northam, picked up 40,500 pounds of loin back ribs from B&B Pullman Cold Storage, a cold-storage facility used by Brookfield. Chicago Prime never actually possessed the ribs.

"When Brown Brothers picked up the ribs, it signed a straight bill of lading. By signing the first bill of lading and making no specific notations to the contrary, Brown Brothers acknowledged that the ribs were 'in apparent good order.' However, the first bill of lading also indicates that the 'contents and condition of contents of packages [were] unknown' at the time of receipt.

"On April 25, 2001, Brown Brothers delivered the ribs to Northam's customer, Beacon Premium Meats. At the time of receipt, Beacon signed a bill of lading (the 'second bill of lading') acknowledging that it had received the ribs 'in apparent good order,' except for '21 boxes [that] were gouged and [the] meat in [those boxes] show[ed] signs of freezer burn.' Beacon made a similar notation regarding the condition of the ribs on its receiving log.

"Chicago Prime paid Brookfield for the ribs. Under the terms of the contract, Northam was obligated to pay Chicago Prime for the ribs by May 1, 2001. Chicago Prime demanded payment from Northam on May 2, 2001.

"On May 4, 2001, Beacon began 'processing' a shipment of pork loin ribs and noticed that the product appeared to be in an 'off-condition.' "

"On May 14, 2001, Beacon rejected the shipment of ribs. That same day, Ron Sills, president of Chicago Prime, sent a letter to Ms. Burdon indicating that the first complaint made to Chicago Prime about the condition of the ribs was on May 4, 2001 -- 10 days after Northam received the product.

"After an inspection, the U.S. Department of Agriculture condemned the entire shipment. Meanwhile, Chicago Prime continued to demand payment for the ribs."

Eventually, Chicago Prime filed a federal lawsuit against Northam in the Northern District.

"This court previously determined that the transaction between Chicago Prime and Northam was governed by the Convention on the International Sale of Goods, a self-executing agreement between the United States and other signatories, including Canada," Brown explained.

"Because there is virtually no American case law under the CISG, courts look to its language and to the 'general principles' upon which it is based. The Convention directs that its interpretation be informed by its 'international character and ... the need to promote uniformity in its application and the observance of good faith in international trade.'

"Case law interpreting analogous provisions of Article 2 of the Uniform Commercial Code may also inform the court where the language of the relevant CISG provisions tracks that of the UCC. However, UCC case law is not per se applicable."

Article 38 of the CISG provides that:

"(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.

"(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
"(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination."

Also, according to Article 39:

"(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

"(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time limit is inconsistent with a contractual period of guarantee."

Northam asserted, however, that the ribs were spoiled at the time of transfer, and as a result, it was relieved of its duty to pay under the contract.

Reviewing the evidence, Brown concluded that, "Northam has failed to carry its burden of demonstrating that the ribs that are the subject of this lawsuit were spoiled at the time Brown Brothers took possession of them on April 24, 2001.

"In addition, even if the ribs were spoiled at the time of transfer, Northam has failed to prove that it examined the ribs, or caused them to be examined, within as short a period as is practicable under the circumstances, or that it rejected or revoked its acceptance of the ribs within a reasonable time after it discovered or should have discovered the alleged non-conformity.

"Northam is correct that 'there were no contractual [terms] requiring inspection upon delivery.' Although the invoice stated that '[n]o claim will be allowed unless [Chicago Prime] is notified upon receipt of product,' the invoice was never signed by the parties, and Chicago Prime did not fax the invoice to Northam until after Northam had received the product.

"When an issue is not addressed by the contract, the provisions of the CISG govern. Because the contract at issue did not contain an inspection provision, the requirement under the CISG that the buyer examine the goods, or cause them to be examined, 'within as short a period as is practicable in the circumstances' is controlling.

"Decisions under the CISG indicate that the buyer bears the burden of proving that the goods were inspected within a reasonable time. See, e.g., Fallini Stefano & Co. v. Foodic BV, No. 900336, Arrondissementsrechtbank Roermond, Netherlands (Dec. 19, 1991), UNILEX 1991. The determination of what period of time is 'practicable' is a factual one and depends on the circumstances of the case."

In a footnote, Brown explained:

"That decision and the other foreign decisions cited in this opinion have not been translated into English and, as a result, cannot be cited directly by this court. Instead, this court relies upon the detailed abstracts of those decisions provided by UNILEX, an 'intelligent database' of international case law on the CISG."
Returning to the main text, Brown continued:

"In Shuttle Packaging Systems LLC v. Tsonakis, No. 01 C 691, 2001 WL 34046276 (W.D. Mich., Dec. 17, 2001) (Enslen, J.), the court discussed the practicable period of examination for equipment designed to produce plastic gardening pots.

"The court observed: 'The wording of the [CISG] reveals an intent that buyers examine goods promptly and give notice of defects to sellers promptly. However, it is also clear from the statute that on occasion it will not be practicable to require notification in a matter of a few weeks. For this reason, the outer limit of two years is set for the purpose of barring late notices.'

"While the court did not ultimately conclude what length of time would be practicable, it considered a number of factors, such as the complexity of the machinery, the method of its delivery, the need for training and ongoing repairs with respect to the machinery, and the skill of the plaintiff's employees.

"A number of foreign courts have also addressed the question of how much time a buyer has to examine goods or discover defects under the CISG. See Louis F. Del Duca and Patrick Del Duca, 'Selected Topics under the Convention on International Sale of Goods,' 106 Dick. L.Rev. 205, 220-27 (Summer 2001) (collecting cases).

"In one German case, for example, a buyer lost the right to rely on lack of conformity by failing to promptly inspect ham delivered by the seller or give notice of the ham's non-conformity within a reasonable time. See (parties not reported), No. 2 C 395/93, Amtsgericht Riedlingen, Germany (Oct. 21, 1994), UNILEX 1994. The court found that because the alleged defect (inadequate seasoning) was easily recognizable, the buyer should have examined the goods within three days of delivery. See also Danielle Alexis Thompson, Translation of 'Oberlandesgericht Karlsruhe Decision of 25-06-1997' Including Commentary -- 'Buyer Beware: German Interpretation of the CISG Has Led to Results Unfavorable to Buyers,' 19 J.L. & Com. 245, 249-50 (Spring 2000) ('The "median value" for this [inspection] time frame for examination according to Article 38(1) of the CISG can, even regarding durable goods, be based on a three- to four-day time period. This figure can be corrected upward or downward as the particular case requires.').

"In a case dealing with insufficient quantity as a defect, another German court held that under Article 38, examination of the quantity of items delivered must be done immediately at the place of performance of the obligation or at the agreed destination. See (parties not reported), No. 54 O 644/94, Landgericht Landshut, Germany (April 5, 1995), UNILEX 1995. According to the German court, the Swiss buyer of German clothing should have examined or caused the goods to be examined as soon as they arrived at the agreed destination. The court found that examination of the quantity of the items delivered more than a week after delivery was unreasonable under the circumstances.

"As mentioned above, section 3 of Article 38 of the CISG provides that, 'If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.'

"In this case, Chicago Prime knew, or ought to have known, that the ribs would be redirected or redispatched after receipt because Chicago Prime knew that Northam was only a 'trading company,' which Ron Sills defines as a company that buys and sells meat, but does not own any facilities, brick and mortar, or trucks. Thus, under the CISG, examination of the ribs could have been deferred until after they arrived at Beacon.

"It is notable, however, that Northam did not present any testimony or evidence as to why the ribs or a portion of the ribs were not and could not have been examined by Northam, Beacon or someone acting on their behalf when the shipment was delivered to Beacon on April 25 or within a few days thereafter."

Based on the evidence, Brown concluded that Northam "failed to demonstrate that it examined the ribs or caused them to be examined within as short a period as is practicable under the circumstances."

"In summary," Brown explained, "the object of the CISG in requiring inspection in as short a period of time as is practicable, and notice promptly thereafter, is to avoid controversies such as this -- where, because of the passage of time, the condition of the goods at the time of transfer cannot be reliably established. When that happens, the burden falls on the buyer, who had the opportunity to inspect the goods, but failed to do so."

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