Summary of a Recent
Judicial Development in
Livestock Marketing

Pork Supplier, Pork Reseller
Dispute Contract Terms

Harrison M. Pittman
Staff Attorney

In an action brought by a pork supplier against a pork reseller for breach of contract for refusing part of a delivery of pigs and subsequently informing the supplier that it would no longer accept any deliveries of pigs, the Illinois Court of Appeals has ruled that the parties' contract was ambiguous with respect to the genetic composition of the pigs required under the contract. Shields Pork Plus, Inc. v. Swiss Valley Ag Service, 767 N.E.2d 945, 950-58 (Ill. App. 2002). The appeals court also ruled that because of this ambiguity, the trial court did not err when it admitted parol evidence to help determine the parties' intent under the contract. See id. at 950. In addition, the court determined that the evidence was sufficient to support the trial court's determination that the parties' intent was to contract for the sale of 100 percent "Newsham" genetic pigs. See id. at 952. Finally, the court ruled that the pig reseller breached the parties' contract when it rejected 300 of 680 pigs delivered in a single shipment. See id. It ruled that the evidence concerning the supplier's repudiation of the contract when the seller expressed doubt as to its ability to supply 100 percent "Newsham" pigs was not conclusive and remanded the matter for further consideration. See id. at 954-56.

Shields Pork Plus, Inc. ("Shields Pork"), plaintiff, was a pork supplier that entered into a contract with Swiss Valley Ag Service ("Swiss Valley"), defendant, to provide feeder pigs "'of a Newsham line'" to Swiss Valley. See id. at 947. Swiss Valley would resell the delivered Newsham feeder pigs to its customers. See id.

In 1997, the parties began negotiating terms for the purchase and sale of feeder pigs. See id. When the negotiations took place, the Shields Pork herd consisted of pigs from the Newsham, Liske, and Duroc genetic lines. See id. Swiss Valley indicated that it was only interested in purchasing 100 percent Newsham pigs from Shields Pork. See id. During these discussions, the vice-president of Shields Pork informed Swiss Valley that when Shields Pork needed to replace its herd of young sows, it would replace the Liske sows with "Newsham gilts-nonpregnant female pigs-which would be bred with Newsham boars or Newsham semen." Id. Shields Pork communicated to Swiss Valley that it would probably take at least one year to fully convert to 100 percent Newsham pigs. See id. Shields Pork knew that Swiss Valley would not be the final purchaser of the Newsham pigs because Swiss Valley was in the business of reselling pigs. See id.

In February, 1998, Shields Pork and Swiss Valley entered into a sales contract. See id. The contract established a price term "based upon the weight of the pigs and the price of a pig futures contract the week of delivery." Id. The contract called for monthly shipments of pigs for a 36-month period. See id. The parties' testimony at trial indicated that each anticipated a monthly shipment of approximately 600 pigs. See id. The contract defined a pig as "'merchantable' if it weighed between 35 and 60 pounds and was 'progeny from a Newsham line then sold commercially in the United States.'" Id. at 945. The contract required that any modification in the genetic composition of the pig herd had to be approved by Swiss Valley. See id.

The contract also provided several reasons why Swiss Valley could either reject the pigs or discount the price of the pigs at the time of delivery. See id. Swiss Valley could reject any pig "if, upon delivery, it was ruptured, splay-legged, crippled, or sick, or if the pig's tail had not been docked" or if a pig "did not 'meet the criteria set forth in [the section defining merchantability and genetic makeup].'" Id.

Swiss Valley accepted the first delivery of 600 pigs on March 13, 1998. See id. The next delivery occurred on April 24, 1998, and Swiss Valley accepted delivery of only 380 of the 680 pigs in that delivery because "one of its subsequent purchasers had no need for additional pigs." Id. Swiss Valley claimed that Shields Pork indicated that the rejected pigs would be sold elsewhere. See id. Shields Pork did not demand that Swiss Valley accept the 300 rejected pigs. See id. The deliveries continued according to the contract terms, but Swiss Valley rejected 23 pigs in June, 1998, and 23 pigs in July, 1998. Shields Pork replaced the rejected pigs in those instances. See id.

Swiss Valley claimed that in June, 1998, one of its customers, David Catlett, informed Swiss Valley that he experienced some problems with some of the Newsham pigs. See id. According to Swiss Valley, Catlett stated that he had met with a Shields Pork representative and was told by the representative that Shields Pork was not purchasing Newsham gilts but rather was producing the gilts. See id. The customer asserted that it was not possible to produce a 100 percent Newsham pig through the process Shields Pork was using. See id.

One of Swiss Valley's experts, Dr. Kevin Eggers, a veterinarian, testified that he was present at this meeting. See id. Dr. Eggers testified that the Shields Pork representative informed him at that meeting that Shields Pork no longer purchased Newsham gilts because they were not affordable. See id. Dr. Eggers also testified that "a Newsham pig cannot be made from anything other than Newsham parents." Id.

Shields Pork delivered 600 pigs to Swiss Valley on August 3, 1998. See id. Although Swiss Valley accepted the delivery of the pigs, one of its representatives informed Shields Pork that there were problems with the shipment. See id. Shields Pork offered to replace the pigs that the representative complained about, but the representative refused. See id. At that time, Swiss Valley communicated to Shields Pork that "it would no longer accept any pigs . . . under the contract, citing the refusal of [Swiss Valley's] ultimate purchasers to accept the pigs." Id.

On December 8, 1998, Shields Pork brought an action against Swiss Valley for breach of contract and sought damages for Swiss Valley's "rejection of the 300 pigs in April 1998, as well as for all scheduled deliveries after August 3, 1998." Id. at 948-49. On January 7, 1999, Swiss Valley responded by filing a counterclaim against Shields Pork "for failure to provide merchantable pigs under the contract." Id. at 949. On February 9, 2001, the trial court rejected both parties' claims for damages and determined that they had each repudiated the contract. See id. Both parties appealed the trial court's decision to the Illinois Court of Appeals, but Swiss Valley subsequently waived its cross-appeal. See id.

The Illinois Court of Appeals first examined Shields Pork's argument that the trial court incorrectly assumed that the parties' contract was ambiguous and therefore also erred when it allowed parol evidence to determine the parties' intent. See id. The court explained that "a court's principal goal in construing a contract is to ascertain and give effect to the parties' intent at the time they entered the contract." Id. (citations omitted). If the terms of a contract are not ambiguous then the parties' intent must be determined exclusively from the express language in the contract, "giving the words used their common and generally accepted meaning." Id. (citations omitted). A contract is ambiguous when the contract language is open to more than one meaning "'or is obscure in meaning through indefiniteness of expression.'" Id. (citations omitted). Once a court determines that a contract is ambiguous, it may consider parol evidence to ascertain the parties' intent. See id. (citations omitted).

The court stated that "[a]t the very heart of the parties' dispute is the section of the contract which requires all pigs under the contract to be 'progeny from a Newsham line.'" Id. Swiss Valley argued that this language required both the boar and the sow to be 100 percent Newsham pigs. See id. Shields Pork argued that although the phrase "Newsham progeny" may be open to more than one interpretation, the phrase "'progeny from a Newsham line'" was not open to more than one interpretation. Id. (emphasis supplied). Shields Pork asserted that "since there are two blood lines, that is, a male and a female, producing any 'progeny,' the use of the word 'a' implies that just one of the lines must be Newsham." Id.

The court stated that "we cannot agree that the phrase 'progeny from a Newsham line' was sufficiently clear to avoid the finding of ambiguity." Id. at 950. Noting that the term "progeny" is given various definitions in Merriam Webster's Collegiate Dictionary and the Oxford English Dictionary, the court explained that it is not clear "from the face of the contract what is intended by the word 'progeny.'" Id.

The court also determined that the term "Newsham line" was ambiguous. See id. The court explained that "[t]he fact that the word 'Newsham' is a commercial description, a shortened form of Newsham Hybrids International, particularly persuades us in this regard." Id. The court added that in the context of the name of a company that sells genetic material for animal husbandry purposes, the term "Newsham" may describe the company's products or the animals that result from the use of those products. See id. Thus, it was not clear whether the parties intended the phrase "Newsham line" to require that the animals that were bred had to be Newsham or, rather, that the material used to breed the animals derived from the Newsham company. See id.

The court stated that "[i]n the light of these many uncertainties, we conclude that the trial court did not err in finding the contract ambiguous." Id. Because it found that the trial court correctly determined that the contract was ambiguous, the appeals court also ruled that the trial court did not incorrectly allow parol evidence to ascertain the parties' intent under the contract. See id. (citations omitted).

Next, the court examined whether the trial court erred when it determined that "'at some point during the contract . . . [the pigs] were going to be one hundred percent Newsham genetically.'" Id. at 952. By making this determination the trial court implied that Shields Pork and Swiss Valley intended to contract for the eventual sale of 100 percent Newsham genetic pigs. Id.

The appeals court noted that the parties were both aware when they entered into the contract that Shields Pork's pig herd was not 100 percent Newsham. See id. Moreover, Swiss Valley's representatives acknowledged that the first several deliveries would not be fully Newsham pigs and that it could take at least a year for Shields Pork to convert its herd to fully Newsham pigs. See id. The court explained that both parties "seemed to agree that this move would be made." Id. Finally, the court noted that Shields Pork's vice-president testified that it would begin developing 100 percent Newsham pigs. See id. Shields Pork's vice-president testified that both parties envisioned that Shields Pork would move towards producing 100 percent Newsham pigs and that it was the intent of the parties that Shields Pork would do so. See id. at 952.

The court concluded that in light of this testimony "we fail to see how [Shields Pork] could have argued that a move to 100 percent Newsham genetics was not contemplated by the parties. The manifest weight of the evidence regarding the parties' intended definition of 'progeny from a Newsham line' indeed supports the trial court's construction of the contract." Thus, the court affirmed the trial court's finding that the parties intended Shields Pork to eventually produce 100 percent Newsham genetic pigs. See id.

Finally, the appeals court examined whether the trial court properly determined that both parties had repudiated the contract. See id. Swiss Valley argued that Shields Pork's inability to provide 100 percent Newsham pigs as required by the contract justified its repudiation of the contract in August. See id. Shields Pork argued that Swiss Valley's refusal to accept 300 pigs in the April shipment constituted a breach of contract. See id. Shields Pork also argued that Swiss Valley's statement in August, 1998, that it would no longer accept any shipments of pigs from Shields Pork constituted a breach of the entire contract. See id. The trial court did not rule in favor of either party and determined that both had repudiated the contract. See id.

The appeals court explained that "[t]he determination of which party to a contract breached is a question for the trier of fact, and its finding will not be disturbed unless it is against the manifest weight of the evidence." Id. (citations omitted). The court ruled that the trial court erred when it rejected Shields Pork's claim for damages when Swiss Valley refused to accept 300 pigs in the April shipment. See id. The court also determined that the trial court incorrectly ruled that both parties had repudiated the contract. See id.

The court explained that Article 2 of the Uniform Commercial Code governed the matter, even though Article 2 was not directly addressed by either of the parties. See id. Section 2-703 of the U.C.C. states that "'[w]here the buyer wrongfully rejects or revokes acceptance of goods or repudiates with respect to a part or the whole, then with respect to any good directly affected the aggrieved seller may . . . (d) resell and recover damages . . . [or] (e) recover damages for non[]acceptance." Id. at 953 (citation omitted). Comment 2 to § 2-703 states that "'buyer's breach which occasions the use of the remedies under this section may involve only one lot or delivery of goods.'" Id. (citations omitted).

First, the court discussed its decision with respect to Swiss Valley's refusal to accept 300 pigs in the April, 1998, shipment. See id. Swiss Valley rejected 300 of the pigs because one of its customers had problems with the pigs. See id. The court explained that the terms of the parties' contract did not allow Swiss Valley to refuse part of delivery in that situation. See id. The court concluded that Shields Pork "had contracted to deliver 680 pigs, and it properly tendered that number. We fail to see how a rejection by [Swiss Valley] of 300 pigs in that delivery was not a breach." Id. Thus, the court concluded that under U.C.C. § 2-703, the weight of the evidence did not support the trial court's conclusion that Shields Pork should not recover damages for the April,1998, delivery. Id.

Second, the court discussed the trial court's decision that both parties had repudiated the contract. See id. The court explained that U.C.C. § 2-609 states, in relevant part, that "'[w]hen reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.'" Id. (citation omitted). The court also explained that U.C.C. § 2-610 provides that

[w]hen either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may[:] (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach . . ., even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this [a]rticle on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods . . . .

Id. at 953-54 (citation omitted).

The appeals court determined that Swiss Valley's statement that it would no longer accept delivery of pigs from Shields Pork constituted a repudiation of the whole contract. See id. at 954 (citation omitted). The court stated, however, that if this statement had been the only communication between the parties, the matter would be easily resolved because Swiss Valley would be liable to Shields Pork under § 2-610. See id.

The court explained, however, that it was necessary to also consider the statement that Shields Pork made to Dr. Eggers and David Catlett concerning Shields Pork's unwillingness to purchase additional Newsham semen or gilts. See id. Swiss Valley argued that "this statement constituted an unequivocal repudiation, such that [it] could suspend its own performance under the contract." Id. The court rejected this argument stating that under § 2-610 "repudiation results 'from action which reasonably indicates a rejection of the continuing obligation.'" Id. (citation omitted).

The court explained that the Uniform Commercial Code focuses on two types of conduct on the part of a prospective repudiator with respect to anticipatory repudiation. See id. First, a repudiation may occur when the promisor, "without justification, makes a statement that he cannot or will not perform." Id. Second, a prospective repudiator can repudiate the contract "by voluntarily putting it out of his power to perform as agreed." Id. (citations omitted). For a promisor's language to constitute repudiation it must "be sufficiently clear and distinct to be reasonably interpreted to mean that the promisor cannot or will not perform." Id. (citations omitted).

The court determined that Shields Pork's statements to Dr. Egger and David Catlett "about not purchasing any additional Newsham gilts or semen" were not clear enough to establish an unequivocal intention not to perform. See id. The court stated that because the alleged statements were made to third parties rather than directly to Swiss Valley, it was not persuaded that Shields Pork manifested an intention not to perform its obligations under the contract. See id. The court also stated that it did not believe that Shields Pork's statements on their face constituted a repudiation of the contract. See id. The court explained that "[w]ithout more facts, we cannot agree that the manifest weight of the evidence favored either party, let alone defendant, on this issue." Id. Thus, the court reversed and remanded this portion of the trial court's decision because the evidence relating to Shields Pork's alleged repudiation of the contract prior to Swiss Valleys's August, 1998, repudiation was not conclusive. See id. at 955.

The case was decided on April 16, 2002; this summary was posted February, 2003