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Wisconsin Knife Works v. National Metal Crafters
781 F.2d 1280 (7th Cir. 1986)
[Editorial note: In the majority and dissenting opinions to follow, two brilliant and highly respected sitting federal judges engage in a fierce yet respectful debate about the meaning of UCC 2-209(4). The intellectual power reflected here is awesome. As of July, 2000, Shepard's reports that 667 subsequent judicial opinions have cited this case.]
Posner, Circuit Judge.
. . .
. . . Wisconsin Knife Works, having some unused manufacturing capacity,
decided to try to manufacture spade bits for sale to its
parent, Black & Decker, a large producer of tools, including drills. A spade bit is
made out of a chunk of metal called a spade bit blank; and Wisconsin Knife Works had to
find a source of supply for these blanks. National Metal Crafters was eager to be that
source. After some negotiating, Wisconsin Knife Works sent National Metal Crafters a
series of purchase orders on the back of each of which was printed, "Acceptance of
this Order, either by acknowledgement or performance, constitutes an unqualified agreement
to the following." A list of "Conditions of Purchase" follows, of which the
first is, "No modification of this contract, shall be binding upon Buyer [Wisconsin
Knife Works] unless made in writing and signed by Buyer's authorized representative. Buyer
shall have the right to make changes in the Order by a notice, in writing, to
Seller." There were six purchase orders in all, each with the identical conditions.
National Metal Crafters acknowledged the first two orders (which had been placed on August
21, 1981) by letters that said, "Please accept this as our acknowledgment covering
the above subject order," followed by a list of delivery dates. The purchase orders
had left those dates blank. Wisconsin Knife Works filled them in, after receiving the
acknowledgments, with the dates that National Metal Crafters had supplied in the
acknowledgments. There were no written acknowledgments of the last four orders (placed
several weeks later, on September 10, 1981). Wisconsin Knife Works wrote in the delivery
dates that National Metal Crafters orally supplied after receiving purchase orders in
which the space for the date of delivery had again been left blank.
Delivery was due in October and November 1981. National Metal Crafters
missed the deadlines. But Wisconsin Knife Works did not immediately declare a breach,
cancel the contract, or seek damages for late delivery. Indeed, on July 1, 1982, it
issued a new batch of purchase orders (later rescinded). By December 1982 National Metal
Crafters was producing spade bit blanks for Wisconsin Knife Works under the original set
of purchase orders in adequate quantities, though this was more than a year after the
delivery dates in the orders. But, in January 13, 1983, Wisconsin Knife Works notified
National Metal Crafters that the contract was terminated. By that date only 144,000 of the
more than 281,000 spade bit blanks that Wisconsin Knife Works had ordered in the six
purchase orders had been delivered.
Wisconsin Knife Works brought this breach of contract suit, charging
that National Metal Crafters had violated the terms of delivery in the contract that was
formed by the acceptance of the six purchase orders. National Metal Crafters replied that
the delivery dates had not been intended as firm dates. It also counterclaimed for damages
for (among other things) the breach of an alleged oral agreement by Wisconsin Knife Works
to pay the expenses of maintaining machinery used by National Metal Crafters to fulfill
the contract. The parties later stipulated that the amount of these damages was $30,000.
The judge ruled that there had been a contract but left to the jury to
decide whether the contract had been modified and, if so, whether the modified contract
had been broken. The jury found that the contract had been modified and not broken.
Judgment was entered dismissing Wisconsin Knife Works' suit and awarding National Metal
Crafters $30,000 on its counterclaim. Wisconsin Knife Works has appealed from the
dismissal of its suit. The appeal papers do not discuss the counterclaim, and the effect
on it of our remanding the case for further proceedings on Wisconsin Knife Works' claim
will have to be resolved on remand.
The principal issue is the effect of the provision in the purchase
orders that forbids the contract to be modified other than by a writing signed by an
authorized representative of the buyer. The theory on which the judge sent the issue of
modification to the jury was that the contract could be modified orally or by conduct as
well as by a signed writing. National Metal Crafters had presented evidence that Wisconsin
Knife Works had accepted late delivery of the spade bit blanks and had cancelled the
contract not because of the delays in delivery but because it could not produce spade bits
at a price acceptable to Black & Decker.
Section 2-209(2) of the Uniform
Commercial Code provides that "a signed agreement which excludes modification or
rescission except by a signed writing cannot be otherwise modified or rescinded, but
except as between merchants such a requirement on a form supplied by the merchant must be
separately signed by the other party." . . . The meaning of this provision and
its proviso is not crystalline and there is little pertinent case law. One might think
that an agreement to exclude modification except by a signed writing must be signed in any
event by the party against whom the requirement is sought to be enforced, that is, by
National Metal Crafters, rather than by the party imposing the requirement. But if so the
force of the proviso ("but except as between merchants...") becomes unclear, for
it contemplates that between merchants no separate signature by the party sought to be
bound by the requirement is necessary. A possible reconciliation, though not one we need
embrace in order to decide this case, is to read the statute to require a separate signing
or initialling of the clause forbidding oral modifications, as well as of the contract in
which the clause appears. There was no such signature here; but it doesn't matter; this
was a contract "between merchants." Although in ordinary language a manufacturer
is not a merchant, "between merchants" is a term of art in the Uniform
Commercial Code. It means between commercially
sophisticated parties (see UCC § 2-104(1); White & Summers, Handbook of the Law
Under the Uniform Commercial Code 345 (2d ed. 1980)), which these were.
Of course there must still be a "signed agreement" containing
the clause forbidding modification other than by a signed writing, but there was that (see
definition of "agreement" and of "signed" in UCC §§ 1-201(3), (39)).
National Metal Crafters' signed acknowledgments of the first two purchase orders
signified its assent to the printed conditions and naturally and reasonably led Wisconsin
Knife Works to believe that National Metal Crafters meant also to assent to the same
conditions should they appear in any subsequent purchase orders that it accepted. Those
subsequent orders were accepted, forming new contracts on the same conditions as the old,
by performance -- that is, by National Metal Crafters' beginning the manufacture of the
spade bit blanks called for by the orders. See UCC §
2-207(3). So there was an agreement, signed by National Metal Crafters, covering all
the purchase orders. The fact that the delivery dates were not on the purchase orders when
received by National Metal Crafters is nothing of which it may complain; it was given
carte blanche to set those dates.
When National Metal Crafters had difficulty complying with the original
specifications for the spade bit blanks, Wisconsin Knife Works modified them; and National
Metal Crafters argues that the engineering drawings containing those modifications are the
written modification that section 2-209(2), if applicable, calls for. In fact these
particular modifications seem to fall within the clause of the contract that allows the
buyer (Wisconsin Knife Works) to modify the specifications by notice. The context of this
clause makes clear that such notice is not the written modification to which the previous
sentence refers. But in any event there was no modification of the delivery dates. The
"pert charts" which National Metal Crafters supplied Wisconsin Knife Works, and
which showed new target dates for delivery, do not purport to modify the contract and were
not signed by Wisconsin Knife Works.
We conclude that the clause forbidding modifications other than in
writing was valid and applicable and that the jury should not have been allowed to
consider whether the contract had been modified in some other way. This may, however, have
been a harmless error. Section 2-209(4) of the Uniform
Commercial Code provides that an "attempt at modification" which does not
satisfy a contractual requirement that modifications be in writing nevertheless
"can operate as a waiver." Although in instructing the jury on modification the
judge did not use the word "waiver," maybe he gave the substance of a waiver
instruction and maybe therefore the jury found waiver but called it modification. Here is
the relevant instruction:
Did the parties modify the contract? The defendant bears the burden of proof on this one. You shall answer this question yes only if you are convinced to a reasonable certainty that the parties modified the contract.
If you determine that the defendant had performed in a manner different from the strict obligations imposed on it by the contract, and the plaintiff by conduct or other means of expression induced a reasonable belief by the defendant that strict enforcement was not insisted upon, but that the modified performance was satisfactory and acceptable as equivalent, then you may conclude that the parties have assented to a modification of the original terms of the contract and that the parties have agreed that the different mode of performance will satisfy the obligations imposed on the parties by the contract.
To determine whether this was in substance an instruction on waiver we shall have to
consider the background of section 2-209, the Code provision on modification and waiver.
Because the performance of the parties to a contract is typically not
simultaneous, one party may find himself at the mercy of the other unless the law of
contracts protects him. Indeed, the most important thing which that law does is to
facilitate exchanges that are not simultaneous by preventing either party from taking
advantage of the vulnerabilities to which sequential performance may give rise. If A
contracts to build a highly idiosyncratic gazebo for B, payment due on completion, and
when A completes the gazebo B refuses to pay, A may be in a bind -- since the resale value
of the gazebo may be much less than A's cost -- except for his right to sue B for the
price. Even then, a right to sue for breach of contract, being costly to enforce, is not a
completely adequate remedy. B might therefore go to A and say, "If you don't reduce
your price I'll refuse to pay and put you to the expense of suit"; and A might
knuckle under. If such modifications are allowed, people in B's position will find it
harder to make such contracts in the future, and everyone will be worse off.
The common law dealt with this problem by refusing to enforce
modifications unsupported by fresh consideration. See, e.g., Alaska Packers' Ass'n v.
Domenico, 117 F. 99 (9th Cir. 1902), discussed in Selmer Co. v. Blakeslee-Midwest Co., 704
F.2d 924, 927 (7th Cir. 1983). Thus in the hypothetical case just put B could not have
enforced A's promise to accept a lower price. But this solution is at once overinclusive
and underinclusive -- the former because most modifications are not coercive and should be
enforceable whether or not there is fresh consideration, the latter because, since common
law courts inquire only into the existence and not the adequacy of consideration, a
requirement of fresh consideration has little bite. B might give A a peppercorn, a kitten,
or a robe in exchange for A's agreeing to reduce the contract price, and then the
modification would be enforceable and A could no longer sue for the original price. See
White & Summers, supra, at 47; Farnsworth, Contracts 271-78 (1982).
The draftsmen of the Uniform Commercial Code took a fresh approach, by
making modifications enforceable even if not supported by consideration (see section 2-209(1)) and looking to the doctrines of duress
and bad faith for the main protection against exploitive or opportunistic attempts at
modification, as in our hypothetical case. See UCC
§ 2-209, official comment 2. But they did another thing as well. In section 2-209(2)
they allowed the parties to exclude oral modifications. National Metal Crafters argues
that two subsections later they took back this grant of power by allowing an unwritten
modification to operate as a waiver.
The common law did not enforce agreements such as section 2-209(2)
authorizes. The "reasoning" was that the parties were always free to agree
orally to cancel their contract and the clause forbidding modifications not in writing
would disappear with the rest of the contract when it was cancelled. "The most
ironclad written contract can always be cut into by the acetylene torch of parol
modification supported by adequate proof." Wagner v. Graziano Construction Co.,
390 Pa. 445, 448, 136 A.2d 82, 83-84 (1957). This is not reasoning; it is a conclusion
disguised as a metaphor. It may have reflected a fear that such clauses, buried in the
fine print of form contracts, were traps for the unwary; a sense that they were
unnecessary because only modifications supported by consideration were enforceable; and a
disinclination to allow parties in effect to extend the reach of the Statute of Frauds,
which requires only some types of contract to be in writing. But the framers of the
Uniform Commercial Code, as part and parcel of rejecting the requirement of consideration
for modifications, must have rejected the traditional view; must have believed that the
protection which the doctrines of duress and bad faith give against extortionate
modifications might need reinforcement -- if not from a requirement of consideration,
which had proved ineffective, then from a grant of power to include a clause requiring
modifications to be in writing and signed. An equally important point is that with
consideration no longer required for modification, it was natural to give the parties some
means of providing a substitute for the cautionary and evidentiary function that the
requirement of consideration provides; and the means chosen was to allow them to exclude
oral modifications.
If section 2-209(4), which as we said provides that an attempted
modification which does not comply with subsection (2) can nevertheless operate as a
"waiver," is interpreted so broadly that any oral modification is effective as a
waiver notwithstanding section 2-209(2), both provisions become superfluous and we are
back in the common law -- only with not even a requirement of consideration to reduce the
likelihood of fabricated or unintended oral modifications. A conceivable but
unsatisfactory way around this result is to distinguish between a modification that
substitutes a new term for an old, and a waiver, which merely removes an old term. On this
interpretation National Metal Crafters could not enforce an oral term of the allegedly
modified contract but could be excused from one of the written terms. This would take care
of a case such as Alaska Packers, where seamen attempted to enforce a contract
modification that raised their wages, but would not take care of the functionally
identical case where seamen sought to collect the agreed-on wages without doing the
agreed-on work. Whether the party claiming modification is seeking to impose an onerous
new term on the other party or to wiggle out of an onerous term that the original contract
imposed on it is a distinction without a difference. We can see that in this case.
National Metal Crafters, while claiming that Wisconsin Knife Works broke their contract as
orally modified to extend the delivery date, is not seeking damages for that breach. But
this is small comfort to Wisconsin Knife Works, which thought it had a binding contract
with fixed delivery dates. Whether called modification or waiver, what National Metal
Crafters is seeking to do is to nullify a key term other than by a signed writing. If it
can get away with this merely by testimony about an oral modification, section 2-209 (2)
becomes very nearly a dead letter.
The path of reconciliation with subsection (4) is found by attending to
its precise wording. It does not say that an attempted modification "is" a
waiver; it says that "it can operate as a waiver." It does not say in what
circumstances it can operate as a waiver; but if an attempted modification is effective as
a waiver only if there is reliance, then both sections 2-209(2) and 2-209(4) can be given
effect. Reliance, if reasonably induced and reasonable in extent, is a common substitute
for consideration in making a promise legally enforceable, in part because it adds
something in the way of credibility to the mere say-so of one party. The main purpose of
forbidding oral modifications is to prevent the promisor from fabricating a modification
that will let him escape his obligations under the contract; and the danger of successful
fabrication is less if the promisor has actually incurred a cost, has relied. There is of
course a danger of bootstrapping -- of incurring a cost in order to make the case for a
modification. But it is a risky course and is therefore less likely to be attempted than
merely testifying to a conversation; it makes one put one's money where one's mouth is.
. . .
Our approach is not inconsistent with section 2-209(5), which allows a waiver to be withdrawn
while the contract is executory, provided there is no "material change of position in
reliance on the waiver." Granted, in (5) there can be no tincture of reliance; the
whole point of the section is that a waiver may be withdrawn unless there is reliance. But
the section has a different domain from section 2-209(4). It is not limited to attempted
modifications invalid under subsections (2) or (3); it applies, for example, to an express
written and signed waiver, provided only that the contract is still executory. Suppose
that while the contract is still executory the buyer writes the seller a signed letter
waiving some term in the contract and then, the next day, before the seller has relied,
retracts it in writing; we have no reason to think that such a retraction would not
satisfy section 2-209(5), though this is not an issue we need definitively resolve today.
In any event we are not suggesting that "waiver" means different things in (4)
and (5); it means the same thing; but the effect of an attempted modification as a waiver
under (4) depends in part on (2), which (4) (but not (5)) qualifies. Waiver and estoppel
(which requires reliance to be effective) are frequently bracketed.
The statute could be clearer; but the draftsmen were making a big break
with the common law in subsections (1) and (2), and naturally failed to foresee all the
ramifications of the break. The innovations made in Article 9 of the UCC were so novel
that the article had to be comprehensively revised only ten years after its promulgation.
See Appendix II to the 1978 Official Text of the Uniform Commercial Code. Article 2 was
less innovative, but of course its draftsmanship was not flawless -- what human product
is? Just a few months ago we wrestled with the mysterious and apparently inadvertent
omission of key words in the middle subsection of another section of Article 2. See
Jason's Foods, Inc. v. Peter Eckrich & Sons, Inc., 774 F.2d 214 (7th Cir. 1985)
(section 2-509(2)). Another case of gap-filling in Article 2 is discussed in White &
Summers, supra, at 450 (section 2-316(3)(a)). But as a matter of fact we need go no
further than section 2-209(5) to illustrate the need for filling gaps in Article 2. In
holding that that section allows the retraction of a waiver of the Statute of Frauds, the
Third Circuit said in Double-E Sportswear Corp. V. Girard Trust Bank, supra, 488 F.2d at
297 n.7, "We have found it necessary to fill the interstices of the code,"
because of "a drafting oversight."
We know that the draftsmen of section 2-209 wanted to make it possible
for parties to exclude oral modifications. They did not just want to give
"modification" another name -- "waiver." Our interpretation gives
effect to this purpose. It is also consistent with though not compelled by the case law.
There are no Wisconsin cases on point. Cases from other jurisdictions are diverse
in outlook. Some take a very hard line against allowing an oral waiver to undo a clause
forbidding oral modification. Others allow oral waivers to override such clauses,
but in most of these cases it is clear that the party claiming waiver had relied to his
detriment. In cases not governed by the Uniform Commercial Code, Wisconsin follows the
common law rule that allows a contract to be waived orally (unless within the Statute of
Frauds) even though the contract provides that it can be modified only in writing.
But of course the Code, which is in force in Wisconsin as in every other state (with the
partial exception of Louisiana), was intended to change this rule for contracts subject to
it.
Missing from the jury instruction on "modification" in this
case is any reference to reliance, that is, to the incurring of costs by National Metal
Crafters in reasonable reliance on assurances by Wisconsin Knife Works that late delivery
would be acceptable. And although there is evidence of such reliance, it naturally was not
a focus of the case, since the issue was cast as one of completed (not attempted)
modification, which does not require reliance to be enforceable. National Metal Crafters
must have incurred expenses in producing spade bit blanks after the original delivery
dates, but whether these were reliance expenses is a separate question. Maybe National
Metal Crafters would have continued to manufacture spade bit blanks anyway, in the hope of
selling them to someone else. It may be significant that the stipulated counterclaim
damages seem limited to the damages from the breach of a separate oral agreement regarding
the maintenance of equipment used by National Metal Crafters in fulfilling the contract.
The question of reliance cannot be considered so open and shut as to justify our
concluding that the judge would have had to direct a verdict for National Metal Crafters,
the party with the burden of proof on the issue. Nor, indeed, does National Metal Crafters
argue that reliance was shown as a matter of law.
. . .
When a jury instruction is erroneous there must be a new trial unless
the error is harmless. On the basis of the record before us we cannot say that the error
in allowing the jury to find that the contract had been modified was harmless; but we do
not want to exclude the possibility that it might be found to be so, on motion for summary
judgment or or otherwise, without the need for a new trial. Obviously National Metal
Crafters has a strong case both that it relied on the waiver of the delivery deadlines and
that there was no causal relationship between its late deliveries and the cancellation of
the contract. We just are not prepared to say on the record before us that it is such a
strong case as not to require submission to a jury.
. . .
REVERSED and REMANDED.
Easterbrook, Circuit Judge, dissenting.
The majority demonstrates that the clause of the contract requiring all
modifications to be in writing is enforceable against National Metal Crafters. There was
no modification by a "signed writing." Yet § 2-209(4) of the Uniform Commercial
Code, which Wisconsin has adopted, provides that "an attempt at modification"
that is ineffective because of a modification-only-in-writing clause "can operate as
a waiver." The majority holds that no "attempt at modification" may be a
"waiver" within the meaning of § 2-209(4) unless the party seeking to enforce
the waiver has relied to its detriment. I do not think that detrimental reliance is an
essential element of waiver under § 2-209(4).
"Waiver" is not a term the UCC defines. At common law
"waiver" means an intentional relinquishment of a known right. A person may
relinquish a right by engaging in conduct inconsistent with the right or by a verbal or
written declaration. I do not know of any branch of the law -- common, statutory, or
constitutional -- in which a renunciation of a legal entitlement is effective only if the
other party relies to his detriment. True, the law of "consideration" imposed
something like a reliance rule; payment of a pine nut (the peppercorn of nouvelle cuisine)
is a tiny bit of detriment, and often the law of consideration is expressed in terms of
detriment. But § 2-209(1) of the UCC provides that consideration is unnecessary to make a
modification effective. The introduction of a reliance requirement into a body of law from
which the doctrine of consideration has been excised is novel.
Neither party suggested that reliance is essential to waiver. The
parties did not even mention the question in their briefs, which concentrated on the
meaning of "signed agreement." So far as I can tell, no court has held that
reliance is an essential element of waiver under § 2-209(4). One has intimated that
reliance is not essential. Double-E Sportswear Corp. v. Girard Trust Bank, 488 F.2d 292,
295-296 (3d Cir. 1973), citing 1 Anderson, Uniform Commercial Code § 2-209:8 (2d ed.).
The third edition of Anderson, like the second, states that reliance is unnecessary. Id.
at § 2-209:42 (3d ed. 1982). See also Hawkland, Uniform Commercial Code Series §
2-209:05 (suggesting that reliance on a waiver by course of performance is unnecessary). fn
Not all novel things are wrong, although legal novelties, like
biological mutations, usually die out quickly. This novelty encounters an obstacle within
§ 2-209. Section 2-209(5) states that a person who "has made a waiver affecting an
executory portion of the contract may retract the waiver" on reasonable notice
"unless the retraction would be unjust in view of a material change of position in
reliance on the waiver." Section 2-209 therefore treats "waiver" and
"reliance" as different. Under §2-209(4) a waiver may be effective; under §
2-209(5) a waiver may be effective prospectively only if there was also detrimental
reliance.
The majority tries to reconcile the two subsections by stating that
they have different domains. Section 2-209(4) deals with oral waivers, while § 2-209(5)
"is not limited to attempted modifications invalid under subsections (2) or (3); it
applies, for example, to express written waivers, provided only that the contract is
executory." This distinction implies that subsection (4) applies to a subset of the
subjects of subsection (5). Things are the other way around. Subsection (4) says that an
attempt at modification may be a "waiver," and subsection (5) qualifies the
effectiveness of "waivers" in the absence of reliance. See comment 4 to §
2-209. The two have the same domain -- all attempts at modification, be they oral,
written, or implied from conduct, that do not satisfy the Statute of Frauds, § 2-209(3),
or a "signed writing" requirement of a clause permitted under §2-209(2). The
majority suggests that § 2-209(5) also applies to signed waivers, but this gets things
backward. A "signed writing" is binding as a modification under § 2-209(2)
without the need for "waiver." §2-209(1) lifts the requirement of
consideration, so a signed pledge not to enforce a term of a contract may not be revoked
under § 2-209(5) unless the pledge reserves the power of revocation. Because
"waiver" is some subset of failed effort to modify, it cannot be right to treat
a successful effort to modify (a signed writing) as a "waiver" governed by
subsection (5).
"Waiver" therefore ought to mean the same in subsections (4)
and (5). Unsuccessful attempts at modification may be waivers under §2-209(4). Then
§2-209(5) deals with a subset of these "waivers," the subset that affects the
executory portion of the contract. Waivers affecting executory provisions are enforceable
or not depending on reliance. We know from the language and structure of §2-209 that
there is a difference between waivers that affect the executory portions of contracts and
waivers that do not. Under the majority's reading, however, there is no difference. No
waiver is effective without detrimental reliance. It is as if the majority has eliminated
§2-209(4) from the UCC and rewritten §2-209(5) to begin: "A party who has made [an
ineffectual attempt at modification] affecting [any] portion of the contract may
retract...."
Repair work of this kind sometimes is necessary. A legislature has many
minds, and as years pass these different people may use the same word in different ways;
so, too, the shifting coalitions that create a complex statute may contribute to it
multiple meanings of a single word, the more so because amendments may be added to a
statute after other portions have been bargained out. Section 2-209 of the UCC is not a
slap-dash production or the work of competing committees unaware of each other's words,
however. The UCC is one of the most carefully assembled statutes in American history. It
was written under the guidance of a few people, all careful drafters, debated for a decade
by the American Law Institute and committees of commercial practitioners, and adopted en
bloc by the states. Vague and uncertain in places the Code is; no one could see all of the
problems that would come within its terms, and in some cases foreseen problems were
finessed rather than solved. But "waiver" did not call for finesses, and §2-209
was drafted and discussed as a single unit. "Waiver" in §2-209(4) and
"waiver" in §2-209(5) are six words apart, which is not so great a gap that the
mind loses track of meaning.
The subsections read well together if waiver means "intentional
relinquishment of a known right" in both. Section 2-209(4) says that a failed
attempt at modification may be a waiver and so relinquish a legal entitlement (such as the
entitlement to timely delivery); § 2-209(5) adds that a waiver cannot affect the
executory portion of the contract (the time of future deliveries, for example) if the
waiving party retracts, unless there is also detrimental reliance. But for § 2-209(2) the
oral waiver could affect the executory portion of the contract even without reliance. It
is not necessary to vary the meaning of the word to make sense of each portion of the
statute.
The majority makes reliance an ingredient of waiver not because the
structure of the UCC demands the reading, but because it believes that otherwise the UCC
would not deal adequately with the threat of opportunistic conduct. The drafters of the
UCC chose to deal with opportunism not through a strict reading of waiver, however, but
through a statutory requirement of commercial good faith. See § 2-103 and comment 2 to §
2-209. The modification-only-in-writing clause has nothing to do with opportunism. A
person who has his contracting partner over a barrel, and therefore is able to obtain a
concession, can get the concession in writing. The writing will be the least of his
worries. In almost all of the famous cases of modification the parties reduced the new
agreement to writing.
A modification-only-in-writing clause may permit the parties to
strengthen the requirement of commercial good faith against the careless opportunist, but
its principal function is to make it easier for businesses to protect their agreement
against casual subsequent remarks and manufactured assertions of alteration. It
strengthens the Statute of Frauds. Even so, the Code does not allow the clause to be
airtight. Comment 4 to § 2-209 states: "Subsection (4) is intended, despite the
provisions of subsections (2) and (3), to prevent contractual provisions excluding
modification except by a signed writing from limiting in other respects the legal effect
of the parties' actual later conduct. The effect of such conduct as a waiver is further
regulated in subsection (5)." In other words, the UCC made
modification-only-in-writing clauses effective for the first time, but the drafters meant
to leave loopholes. The majority's observation that waiver under § 2-209(4) could nullify
some benefits of clauses permitted under § 2-209(2) is true, but it is not a reason for
adding novel elements to "waiver." It might be sensible to treat claims of oral
waiver with suspicion and insist on waiver by course of performance -- for example,
accepting belated deliveries without protest, or issuing new orders (or changing the
specifications of old orders) while existing ones are in default. Waiver implied from
performance is less prone to manipulation. This method of protecting
modification-only-in-writing clauses gives waiver the same meaning throughout the statute,
but it does not help Wisconsin Knife, for the claim of waiver here is largely based on the
course of performance.
The reading I give to waiver also affords substantial effect to
modification-only-in-writing clauses. To see this, consider three characterizations of the
dealings between Wisconsin Knife Works and National Metal Crafters. The first, which
Wisconsin Knife Works presses on us, is that there was no modification and no
"attempt at modification" within the meaning of §2-209(4). National Metal
Crafters promised to deliver the blanks in the fall of 1981. When it fell behind,
Wisconsin Knife Works had to decide whether to give up on National Metal Crafters (and
collect any damages to which it may have been entitled) or ask National Metal Crafters to
keep trying. National Metal Crafters may have been slow, but it had a head start on anyone
else Wisconsin Knife Works might have asked to make the blanks. Wisconsin Knife Works
wanted both to preserve its rights and to minimize its damages, and it did not surrender
its legal remedies by trying to mitigate. It was entitled to throw up its hands in January
1983 and collect damages [**40] from National Metal Crafters for nonperformance.
The second characterization is that when National Metal Crafters ran
into trouble producing on schedule, National Metal Crafters and Wisconsin Knife Works
discussed the problem and agreed that National Metal Crafters could have more time in
order to get the job done right. On this story, Wisconsin Knife Works valued a high
quality product and a successful business relation more than it valued its legal
right to prompt performance. Perhaps Wisconsin Knife Works did not even want performance
so soon, for it was not ready to turn the blanks into spade bits and did not want blanks
piling up in warehouses. So Wisconsin Knife Works told National Metal Crafters to take the
time to do it right. On my view this would be a waiver under § 2-209(4). When National
Metal Crafters took more time than Wisconsin Knife Works could stomach, Wisconsin Knife
Works announced that too much is enough, and it retracted the waiver. Section 2-209(5)
allowed it to do just this unless National Metal Crafters had relied to its detriment on
Wisconsin Knife Works's words and conduct. Having retracted the waiver, Wisconsin Knife
Works could declare National Metal Crafters in breach -- but because the waiver excused
National Metal Crafters's performance until January 1983, Wisconsin Knife Works could not
collect damages for delay. The parties would simply walk away from the contract.
The third characterization is the one National Metal Crafters presses
here. National Metal Crafters tells us that the purchase orders never were the
"real" contract. Instead Wisconsin Knife Works and National Metal Crafters
embarked on joint operations to find a new way to make spade bits. The purchase orders
were parts of a larger joint venture, which did not have formal terms. As the parties went
along they modified their understandings and accommodated each other's needs. The latest
modification occurred when National Metal Crafters gave Wisconsin Knife Works a "pert
chart" indicating realistic dates for quantity shipments, and people at Wisconsin
Knife Works said that these dates and quantities were acceptable. The dates ran into April
1983. This implies that when Wisconsin Knife Works declared the relationship at an end in
January 1983, it breached the contract (as modified), and National Metal Crafters is
entitled to damages -- at a minimum profits lost on blanks scheduled for delivery through
April 1983, perhaps even profits National Metal Crafters anticipated through continuation
of this relationship for a longer run.
Section 2-209(2) puts this third position out of court. The third story
would be a thorough going reshaping of the obligations, which could not occur unless
reflected in a "signed writing." The "pert chart" is not such a
writing because Wisconsin Knife Works, the party sought to be bound, did not sign it. The
discussions could be at most "an attempt at modification" under §2-209(4), and
therefore could be a waiver. Under §2-209(5) Wisconsin Knife Works could rescind its
waiver prospectively unless that "would be unjust in view of a material change of
position in reliance on the waiver" -- here, for example, proof that National Metal
Crafters had already manufactured the blanks scheduled for delivery in April 1983, or had
bought equipment with no alternative use. National Metal Crafters has not argued that it
had the sort of reliance that would enable it to enforce the executory portion of any
modification, and therefore Wisconsin Knife Works was entitled to cancel the contract and
walk away in January 1983 free from liability save for goods furnished or expenses
incurred in reliance before January 1983. This treatment of §2-209(5) solves, for the
most part, the problem of fabricated claims of modification. "Attempts at
modification" generally are not enforceable prospectively -- and if there is
commercial bad faith (that is, opportunistic conduct), they are not enforceable at all.
There is no serious remaining problem to which a reliance element in the definition of
waiver is a solution.
Because § 2-209(2) and (5) eliminate National Metal Crafters's
principal position, we are left with the first two -- either Wisconsin Knife Works stood
on its entitlement to timely delivery but stuck with National Metal Crafters to mitigate
damages, or Wisconsin Knife Works waived the requirement of timely delivery but in January
1983 rescinded the waiver. The jury's finding that Wisconsin Knife Works and National
Metal Crafters "modified" their contract, though an answer to a legally
erroneous question, resolves this dispute. Wisconsin Knife Works vigorously argued at
trial that at all times it stood on its right but went along with delayed delivery as a
second-best solution. The jury's finding that Wisconsin Knife Works and National Metal
Crafters modified their contract -- in the words of the instruction, that Wisconsin Knife
Works "by conduct or other means of expression induced a reasonable belief by
[National Metal Crafters] that strict enforcement was not insisted upon, but that the
modified performance was satisfactory and acceptable as equivalent" -- necessarily
rejects Wisconsin Knife Works's version of events. The evidence was sufficient to permit
the jury to reject this version. We are left with "an attempt at modification"
that may operate as a waiver, which Wisconsin Knife Works may and did revoke. See also
Chemetron Corp. v. McLouth Steel Corp., 522 F.2d 469, 472 (7th Cir. 1975), which defines
the elements of waiver much as the district court's instruction defined modification.
If National Metal Crafters were claiming damages for lost profits, it
would be necessary to determine whether National Metal Crafters detrimentally relied on
Wisconsin Knife Works's waiver. But National Metal Crafters does not want damages for work
to be performed after January 1983. It simply wants to defeat Wisconsin Knife Works's
claim for damages for belated delivery. (It also sought and received $30,000 for reliance
expenditures before January 1983, which is not problematic under my construction of §
2-209.) The jury, although improperly instructed, has found enough to support a judgment
discharging National Metal Crafters from liability to Wisconsin Knife Works. This requires
us to affirm the judgment.
A requirement of reliance will not make a difference very often --
certainly not in this case. Any waiver that is more than a condonation of an existing
default will induce some reliance. The buyer who asks a seller of fungible goods to defer
delivery induces reliance even though the waiver of timely delivery will not affect the
production of the goods. When the goods have a custom design, as the spade bit blanks do,
some reliance is close to a certainty. I doubt that National Metal Crafters would have
produced the same goods in the same quantity but for a belief that Wisconsin Knife Works
wanted to have them. A change of position in reliance on the frequent discussions is all
the majority requires. Summary judgment cannot be far away. Still, it is better not to ask
unnecessary questions even when the questions have ready answers.