Judge Posner, a Modern Day Chancellor in Equity: An Explanation of Wisconsin Knife Works v. National Metal Crafters

Judge Posner has published several books and articles telling us how he decided cases. His touchstone was to come up with a “sensible solution” of the dispute before him. At first blush, it is hard to argue against a judge reaching a sensible outcome of a case. If limited to common law decisions where there was an “open area” of the law, Judge Posner’s self-described “pragmatism” would not be remarkable. But what if precedent or legislative direction dictated a result Judge Posner believed was not “sensible”? Judge Posner has (sometimes) said his freedom to decide cases was bounded by precedent and direct legislative instruction, but his real views come out in his writings: “I pay very little attention to legal rules, statutes, constitutional provisions. A case is just a dispute. The first thing you do is ask yourself — forget about the law — what is a sensible resolution of this dispute.” Indeed, he sees himself as a post-enactment “legislator,” and one that is freer to impose a sensible solution on the populace than the majoritarian, “official” legislators, “The role I am expounding, appellate judges when deciding cases on the open area are political actors – legislators operating under certain constraints that do not bind the official legislators, but also, depending on tenure and other factors, enjoying certain leeways that official legislators don’t.” When resolving a case arising under a statute, the tension between legislative guidance on the one hand, and Judge Posner’s pragmatism on the other, was exacerbated because he was the one who decided whether an area was “open” for his resolution or whether an ambiguity existed that beckoned for his sensible resolution. Judge Posner’s confidence in his own resolution made it easier to find a gap, especially since it was rare that a case got to the Seventh Circuit without there being some ambiguity. And when the case arose under the UCC, the temptation to act as common law judge and fill an open area was especially great given the UCC’s mix of common law contract and statutory principles. As Professor Johnson noted: [B]ecause of its fundamental grounding in common law contracts, Article 2 especially tempts courts to stretch the license granted by the Code. It is as if courts are operating under a sort of common law inertia, a habit of mind that presumes the freedom to adjust, renovate, or flatly repudiate plain statutory commands if necessary to generate “better” results. . . . There are countless places the courts must weave alternately between the Code text and the common law. And many cases where the text of the Code is a puzzle whose solution invites common law style analysis. . . . [T]he Code’s general provisions explicitly invite judges to construe the text liberally to provide the flexibility necessary for administering rules of facilitation in a constantly changing marketplace. So the Code, more so than many statutes, anticipates and invites judicial creativity. When it came to the UCC, Judge Posner was more a Chancellor in Equity than a common law judge in the age of statutes (with apologies to Professor Calabresi). That is, he was less interested in making or acknowledging precedent or following legislative restriction, and more on just “getting it right.” This mindset explains his opinion in one of his more famous UCC cases, Wisconsin Knife Works v. National Metal Crafters, 718 F.2d 1280 (7th Cir. 1986), where he faced Judge Easterbrook in dissent. The case involved a phrase in UCC § 2-209(4) which provides that an attempted modification of a contract that can’t be enforced as a modification because it is not in writing and needed to be, “can” operate as a waiver. Judge Posner was correct in noting that the drafters gave no explicit guidance anywhere in § 2-209 or its comments as to when the attempted modification “can” (or “cannot”) act as a waiver. But just because there is no explicit guidance in the statute does not mean there is no guidance at all in the Code. As Judge Easterbrook pointed out, it was entirely consistent with Article 2 to enforce those attempted modifications that were mad in “good faith” and to reject those made under by someone under duress, by an extorter, or by someone trying unfairly to take advantage of a changing market price. However, Judge Posner believed a more “sensible” resolution of the issue was to equate “can” with reliance, and say that an unenforceable modification “can” be enforced as a waiver if it is accompanied by reliance, and that it cannot be enforced if a demonstrable reliance is lacking. His is a nifty solution, and may have been one the drafters would have been wise to adopt. But it is contrary to the Code’s construct for many reasons, not the least of which is the use of the term “reliance” in § 2-209(5), making it palpable that reliance was not to be a consideration in § 2-209(4). However, the point of this article, as part of a symposium on Judge Posner’s contract and commercial law jurisprudence, is not to debate the correctness of the decision (although the majority of the post-Wisconsin courts dealing with the issue have sided with Jude Easterbrook), but rather to illustrate Judge, or should I say “Chancellor,” Posner’s approach to commercial law cases.