Court Opinion

ID: 9474465
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:57:43.183119+00
Date Added: 2024-06-11T17:44:05.806564
License: Public Domain

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).*
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 “waiv*1291er” 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.” Section 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 efforts 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 slapdash 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 re*1292liance. 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 this 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 business 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 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 busi*1293ness 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. See Dangerfield v. Markel, 252 N.W.2d 184, 191-93 (N.D.1977).
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 thoroughgoing 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 Na*1294tional 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 rights 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.

 The sources the majority cites for the contrary position do not offer much support. Corbin’s treatise on contracts views § 2-209(2) as a regrettable inroad on the flexible construction of contracts. 6 Corbin, Contracts § 1295 at 211-12 (1962). The word "reliance" does appear in Corbin's discussion, but I read it as a reference to § 2-209(5). Corbin’s position is that § 2-209(4) and (5) should prevent § 2-209(2) from doing "serious damage;’’ the majority inserts a reliance requirement in § 2-209(4) to prevent what it sees as potentially serious damage to § 2-209(2). Farnsworth, like Corbin, is hostile to § 2-209(2). He opines: "It would be possible to give an expansive meaning to the term waiver in these provisions and thereby reach results similar to those reached in cases decided under the common law rule. The clause, then, would be effective only if there had been no reliance." Contracts 476-77 (1982) (emphasis in original). This does not look like a proposal to make waiver depend on reliance; it is a proposal to make "the clause” — the modification-only-in-writing clause — effective only if there has been reliance. Eisler would like to use reliance as part of a waiver because she wants to change § 2-209. She thinks that oral modifications of any contract should require consideration, despite § 2-209(1), and a reliance rule is a step in that direction. 58 Wash.U.L.Q. at 280-81, 300-01.