Dynamic Machine Works, Inc. v. Machine & Electrical Consultants, Inc.
831 N.E.2d 875, 2005 Mass. LEXIS 426, 444 Mass. 768 (2005)
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Rule of Law:
Under the Uniform Commercial Code § 2-209, a written extension of a performance deadline is a non-retractable modification if it resulted from a mutual agreement, but it is a retractable waiver if it was a unilateral grant of an extension, provided the other party has not materially relied on it.
Facts:
- In January 2003, Dynamic Machine Works, Inc. (Dynamic) agreed to purchase a lathe from Machine & Electrical Consultants, Inc. (Machine) for $355,000, with delivery scheduled for May 15, 2003.
- After production was delayed, the parties mutually agreed in writing in July 2003 to extend the installation deadline to September 19, 2003.
- Machine delivered the lathe on October 9, 2003, but it was not fully commissioned by December.
- On December 9, 2003, Dynamic's president sent a letter to Machine stating, "we will grant you one last and final deadline... by the close of business day, Friday December 19, 2003."
- The following day, after receiving new information, Dynamic concluded the lathe would never meet specifications.
- On December 11, 2003, Dynamic's counsel sent a letter retracting the deadline extension and revoking acceptance of the lathe.
- Machine had not materially changed its position in reliance on the December 9 extension before it was retracted on December 11.
Procedural Posture:
- Dynamic filed an action in Massachusetts Superior Court (state trial court) against Machine seeking a declaratory judgment and damages.
- Machine removed the action to the U.S. District Court for the District of Massachusetts (federal trial court).
- Machine asserted a counterclaim against Dynamic for breach of contract.
- The federal district court judge, treating the matter as a case stated on cross-motions for summary judgment, ruled that Dynamic had properly revoked the deadline extension.
- The federal district court judge then certified a question of law to the Supreme Judicial Court of Massachusetts (the state's highest court) because there was no controlling state precedent on the issue.
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Issue:
Under the Massachusetts Uniform Commercial Code, does a buyer have a right to unilaterally retract a written deadline extension for the seller to cure defects, when the seller has not relied on the extension?
Opinions:
Majority - Cordy, J.
No, if the written extension is a contract modification, but yes, if the extension is a waiver. A buyer's right to retract a deadline extension depends on whether the extension is characterized as a 'modification' or a 'waiver' under U.C.C. § 2-209. A modification is a bilateral agreement that changes the contract's terms and cannot be unilaterally retracted, even without consideration. In contrast, a waiver is a unilateral relinquishment of a known right and can be retracted with reasonable notification, unless the other party has materially changed their position in reliance on the waiver. The determination of whether the buyer's letter constituted a modification or a waiver is a question of fact that turns on whether the parties mutually agreed to the new deadline.
Analysis:
This decision clarifies the critical distinction under U.C.C. § 2-209 between a contract modification and a waiver of performance, which have different rules regarding retractability. The court establishes that mutual assent is the key factor in determining if a change to a contract's terms is a binding modification. This holding forces lower courts to conduct a factual inquiry into the parties' intent, rather than simply looking at the form of the communication, when deciding if a party can retract a promise to extend a deadline. It underscores that while the U.C.C. makes modifications easier by removing the consideration requirement, it does not remove the fundamental requirement of a mutual agreement.
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