Wisconsin Knife Works v. National Metal Crafters
781 F.2d 1280 (1986)
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Rule of Law:
Under Uniform Commercial Code § 2-209, an attempted oral modification of a contract containing a 'no oral modification' clause is effective as a waiver only if the party claiming the waiver has reasonably and materially relied on the attempted modification.
Facts:
- Wisconsin Knife Works (WKW) decided to manufacture spade bits and contracted with National Metal Crafters (NMC) to supply the necessary metal 'blanks.'
- WKW sent NMC a series of purchase orders, each containing a pre-printed clause stating, 'No modification of this contract, shall be binding upon Buyer unless made in writing and signed by Buyer’s authorized representative.'
- NMC acknowledged the first two orders in writing and accepted the subsequent four orders by beginning performance.
- The purchase orders established delivery dates in October and November 1981.
- NMC failed to meet the delivery deadlines.
- Despite the missed deadlines, WKW did not cancel the contract and continued to accept late deliveries from NMC for over a year.
- By December 1982, more than a year after the original deadlines, NMC was producing the blanks in adequate quantities.
- On January 18, 1983, WKW terminated the contract, having received only about half of the total blanks ordered.
Procedural Posture:
- Wisconsin Knife Works sued National Metal Crafters in U.S. District Court for breach of contract.
- National Metal Crafters counterclaimed for damages.
- The case was tried before a jury, which was instructed that the contract could be modified orally or by conduct.
- The jury found that the contract had been modified and was not breached by National Metal Crafters.
- The district court entered judgment dismissing Wisconsin Knife Works' suit and awarded $30,000 to National Metal Crafters on its counterclaim.
- Wisconsin Knife Works, as appellant, appealed the dismissal of its suit to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Under UCC § 2-209, can an oral attempt to modify a contract that includes a valid 'no oral modification' clause operate as a waiver under § 2-209(4) without a showing of reliance by the party asserting the waiver?
Opinions:
Majority - Posner, Circuit Judge
No. An attempted oral modification of a contract containing a valid 'no oral modification' clause can only operate as a waiver under UCC § 2-209(4) if the party asserting the waiver shows that it reasonably relied on the attempted modification. Reading § 2-209(4) to allow any oral 'attempt at modification' to automatically become a waiver would render § 2-209(2), which authorizes 'no oral modification' clauses, superfluous and would revive the common law rule that the UCC sought to displace. The statutory phrase 'can operate as a waiver' implies that it does not do so in all circumstances. Requiring reliance reconciles the two subsections by providing an evidentiary and cautionary function, protecting parties from fabricated claims of modification while still allowing for flexibility when a party has demonstrably changed its position based on the other's conduct.
Dissenting - Easterbrook, Circuit Judge
Yes. An attempted oral modification can operate as a waiver under § 2-209(4) without a showing of detrimental reliance. The common law definition of 'waiver' is an intentional relinquishment of a known right, which does not require reliance. The structure of UCC § 2-209 supports this, as subsection (5) explicitly introduces a reliance requirement for the retraction of a waiver affecting future performance, which implies that reliance is not an element of the waiver itself under subsection (4). The majority's holding improperly conflates the distinct concepts in subsections (4) and (5). The UCC's intended protection against opportunistic behavior is the doctrine of good faith, not a court-invented reliance requirement for waiver.
Analysis:
This decision establishes an influential interpretation of the relationship between subsections (2) and (4) of UCC § 2-209, which had been a source of legal ambiguity. By requiring reliance for an attempted oral modification to act as a waiver, the court gives significant force to 'no oral modification' clauses, preventing them from being easily circumvented by unsubstantiated claims of verbal agreements. However, it stops short of making such clauses absolute, providing an equitable exception for parties who have demonstrably changed their position based on the other party's conduct. This reliance-based test strikes a balance between contractual certainty and fairness, shaping how courts analyze waiver claims in commercial contracts governed by the UCC.
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