#11440 - Modification And Waiver - Contracts

Modification & Waiver

1. Connected to PER?

   1. In both, a part is seeking to subvert the terms in a written agreement.

   2. Instead of alleging parol agreement prior/contemporaneous with execution of writing, they allege and agreement to modify the contract or a waiver of a contract term.

   3. Modification: 1) an apparent agreement to adjust terms. 2) if a contract as modified is within the statute of frauds, then a writing to satisfy statute. 3) under the common law, a legal basis for enforcing the modification (consideration or reliance).

   4. Waiver:

      1. an intentional relinquishment of a known right (Clark, Easterbrook dissenting)

      2. requires no consideration for a waiver, nor any prejudice or injury to the other party. Clark.

      3. A waiver can never be revoked. Clark

      4. A waiver affecting an executory portion of the contract may be retracted unless the retraction would be unjust in view of a material change of position in reliance of the waiver (UCC 2-209(5)) and R2 § 84

   5. Clark v. West, pg 144: West promises Clark $2 per page as base rate, plus additional $4 per page if he totally abstains from drinking during terms of contract. Clark drank, but claims he is entitled to $4 per page because West agreed to waive this condition.

   6. Wisconsin Knife Works v. national metal Crafters (bspace): contract for delivery of 281,000 spade bi blanks in Oc and Nov 1981. NMC delievered only 144,000 as of Jan 1982. WKW cancels contract and sues for damages for missed deliveries. NMC denies liability, alleging WKW agreed to push back the dlivery dates to dates in the future. WKW takes the position that it allowed NMC to perform, and did not complain about the delays, in order to secure needed performance with the least difficulty, which mitigated damages. NMC takes the position that the delivery dates were never firm and that these dates were definitively settled by agreement during the course of performance

   7. What rights are subject to waiver?

      1. Clark: the requirement that Clark drank was a means to an end (quality work) and not the end in itself. So the absitenance was not proper consideration for the $4. (Werner does not question the premise that the consideration for a promise cannot be waived)

      2. R2 § 84(1) – a promise to perform a onditional duty in spite of the non occurrence of the condition is binding unless occurrence of the condition was a material part of the agreed exchange for the performance of the duty.

         1. Materiality is better word than consideration because it goes to the importance of the term.

         2. Consideration is a litmus test for one type of enforceable promise (bargains), but typically one doesn’t parse a bargain to ask what precisely constitutes the consideration. Nor does one question the sufficience of consideration if there is an apparent bargain.

   8. What interests are protected by waiver?

      1. Werner: refers to the forfeiture that would result from enforcing the condition.

         1. Forfeiture – non payment for work done

            1. A loss of the promised counter-performance when a party has performed his part of the bargain

            2. Many forfeiture cases involve insurance

            3. The non-fulfillment of condition (or the breach) must not have materially harmed the other party or that the harm be rectified with damages

            4. The party claiming forfeiture must have substantially performed his part of the bargain

               1. Illustration 3 and 4, pg 148

            5. Although waiver does not require reliance, saiver can be RETRACTED for an executor portion of a contract in the absence of reliance.

               1. Illustration 6, pg 148

   9. What constitutes an expression of waiver?

      1. Clark: in the insurance context, words and acts of the insurer reasonably justify the conclusion that with full knowledge of the facts it intended to abandon or not insist upon a defense.

         1. Clark alleges waiver by failure to object, affirmative representations, and mutual agreement

         2. Werner says Clark must establish an express waiver, precluding waiver by failure to object

         3. Sometimes silence may constitute waiver, but not in this case.

   10. f, h, I questions are interconnected

       1. Less may be required in the clarity of expression of a waiver if the waiver is retractable

       2. More is required in clarity of expression if the term allegedly waives is important to the party against who waiver is being asserted.

       3. Less is required in the clarity of expression if enforcing the term would clearly result in a windfall and unjust enrichment.

       4. Shiled, not sword

          1. Posner in Wisconsin Knife: a feature shared by waiver and equitable estoppel: a waiver merely removes an old term (unlike a modification that substitutes a new term for an old).

          2. Why is waiver better suited to removing terms than adding?

             1. The feature follows from the term itself. The word waiver is not easily used to describe an undertaking of an obligation to another.

       5. Doctrine of waiver only operates to adjust obligations between people, between who obligations are already owed.

          1. A incorrectly tells B there is no need to file a written insurance claim, and A is an agent of the insurance company, then this would be a straightforward case of waiver. On the other hand, if A has no relationship to the insurance company, then the doctrine of waiver would not be a basis for imposing liability on A. One would need to look to tort or contract law to find a basis for imposing liability

2. No oral modification

   1. Generally unenforceable under common law (Wisconsin Knife)

      1. Enforceable under UCC if assent to clause is properly secured, See § 2-209(2)

      2. Must be on a form separately signed by other party (or form taker will b asked to initial clause, signifying it has been called to his attention)

         1. Except as between merchants

      3. Merchant = any commercially sophisticated party, UCC § 2-104(1), Comment 2

3. UCC § 2-209(4): a modification that is ineffective because of a failure to comply with a NOM clause or to satisfy the statute of frauds can operate as a waiver

4. Wisconsin Knife: Easterbrook vs. Posner – whether waiver requires reliance

   1. Easterbrook: there almost always will be reliance

      1. BMC Industries, pg 149

      2. If modification is ineffective, then NMC has no rights under the contract as modified, it can only claim WKW’s rights under the original contract have been waived.

      3. NMC cannot recover damages for profits it would’ve made on future deliveries if WKW has the power to retract the waiver and reinstate the original terms. WKW does this if NMC cannot show reliance

      4. If NMC can show reliance, there is a question whether damages might be limited to reliance damages

   2. Posner: an NOM clause is like a private statute of fraud

Form Contracts

1. Battle of the forms

   1. Common law

      1. Offer is a communication that invites the making of a contract by acceptance. Acceptance must be on the precise terms of the offer.

         1. Acceptance that has additional/different terms = counter offer

         2. Mirror image rule

         3. If parties perform, then there is a contract on the terms in the second form

            1. Last shot rule

   2. Three approaches in determining if a response to an offer is acceptance

      1. Rotolith – pg 648: non-acceptance if any discrepancy in material terms

      2. Dorton, - pg 649: non-acceptance if clear statement in form

      3. Gardner Zemke : in context did response reasonably appear to be an acceptance

   3. Llewellyn: courts should respect dickered terms, but should only enforce “boilerplate” in a form if they find the form giver did not abuse its power to dictate terms on the form taker that undercut the parties’ agreement.

      1. But generally, if a party does “manifest assent” to a form they are held to the terms in the form. R2 § 211(1),

   4. UCC 2-207 (first shot rule)

      1. (1) a response can be acceptance even though it has additional or different terms

         1. purpose: to allow a person to respond to an offer by proposing new or different terms without committing to a contract

         2. you can also do this by making a contract expressly conditional on the other party’s assent to the new or different terms

         1. the additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless

            1. the offer expressly limits acceptance to the terms of the offer

            2. they materially alter it; or

            3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received

      2. (3) alternative basis for holding a welsher to an apparent agreement: Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.”

         1. Neither form is preferred

         2. The terms are those found in both forms together with any supplementary terms incorporated under any other provisions of the act

2. Obnocious terms in second form

   1. UCC 2-207(1) changes common law last shot rule

   2. UCC 2-207(2): the original offer controls unless

      1. The offer doesn’t preclude the addition of terms

      2. And the new term is not a material change

         1. Materiality is a function of surprise or (perhaps) hardship

      3. And the offeror does not object

   3. Gardner Zemke v. Dunham Busch (pg 645) - DB supplied chillers to GZ that were installed by GZ in a DOE facility. There was a claim the chillers malfunctioned. DB refused to repair the chillers without a promise of payment if it turned out the problem was not due to a defect in the equipment. Refusing to agree to this, DOE paid to repair the chillers on its own. DOE passed this cost on to GZ, which sued DB. Warranty limitations required the buyer to ship the equipment back to DB’s factory at its own expense for repair. DB’s forms goes to great pains to make it clear that...