George Mason School of Law Contracts II I

George Mason School of Law Contracts II I. Conditions This file may be downloaded only by registered students in my class, and may not be shared by them © F. H. Buckley fbuckley@gmu. edu 1

Kinds of Terms o Consider: I promise to help you on your journey, the good Lord willin’ and the crick don’t rise. I’m going to drown 2

Kinds of terms o Consider: I promise to help you on your journey provided the crick don’t rise. n If the crick rises, am I in breach? 3

Kinds of terms o Now consider: I promise to help you on your journey provided the crick don’t rise. n So this is not a promise: let’s call it a condition o If the event in question occurs, I am excused from performance 4

Kinds of terms o Now consider: I promise the crick won’t rise. n If the crick rises, am I in breach? 5

Kinds of conditions o Now consider: I promise the crick won’t rise. n Is there a problem about promising the occurrence of an event over which I have no control? 6

Kinds of conditions o Now consider: I promise the crick won’t rise. n Is there a problem about promising the occurrence of an event over which I have no control? o Ever hear of earthquake insurance? 7

Kinds of conditions o Now consider: I promise the crick won’t rise. n Is there a problem about promising the occurrence of an event over which I have no control? o Let’s call this a promise. Or a warranty. 8

Different kinds of terms o Some are obligations, some not Promises Warranties 9 Other terms: definitions, recitals, conditions, etc.

Express conditions: force majeur clauses o A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. 10

When will a court to imply a condition, absent express language? n What kind of gap-filling will the court do? 11

When will a court to imply a condition, absent express language? o Paradine v. Jane at 77 12 Prince Rupert

How willing is a court to imply a condition, in the absence of express language? o Paradine v. Jane at 77 n “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it. ” 13

How willing is a court to imply a condition, in the absence of express language? o Paradine v. Jane at 77 n “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it. ” n But “If a house be destoyed by tempest, or by enemies, the lessee is excused” (? !? ) 14

How willing is a court to imply a condition, in the absence of express language? o Paradine v. Jane at 77 n “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it. ” n But “If a house be destoyed by tempest, or by enemies, the lessee is excused” (? !? ) n Does it matter that the leasehold interest had passed? 15

Stees p. 74 o What is the claim? Third and Minnesota, St Paul 16

Stees p. 74 o What are the possible legal outcomes? 17

Stees o What are the possible legal outcomes? n Builder assumes risk and is liable n Owner assumes risk and is liable n No one is liable 18

Stees o What are the possible legal outcomes? n Builder assumes risk and is liable in damages for non-completion 19

Stees o What are the possible legal outcomes? n Builder assumes risk and is liable in damages for non-completion o If this seems hard, what might the builder do? 20

Stees o What are the possible legal outcomes? n Owner assumes risk o And is liable for seller’s damages 21

Stees o What are the possible legal outcomes? n Owner assumes risk n Cf. Restatement § 89 (Modification), Illustration 1: By a written contract A agrees to excavate a cellar for B for a stated price. Solid rock is unexpectedly encountered and A so notifies B. A and B then orally agree that A will remove the rock at a unit price which is reasonable but nine times that used in computing the original price, and A completes the job. B is bound to pay the increased amount. 22

Stees o What are the possible legal outcomes? n No one is liable n The quicksand puts an end to the contract n Let the loss lie where it falls 23

Stees o What are the possible legal outcomes? n Builder assumes risk and is liable n Owner assumes risk and is liable n No one is liable o How would you express these difference in legal terms? 24

Stees o What are the possible legal outcomes? n Builder assumes risk and is liable: warranty n Owner assumes risk and is liable: warranty n No one is liable: condition 25

Stees o What are the possible legal outcomes here? o Can you tell which from the language of the contract? 26

Stees o What doctrines might a court invoke to put an end to all obligations under a contract? 27

Stees o What doctrines might a court invoke to put an end to all obligations under the contracts? n Mistake n Frustration/Impracticability n Condition 28

Stees o Mistake n Restatement § 152(1) Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake …. 29

Stees o Mistake n Restatement § 152(1) Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake …. 30

Stees o Mistake n No mistake if Assumption of risk n Restatement § 154 A party bears the risk of mistake when the risk is allocated to him by agreement of the parties, or he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. 31

Stees o Frustration or Impracticability n Restatement § 261 Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. 32

Stees o Condition n Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. 33

Stees o Condition n Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. n Restatement § 225(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur 34

Stees o What did the court decide? 35

Stees o What did the court decide? n The contractor must perform his engagement, unless prevented by an Act of God, the law, or the other party 36

Stees o What did the court decide? n A presumption against conditions that excuse performance n The “sanctity of contracts” n “The promisor should provide against contingencies” 37

Stees o What did the court decide? n The contractor must perform his engagement, unless prevented by an Act of God, the law, or the other party 38

Stees o What did the court decide? n He must perform his engagement, unless prevented by the act of God, the law, or the other party n If the parties had bargained for an excuse, the courts would honor this. n What if they had not put their minds to it? 39

Stees o What did the court decide? n Quicksand as an informational problem o Who was in the best position to discover or know of the problem? 40

Stees o If contractors are liable for breach of promise, what remedies might be available to plaintiff homeowners? 41

Stees o If contractors are liable for breach of promise, what remedies might be available to plaintiff-homeowners? n Damages for breach (give plaintiff the benefit of the bargain less the contract price) 42

Stees o If contractors are liable for breach of promise, what remedies might be available to plaintiff-homeowners? n Damages for breach (give plaintiff the benefit of the bargain less the contract price) n Set aside (rescind) the contract (absolve plaintiff from paying the price) on a breach of a condition 43

Stees o But observe that a condition may also be a promise 44

Now it gets confusing o So the term condition can mean two entirely different things n That wasn’t very smart, was it? 45

Two kinds of conditions o Non-promissory conditions are not promises and excuse performance by either party on their occurrence o No right to claim for damages 46

Two kinds of conditions o Promissory Conditions o are warranties (for which the innocent party may receive consequential damages on breach) o and conditions (which excuse performance by the innocent party) 47

Different kinds of conditions o Some are obligations, some not Promissory Conditions 48 Non-promissory Conditions

Promissory conditions: The example at 615 o I agree to sell you my dog for $400, delivery at your house on Thursday. o I come to your house with my dog on Thursday. You tell me you want it but that you can’t pay me till Saturday o Do I have to deliver the dog on Thursday? 49

Promissory conditions o UCC § 2 -511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery. 50

Promissory conditions o UCC § 2 -511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery. o This is a condition (i. e. , seller doesn’t have to deliver if buyer doesn’t pay) 51

Promissory conditions o UCC § 2 -511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery. o And also a promise (i. e. , a warranty in which seller is in breach if he doesn’t deliver when buyer pays) 52

Promissory conditions Turn this around o I agree to buy your dog for $400 at your house on Thursday. o I come to your house with $400 on Thursday, but you tell me you won’t give me the dog till Saturday o Do I have to pay you on Thursday? 53

Promissory conditions o UCC § 2 -507(1). Tender of delivery is a condition to the buyer's duty to accept the goods 54

What does “condition” mean here? o Not every promise is a promissory condition, but only those promises which must be performed as a condition of the other party’s duty of performance n Tender or delivery and payment as mutual conditions n Both parties to stand “ready, willing and able” to perform 55

Promissory and non-promissory conditions o In what respect do promissory and non-promissory conditions resemble each other? 56

Promissory and non-promissory conditions o In what respect do promissory and non-promissory conditions resemble each other? n The non-breaching party is excused from performance of a promissory condition, and both parties are excused on the occurrence of a non-promissory condition 57

Promissory and non-promissory conditions o In what respect do promissory and non-promissory conditions NOT resemble each other? 58

Promissory and non-promissory conditions o In what respect do promissory and non-promissory conditions NOT resemble each other? n The breaching party is liable for damages on breach of a promissory condition, but not on the occurrence of a nonpromissory condition 59

What about non-sale of goods o When does a promise amount to a promissory condition? 60

What about non-sale of goods o § 234(1). Order of Performances--Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. 61

What about non-sale of goods o § 234(1). Order of Performances Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. o I. e. , a presumption of promissory conditions 62

What about non-sale of goods o § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. 63

What about non-sale of goods o § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. n So he has to do everything before the other party has to perform 64

What about non-sale of goods o § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. o “Work before pay” 65

Promissory conditions o When I agree to build you a house, when do you have to pay? 66

Work before Pay Stewart v. Newbury at 619 o What did the contract say about progress payments? 67

Work before Pay Stewart v. Newbury at 619 o What did the contract say about progress payments? n The presumption: If you want progress payments, you have to bargain for them 68

Promises vs. Conditions Nonpromissory Conditions 69 Promissory Conditions Bare promises, warranties

Three different kinds of terms o Non-promissory conditions o On its occurrence both parties excused o Promissory conditions o On its breach, innocent party may either rescind or sue for damages o Bare promises or warranties o On its breach, innocent party can sue for damages, but not rescind 70

Howard at 625 71

Howard o What are the farmer’s remedies if he did not comply with clause 5(b)? 72

Howard o What are the farmer’s remedies if he did not comply with clause 5(b)? o Could he be sued for failure to comply with it? 73

Howard o What are the farmer’s remedies if he did not comply with clause 5(b)? o Could he be sued for failure to comply with it? o So a non-promissory condition 74

Howard o And for non-compliance with Clause 5(f)? 75

Howard o Qu. Clause 5(f) n If this is not met, Can Howard still recover? n If this is not met, is Howard liable in damages? 76

Howard o What are the options? 77

Howard o What are the options? o Bare promise, warranty: Not a condition precedent, but a promise that the event will happen, breach of which gives FCIC a damages remedy at best o Promissory condition: A promise that the event will happen plus non-occurrence excuses the other party from performance o Condition precedent: No promise that event will happen, but non-performance excuses both parties 78

Howard o What are the options? o Held a Bare promise 79

Howard o Can you distinguish illustrations 2 and 3 on p. 627? 80

What are the presumptions in the Restatement? o Restatement § 227(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, n (a) = bare promise by obligee n (b) = non-promissory condition n (c) = promissory condition by obligee 81

What are the presumptions in the Restatement? o Restatement § 227(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. n I. e. , bare promise 82

What are the presumptions in the Restatement? o Restatement § 227(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. 83

What are the presumptions in the Restatement? o Restatement § 227(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. n So a presumption against promissory and non-promissory conditions 84

In re Carter p. 628 o How would you decide this? 85

Pay if Paid o Main Electric at 630 o Why might this make sense? 86

Express Language o Inman at 631 87

Attorney Approval Clauses o Gaglia at 635 88

George Mason School of Law Contracts II I. Conditions This file may be downloaded only by registered students in my class, and may not be shared by them © F. H. Buckley fbuckley@gmu. edu 89

Promises vs. Conditions Nonpromissory Conditions 90 Promissory Conditions Bare promises, warranties

Divisibility o Can a party in breach of a promissory condition resist forfeiture by asserting that conditions are divisible? 91

Divisibility o Suppose that a builder contracts to build seven motels in seven different cities, the same charge of $100 K for each n Builder defaults on last motel. n Could buyer rescind on all? 92

Divisibility o Restatement § 240. If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised. 93

Divisibility o Same case, but now: n All motels built to the same specifications n Builder to be paid $700 K for the seven motels. 94

Divisibility o Same case, but now: n All motels built to the same specifications n Builder to be paid $7 M for the seven motels o Restatement § 240, illustration 5 95

John. v. United Advertising 620 o Are highway signs different? 96 Englewood CO

John v. United Advertsing o Are highway signs different? n Is this like losing your GPS signal at a crucial point? o “Take the first available U-Turn” 97

John v. United Advertsing o What are the options for the court? o Set aside the entire contract if a material breach o Set aside the severable parts of it otherwise 98

John v. United Advertsing o A “material failure” of the entire contract? o Restatement § 237. Except as stated in § 240, it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. 99

John v. United Advertsing o A severable contract n Sever the breaches and enforce as to the rest? n Supposing the contract had omitted the divisibility clause? 100

Divisibility in the UCC o UCC § 2 -307 Delivery in Single Lot or Several Lots. Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. n A presumption of non-divisibility 101

Divisibility in the UCC o UCC § 2 -307 Delivery in Single Lot or Several Lots. Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. n But this might be rebutted if separate deliveries contemplated 102

UCC § 2 -612: Installment Contracts o § 2 -612(1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent 103

UCC § 2 -612: Installment Contracts o § 2 -612(2) The buyer may reject any installment which is non-conforming if the nonconformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents 104

UCC § 2 -612: Installment Contracts o § 2 -612(3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. 105

Conditions precedent and subsequent o What’s the difference? 106

Defining Conditions o Conditions precedent: The obligations of the parties will not arise if x has occurred. o Conditions subsequent: The obligations of the parties are suspended if x occurs. 107

Conditions precedent and subsequent o Conditions precedent n Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. 108

Conditions precedent and subsequent o Conditions subsequent n Restatement § 230 “the occurrence of an event is to terminate an obligor’s duty” o Cf. Restatement § 224 cmt e 109

Conditions precedent and subsequent o Conditions subsequent n Restatement § 230 “the occurrence of an event is to terminate an obligor’s duty” n But not under 230(2) if the obligor is in breach of duties of good faith and fair dealing or no undue hardship to obligor 110

What are the presumptions in the Restatement? o Had Stees been held a condition, would it have been a condition precedent or subsequent? 111

What are the presumptions in the Restatement? o Restatement § 227(3) An interpretation is preferred under which an event is a condition of an obligor’s duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it becomes a duty to perform n That is, a presumption of a condition precedent over a condition subsequent 112

Let’s review Nonpromissory Conditions 113 Promissory Conditions Bare promises, warranties

Promises and Conditions Promises Conditions 114 Bare Promises (Warranties)

Promises and Conditions Promises Conditions Warranties Election Forfeiture 115 Damages only

When is compliance excused? o When is a condition no longer operative? o When is performance of a promise excused? 116

Modification, Waiver, Estoppel: Clark v. West at 636 The dirty little secret of textbook publishing revealed 117

Modification, Waiver, Estoppel o Distinguish Modifications, waiver, estoppel 118

Modification, Waiver, Estoppel o Modifications are bilateral agreements to vary obligations under a contract n Promises are modified 119

Modification, Waiver, Estoppel o Modifications are bilateral agreements to vary obligations under a contract o Waivers are unilateral acts by one party to excuse another’s performance of an obligation n Conditions are waived 120

Modification, Waiver, Estoppel o Modifications are bilateral agreements to vary obligations under a contract o Waivers are unilateral acts by one party to excuse another’s performance of an obligation o (Promissory) Estoppel bars a promisor from enforcing a right where he knows that a promisee has detrimentally relied on him. 121

Modification, Waiver, Estoppel at common law Agreement Required? Modification Waiver Estoppel 122 Reliance required?

Modification, Waiver, Estoppel at common law Modification Waiver Estoppel 123 Agreement Required? Reliance required? yes no

Modification, Waiver, Estoppel at common law Agreement Required? Reliance required? Modification yes no Waiver no no Estoppel 124

Modification, Waiver, Estoppel at common law 125 Agreement Required? Reliance required? Modification yes no Waiver no no Estoppel no yes

Clark v. West o What was the promise? n Now you know why textbooks are so long. 126

Clark v. West o What was the promise? n Now you know why textbooks are so long. o Facts alleged on 636 n Would this be enough for an estoppel? n A waiver? 127

Clark v. West o The bias against forfeiture—with conditions so easily waived 128

UCC § 2 -209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2 -201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 129

UCC § 2 -209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2 -201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 130

UCC § 2 -209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2 -201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 131

UCC § 2 -209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2 -201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 132

UCC § 2 -209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2 -201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 133

Wisconsin Knife Works at 639 o What was the contract? 134

Wisconsin Knife Works at 639 o What was the contract? Metal Crafters Spade bit blank Wisconsin Spade bit Black & Decker Spade Bits 135

Wisconsin Knife Works o What was the contract? n Wisconsin orders 280, 000 blanks from Metal Crafters in Aug-Sept 1981 for delivery in Oct-Nov n New purchase orders in July 1982 n Seller not able to deliver until December 1982— 13 months late n Jan 1983— 144, 000 blanks produced but Wisconsin rescinds 136

Wisconsin Knife Works o What was the evidence of modification and what are the problems under the UCC? 137

The UCC: Consideration is out 2 -209(1) An agreement modifying a contract within this Article needs no consideration to be binding. Posner: Replaced by good faith § 1 -304. Obligation of Good Faith. Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement. 138

What was the problem with UCC 2 -209(2)? A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. 139

What was the problem with UCC 2 -209(2)? Was there a signed modification here? Why would Wisconsin have wanted a “no modification” clause and why are they standard? 140

Posner on modifications How did Posner decide on modifications? 141

Posner on waiver How did Posner decide on waiver? 142

How did Posner decide on Waiver? 2 -209(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. 143

Wisconsin Knife Works o When does something which fails as a modification succeed as a waiver in 2209(4)? n “can operate as a waiver” 144

Wisconsin Knife Works o Does something which fails as a modification always succeed as a waiver in 2 -209(4)? 145

Wisconsin Knife Works o When does something which fails as a modification succeed as a waiver in 2209(4)? n Posner: so as not to render 2 -209(2) otiose, let’s add a reliance requirement to 2 -209(4) 146

Wisconsin Knife Works o When does something which fails as a modification succeed as a waiver in 2209(4)? n Posner: so as not to render 2 -209(2) otiose, let’s add a reliance requirement to 2 -209(4) n But is 2 -209(5) then otiose? 147

Wisconsin Knife Works o But is 2 -209(5) then otiose? o 2 -209(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 148

Wisconsin Knife Works o But is 2 -209(5) then otiose? o Posner: Suppose you promise a waiver and retract it before reliance begins. Waiver never gets off the ground. 149

Wisconsin Knife Works o Why does Easterbrook dissent? 150

Wisconsin Knife Works o Why does Easterbrook dissent? n Waiver has never required reliance 151

Wisconsin Knife Works o Why does Easterbrook dissent? n Waiver has never required reliance n Waiver in 2 -209(4) might encompass either past or future performance n Estoppel in 2 -209(5) refers only to future (executory) performance 152

Wisconsin Knife Works o UCC § 1 -107. Waiver or Renunciation of Claim or Right After Breach. Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. 153

Wisconsin Knife Works o So how would Easterbrook prevent 2209(4) from being otiose? 154

Wisconsin Knife Works o So how would Easterbrook prevent 2209(2) from being otiose? n A stricter standard of proof as to intention? n Suzuki at 646 155

Avoiding forfeiture: Common Law 156 Agreement Required? Reliance required? Modification yes no Waiver no no Estoppel no yes

Avoiding forfeiture: UCC Modification Agreement Required? Reliance required? no consideration needed 2 -209(1) no Good Faith in § 1304 But no modification clause enforced 2209(2) Waiver 157 Estoppel

Avoiding forfeiture: UCC Agreement Required? Reliance required? No Yes: Posner Modification Waiver No: Easterbrook, tho’ a bar to retraction under 2209(5) Estoppel 158

Avoiding forfeiture: UCC Agreement Required? Reliance required? No Yes Modification Waiver Estoppel 159