Dynamic Machine Works, Inc. v. Machine & Electrical Consultants, Inc

Brief Fact Summary.

Dynamic Machine Works, Inc. (Plaintiff) ordered a lathe from Machine & Electrical Consultants, Inc. (Defendant) to be delivered by a certain date. The parties extended the delivery date once, and Plaintiff then extended it again in writing. The day after this second extension, Plaintiff revoked the extension.

Synopsis of Rule of Law.

1) Under the Uniform Commercial Code, a buyer may not retract a written extension that allows the seller to cure defects in a delivered product even when the seller has not relied upon that extension, if the extension comes as a modification of the original purchase agreement. 2) Under the Uniform Commercial Code, a buyer may retract a written extension that allows the seller to cure defects in a delivered product when the seller has not relied upon that extension if the extension is a waiver of a portion of the original agreement and the buyer provides reasonable notification of the revocation.

Facts.

Plaintiff ordered a lathe from Defendant in January 2003. The lathe was to be manufactured in Taiwan and the contract provided that Plaintiff would make a down payment, a partial payment upon delivery, and final payment upon acceptance. The contract also stated that the lathe would be delivered in May 2003. Prior to June 2003, both parties agreed that the lathe was delayed due to the SARS epidemic in Taiwan and extended the delivery date to September 19, 2003 with the condition that Defendant would pay $500 a day for delays beyond that date. Defendant delivered the lathe on October 9, 2003 and spent November installing it. Plaintiff sent Defendant a letter on December 9, 2003 extending the date by which the lathe would be installed to December 19, 2003. On December 10, 2003, Plaintiff learned that the lathe would not meet its required specifications to Plaintiff informed Defendant that it was retracting its latest extension. Plaintiff revoked acceptance of the lathe, requested the return of its down payment, demanded payment of penalty fees by Defendant and requested removal of the lathe. Defendant had not materially relied upon the December 9, 2003 extension. Plaintiff filed a declaratory judgment action for breach of contract in state court that was removed to federal court. The district court certified the following question to the state’s highest court: “Under the … Uniform Commercial Code, does a buyer have a right to retract a written extension allowing more time for the seller to cure defects in a delivered product absent reliance on the extension by the seller?”

Issue.

Under the Uniform Commercial Code, can a buyer retract a written extension that allows the seller to cure defects in a delivered product if the seller has not relied upon the extension?

Held.

(Cordy, J.) 1) No. Under the Uniform Commercial Code, a buyer may not retract a written extension that allows the seller to cure defects in a delivered product even when the seller has not relied upon that extension, if the extension comes as a modification of the original purchase agreement.

2) Yes. Under the Uniform Commercial Code, a buyer may retract a written extension that allows the seller to cure defects in a delivered product when the seller has not relied upon that extension if the extension is a waiver of a portion of the original agreement and the buyer provides reasonable notification of the revocation. The Uniform Commercial Code governs this contract because it involves the sale of goods. § 2-209 requires the modification of contracts to be in writing if the statute of frauds applied to the original contract or if it applies to the contract as modified. Such a modification must be signed by both parties and needs no consideration. This section also states that if a party waives the execution of a portion of the contract, that party can retract that waiver if the other party receives reasonable notification and had not materially relied on the waiver. “Waiver” and “modification” are not defined in the section. State law defines “waiver” as an intentional relinquishment of a known right, while “modification” requires action and agreement from both parties. Plaintiff argues that the December 9 extension letter is a waiver of the delivery time and not a modification of the original contract and points to the language used in the letter to demonstrate its unilateral action. The determination of whether the December 9 extension letter served as a waiver of the delivery date requirement or a modification of the original contract terms is a question of fact that exceeds the duty of this court to determine.

Discussion.

Parties who seek to modify a contract governed by the Uniform Commercial Code should use caution. If the modification is ineffectual, the action could instead be treated as a waiver of a contract term.