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

Brief Fact Summary.

Plaintiff contracted to purchase a lathe from Defendant. The lathe was to be manufactured in Taiwan. Due to the SARS outbreak, production of the lathe was delayed and both parties entered into an oral agreement to extend the deadline for the installation and commissioning of the lathe to September 19, 2003. The lathe was delivered on October 9, 2003, but required testing and readjusting. Plaintiff’s granted one final extension to December 19, 2003 for the final deadline for the lathe to be fully and unconditionally commissioned. Plaintiff later concluded that the lathe would most likely not be ready by December 11, Plaintiff informed Defendant that it intended to retract the deadline extension and not accept delivery of the lathe at all. Plaintiff sued Defendant. The district judge certified the following question to the Supreme Judicial Court of Massachusetts: “Under the Massachusetts version of 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?

Synopsis of Rule of Law.

A buyer may not unilaterally retract a written extension constituting a modification to an agreement to purchase a product, but if the written extension constitutes a waiver of an executory portion of the agreement, the buyer may unilaterally retract the extension by providing reasonable notice to the seller, provided the seller has not materially relied upon the extension to its detriment.

Facts.

In January 2003, Dynamic Machine Works, Inc. (Plaintiff), a manufacturer of precision components entered into a contract to purchase a lathe from Machine & Electrical Consultants, Inc. (Defendant). The lathe was to be manufactured by a separate company based in Taiwan. In June 2003, an outbreak of “SARS” in Taiwan delayed production of the lathe. Both parties entered into an oral agreement, confirmed in letters, to extend the deadline for the installation and commissioning of the lathe to September 19, 2003. Any further delay would result in a $500 penalty per day for Defendant. Defendant delivered the lathe to Plaintiff on October 9, 2003. Throughout October and November, the lathe was tested and readjusted. On December 9, 2003, Plaintiff’s president wrote a letter to Defendant’s president stating that Plaintiff would grant Defendant an extension for the final deadline for the lathe to be fully and unconditionally commissioned. Plaintiff stated that the final deadline would be December 19, 2003. Plaintiff later concluded that the lathe would most likely not be ready by December 11th, Plaintiff informed Defendant that it intended to retract the deadline extension and not accept delivery of the lathe at all.

Issue.

Whether a buyer may unilaterally retract a written extension constituting a modification to an agreement to purchase a product from a seller.

Held.

No. A buyer may only unilaterally retract a written extension of an agreement if the extension is a waiver, not a modification.

Discussion.

A modification is “the changing of the terms of the agreement which may diminish or increase the duty of either party.” A modification must be the result of the bilateral action of both parties to the sales transaction. In contrast, a waiver involves the giving up of a party’s rights under the contract, and may be unilaterally retracted in the absence of reliance by the other party, provided the party seeking to retract the waiver provides reasonable notice. Plaintiff contends that its letter sent December 9, 2003 saying that it was granting an extension of the final deadline to Defendant constituted a waiver capable of unilateral retraction. Plaintiff supports this contention by citing words in the letter such as “grant,” rather than “agree.” Plaintiff argues that the parties did not agree to the written extension, and thus the extension constitutes a waiver and not a modification. In contrast, Defendant argues that the extension in the December 9, 2003 letter granting an extension constitutes a modification because the letter satisfies the Statute of Frauds; was signed by Plaintiff’s president; contains sufficiently definite terms; and clearly demonstrates that both parties had discussed and agreed to the new commissioning deadline of December 19, 2003. The contractual rights of the parties turn on whether Plaintiff’s December 9, 2003 letter constitutes a waiver or a modification. The answer to the certified question is that the buyer may only unilaterally retract a written extension of an agreement if the extension is a waiver, not a modification. There is no need to go beyond answering the certified question.