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Have you ever managed a contract that was in trouble and behind schedule? There is a legal principle — waiver — that procurement professionals should understand. Some actions (or inactions) can compromise the ability to exercise contract remedies. This article will examine two United States cases that illustrate application of waiver principles in a context of a supply and construction contract.

This article does not cover Canadian law. Given the common origins of Canadian and United States law, though, the application of waiver principles likely is similar.

How does a buyer avoid unwittingly waiving a performance requirement — a delivery date, for example?

Waiver under the Uniform Commercial Code

A Massachusetts case illustrates the application of the waiver doctrine in contracts for goods governed by the Uniform Commercial Code. [Dynamic Mach. Works, Inc. v. Machine & Elec. Consultants, Inc., 831 N.E.2d 875 (Mass. 2005)] In that case, Dynamic Machine Works agreed to purchase a specialized lathe for its manufacturing operations from Machine & Electrical Consultants. Production of the lathe was delayed, and the parties agreed to an extension in the delivery date. Production problems continued, and the lathe was delivered about a month late after the extension. Two months after delivery, Dynamic notified the seller that the delivered lathe did not meet specifications. In that letter, Dynamic gave the seller 10 days as "one last and final deadline for the machine to be fully and unconditionally commissioned."

Two days later, after getting additional information that the lathe probably never would meet specifications, Dynamic retracted the 10-day extension deadline. Dynamic revoked the acceptance of the lathe, demanded return of the down payment and later filed suit alleging breach of contract.

The seller counterclaimed for breach of contract. One of seller's claims was that Dynamic had waived the delivery date.

The appellate court in the Dynamic opinion noted the relevance of two distinct theories. First, Massachusetts's commercial code, which is based on the Uniform Commercial Code, permits bilateral modifications without consideration (e.g. extension of delivery dates without a reduction in price, for example). Second, even if a modification does not technically satisfy the requirements of the code, the attempt may operate as a "waiver" under the code.

A modification is the result of bilateral agreement between the parties and cannot be retracted unilaterally. A waiver, on the other hand, is a unilateral action that can be revoked unless there has been material change of position by the other party (sometimes called "detrimental reliance"). The trial court had found that the seller did not rely in any material way on the 10-day extension deadline during the two-day period between the letter's issuance and revocation. Thus, Dynamic argued that its letter was a waiver that could be retracted. The seller argued that it was a modification that could not.

Ultimately, the court in Dynamic found further fact-finding necessary to determine whether the parties agreed to the 10-day delivery extension. The lesson for us is that, had the seller relied to its detriment on the extension letter and incurred significant expense before it received the retraction, a waiver likely would have been found by the court.