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The Seventh Circuit provides a useful discussion of the limits of the waiver doc­trine:  As noted in another post, the buyer of an allegedly-defective rec­re­a­tion­al ve­hicle was unable to assert a warranty claim because he had arranged to take title in the name of an LLC that he controlled — and the contract’s lim­it­ed war­ran­ty ex­press­ly ex­clu­ded coverage in that situation.  The buyer tried arg­uing that the manu­fac­turer, by making efforts to fix the problems, had sup­posedly waived the cov­erage exclusion, but the Seventh Circuit was having none of it:

This supposed right of Jayco’s [to assert the warranty exclusion]—if it is a right at all—is not the kind read­ily subject to waiver; it gives Jayco no power to compel Knopick’s performance of a duty of any kind. The war­ranty exclusion instead clar­i­fies that Knopick and his LLC have no right to compel Jayco’s performance of duties that could other­wise be enforced against it under the manu­fac­tur­er’s warranty.

The exclusion clause serves as a defense, shielding Jayco from liability under the express warranty, based on Knopick’s (and perhaps the deal­er’s) choice about how to handle the purchase and title of the RV. Knopick’s waiver argument would turn the warranty and the rule of wai­ver on its head by transforming waiver’s limited role as a shield (ex­cu­sing non-performance) into a sword capable of compelling performance and creating new duties.

The effects of such a new rule would not be benign. Merchants and other contracting parties could not act as good business partners, go­ing beyond their strict contractual duties, without fear of obliging them­selves to perform new and broader duties, beyond the express terms of the contract.

The facts of this case illustrate the reasons for the rule. A seller that wants to do a good turn for a customer by undertaking $500 in repairs should be able to do so without putting itself on the hook for more than $50,000 in re­pairs. In business generally and in consumer markets, a contracting par­ty’s will­ing­ness to go beyond her strictly enforceable legal obligations is a key com­­mer­cial lubricant. It facilitates trust, long-term relationships, repeat cus­tom­ers, and referrals.

Attaching legal liability an order of magnitude or two beyond the cost of the “good-will” repairs, as Knopick would have us do, would discourage low-cost and amicable resolutions to minor commercial disputes.

Knopick v. Jayco, Inc., No. 17-2285, part II-B, slip op. at 8-9 (7th Cir. July 11, 2018 (emphasis and extra paragraphing added; footnote omitted).  In the om­it­ted footnote, the court pointed out that the disgruntled customer had not al­leged estoppel as a basis for its suit:

This case does not involve the doctrine of equitable estoppel. Knopick has not argued, and nothing in the record suggests, that Jayco performed the good-will repairs to lull him into sleeping on his legal rights under a “lemon law” or other consumer protection law and then stopped repairing the vehicle after those rights expired.

Id., slip op. at 9 n.1.

I imagine I’ll be adding this case to my contract-drafting course materials.

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The buyer of a recreational vehicle was given an expensive lesson in the im­por­t­ance of reading the sales contract:

In his telling, plaintiff Nicholas Knopick bought a $415,000 jalopy, but to be more precise, a limited liability company he controls bought the $415,000 jalopy. This factual shift determines the outcome of this case. Knopick has sued the manufacturer under the vehicle’s express limited warranty. That warranty does not cover the vehicle because the warranty excludes from coverage all vehicles purchased by business entities—like limited liability companies. The district court granted summary judgment to the manufacturer. We affirm.

Knopick v. Jayco, Inc., No. 17-2285, slip op. at 1-2 (7th Cir. July 11, 2018).

The RV allegedly was a real lemon, according to the unsuccessful plaintiff:

Almost immediately after purchasing the vehicle in July, Knopick discovered he had purchased a $415,000 lemon. According to Knopick, the RV leaked, smelled of sewage, had paint issues, and contained poorly installed fea­tures, including bedspreads screwed into furniture and staples protruding from the carpet.

After taking possession of the vehicle in Iowa, Knopick drove it to Jayco’s factory in Indiana for repairs. The following month, he picked up the RV in Indiana intending to drive it to his home in Texas. Concerned about con­tin­ued problems with the RV, Knopick dropped it off at a repair facility in Mis­souri, where a Jayco driver picked it up and drove it back to Indiana for fur­ther repairs. In December, Jayco had a driver deliver the coach to Knopick in Arkansas.

Knopick remained unsatisfied with the condition and requested a full refund later that month, which Jayco apparently refused.

Id., slip op. at 3 (extra paragraphing added).

It brings to mind a variation on a saying from the nuclear Navy:  RTFC — Read The [Fine] Contract.

But why did the buyer take title in his LLC? The court wondered that too:

The obvious question arises: why would a consumer structure such a large purchase in a way that strips him of the protection of the manufacturer’s stan­dard warranty? And what to make of Knopick using a Montana LLC des­pite his having no ties to the state discernible in the record? The un­sur­pri­sing answer is taxes. At oral argument, Knopick’s lawyer asserted: “Knop­ick purchased the recreational vehicle through the LLC solely for the purpose of sales tax advantage,” and the business entity serves “no other purpose whatsoever.”

Id., slip op. at 10.

(The court also rejected the plaintiff’s argument that the defendant had waived the limited warranty’s exclusion; that will be discussed in a separate post.)

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Anderson and Buck were in a contract relationship, under which Anderson bought gasoline from Buck.  At some point, Anderson notified Buck that it would be buying gasoline from another supplier as well.  Buck sent a cease-and-desist letter to Anderson, claiming that a particular provision of the contract supposedly prohibited Anderson from entering into agreements with other gasoline suppliers.  In response, Anderson filed a declaratory judg­ment action.  In due course the trial court granted summary judgment for Anderson; the state supreme court affirmed.  Ray Anderson, Inc. v. Buck’s, Inc.,  300 Neb. 434 (2018).

From reading the supreme court’s opinion, Buck should count itself fortunate that it wasn’t sanctioned for asserting its interpretation of the contract lang­uage. The supreme court all but accused Buck of selectively reading only the contract provision(s) it liked, while ignoring what the supreme court concluded was clearly-dispositive contrary language. See id. at 442-43.

So why wasn’t Buck sanctioned?  Well, apparently Buck wasn’t the only party to assert a questionable interpretation — Anderson, for its part, claimed that it had the right to terminate the con­tract; but both the district court and the supreme court held that under the con­tract’s clear lang­uage, only Buck had the right to terminate. See id. at 444-45.

Maybe that’s why the supreme court’s opinion says nothing about sanctions: Ap­par­ently, each party advanced untenable interpretations of different pro­vi­sions of the contract, and the courts might have regarded those as canceling each other out as far as sanctions were concerned.

But the fact remains that the courts had to spend time and money on what, judging from the supreme court’s opinion, was needless litigation. Perhaps each party should have been sanctioned, as a warning to others.

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Much contract drafting should be just plumbing

More than one person has noted the similarities between contract drafting and computer programming.  Much of what Karl Hughes has to say in The Bulk of Software Engineering in 2018 is Just Plumbing could apply equally to contract drafting:

… Just like plumbers, we are paid to know our tools and understand how they work together to make a usable piece of equipment, not to reinvent working technology or spend 80 hours optimizing something that 5% of our users will use.

* * *

If an off-the-shelf solution exists, grab it, don’t build it from scratch. 

(Emphasis modified.)

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Mark Anderson’s IP Draughts blog has an excellent write-up of tips for excluding all liability in a contract in the UK; the pointers should help anyone trying to limit liability in other jurisdictions as well. Mark focuses on a recent UK case where the contract drafter seems to have successfully touched all the bases.

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