waiver

The doctrine of waiver is a set of rules of law that commonly apply to contracts, but apply across many areas of law. A waiver may relate to a forbearance from exercising a right or an abandonment of a right. In either case, the person has waived their right to enforce the term, and the legal rights of the party waiving their rights have been lost.

A party relinquishes a legal right when they make an informed choice by their words or conduct in respect to two or more courses of action, in circumstances recognised at law. In the context of commercial contracts, waiver alters legal obligations whereby a person may be prevented from asserting a legal right (waiver by election) or raising a defence that would otherwise be available to them (a forbearance).

The operation of the doctrine in either case prevents parties from asserting contractual rights in an inconsistent manner – a party to a contract is prevented from expressly approving a course of action and later censuring the course of action. The consequence affects the remedies for the actions which were previously the subject of approbation or reprobation.

The rights affected may be the ability to terminate a contract, reject a less than perfect performance of the contract, enforce another right granted under a contract. Further instances include:

1. the loss of the right to insist on timely delivery of goods or services,

2. tendering payment in a different form to that required by the contract,

3. to insist on non-defective goods.

Relinquishing the legal right may take place where (1) a person makes an election between two courses of action by their conduct, (2) performance of the contract is not in accordance with it terms, and there is a forbearance in the exercise a legal right which results in the loss of the right.

Waiver by Election

Where a party has knowledge or is informed of the facts and acts in a manner which is consistent with only one course, that party makes an ‘election’. The election can only arise when the person is in the knowledge of all the facts relevant to the exercise of the right. At law, when he communicates the choice to the other party by words or conduct to lead the other party to believe that a choice has been made whether it was intentional or not, the election is complete and the right is abandoned and no longer available. The election does not require reliance by the other party to the contract, it is enough that the person communicates their choice that it intends (or not) to exercise its legal rights.

The words or conduct must be unequivocal, and capable of one construction only, namely that the party has chosen to forego their rights.

So, where a party has acted in the knowledge of relevant facts which give rise to the alternative rights, in a manner consistent with only one of two inconsistent courses of action available to him he is held to have made the election. The election is final and binding upon them.

Forbearances

A forbearance may crystallise where a party (1) accepts different performance of a contract from that which the other party is bound to perform; (2) has failed to perform their obligations and the other party accepts that incomplete performance as performance under the contract (and relinquishes a right to repudiate and sue for damages), or (3) the foregoing of a right which accrued for the benefit of the person has foregone it.

These modes of waiver are considered separately as they do not involve an election on the part of the party with rights that may be exercised. A forbearance is a representation that a contractual obligation need not be performed – as a result the person will not exercise a right which may arise in the event of that breach. The waiver may relate to a particular obligation, to past rights and/or future rights and obligations.

Also, it may be that the result of the waiver arises is that a person does not intend to pursue the particular defence.

Waiver and Variations to Contracts

Waiver differs from a variation of contract, as waiver does not vary the terms of a contract; variations on the other hand must satisfy the requirements of contract (offer, acceptance, consideration, and intention to be legally binding) in order to be enforceable; parties are also able to limit waiver. Also, there is not requirement that a waiver be supported by consideration. Variations to a contract change the contractual obligations between the parties; in the event of a waiver, the contractual obligations do not change.

It is important to distinguish between a variation of a contract which is made legally binding by consideration on one hand and waiving legal rights. Different legal principles apply to determine which relate to conceding legal rights that would otherwise be enforceable.

Waiver and Estoppel

Equitable estoppel arises where a party makes an unequivocal representation that it will not insist on its strict legal rights, and the other party relies on the statement to their own detriment, such that it would be inequitable for the person making the representation to go back on their word. There is no requirement in the application of principles of waiver that the person making the representation knew of the detriment of the other party.

A person who is estopped makes a representation that it will not enforce their legal rights, which is in the nature of a promise, albeit unsupported by consideration. Estoppel focuses on the situation of the person relying on the estoppel, and not the person making the representation. It is not essential that the person to be estopped should act with any intention to deceive. Lastly, conduct short of positive acts are sufficient to make out an estoppel. Detriment and reliance is not required for a person to waive their rights.

Waiver Clauses

The uncertainty of effect of the law may be mitigated by the inclusion of what may be called a 'waiver clause' into the terms of the contract, which may be drafted to have the effect of preventing one instance of a waiver or forbearance on one occasion carrying over to other occasions or insisting on performance after a positive waiver after issuing reasonable notice.