If one party breaches a contract, the other party generally has a right to sue. However, that party must assert his or her rights. If the person is not careful, he or she could “waive” the right to sue for breach of contract.
“Waiver” is a defense to a breach-of-contract claim. Waiver means that a person's words or actions show that the person gave up a contractual right. Waiver is a risk to a party that is overly flexible or accommodating when faced with another party's breach.
This article looks at the waiver defense to breach-of-contract claims in Minnesota.
The Basics of “Waiver”
To “waive” means to give up, relinquish, or forfeit. In the legal context, “waiver” means that a person has given up a legal right.
Waiver comes up in various legal contexts. This article focuses on situations where people waive their contractual rights due to statements or actions. In other words, a person acts like he or she will not enforce that right (such as the right to sue).
This article does not address other types of waivers, including waiver of personal injury claims. Those waivers usually involve a Release or Waiver of Liability that an owner (such as an amusement park) makes a person sign before entering land. Those waivers are used to prevent tort liability.
Examples – Waiver of Contractual Rights
Waiver is a general principle of contract law and could impact most contracts.
Waiver may be formally done through a written agreement or it may occur as a result of a party's statements or actions. Here are some very basic examples:
- The parties sign a formal “Waiver of Rights” agreement in which one or both parties agree to waive certain rights under an existing contract.
- The parties to a contract agree that one person's performance was deficient, but they sign a modification agreement in which the non-breaching party accepts a money settlement and formally “waives” any right to sue for breach of contract.
- A tenant fails to pay rent for several months and makes a partial payment to the landlord, who accepts it without evicting the tenant or taking other legal action.
- A manufacturer delivers goods a month late, but the buyer accepts the goods and uses them without any complaint.
- A homeowner notices that a painter used the wrong color paint for the home but says that she will accept the new color.
- A home buyer is told by an inspector that there are problems with the home. The buyer does not cancel the purchase agreement and instead buys the home.
Non-Waiver Clauses in Contracts
Parties often include a “non-waiver” clause in the contract. Here is a basic “non-waiver” clause (note: do not use this without tailoring to your situation):
Non-Waiver: The failure by either party to enforce any provision of this contract shall not be interpreted as a waiver of that party's rights. Each party shall be entitled to full performance of the contract by the other party without deviation and without regard to the non-breaching party's actions.
Courts have said that “[i]t is well settled that a written contract may be modified by subsequent acts and conduct of the parties to the contract.” Pollard v. Southdale Gardens of Edina, 698 N.W.2d 449, 453 (Minn. Ct. App. 2005). Therefore, “[b]ecause a nonwaiver clause may be modified by subsequent conduct, the mere presence of a nonwaiver clause does not automatically bar a waiver claim.” Id.
The point is that a court may not be bound by such a clause, but the judge could nonetheless apply it in an appropriate circumstance.
Legal Standard – Waiver of Contractual Rights
“Waiver” is a common-law principle that that applies to most contracts. However, the Uniform Commercial Code (UCC) statute has special rules that apply to contracts for the “sale of goods”. This section discusses the common law rules.
Waiver is a defense to a breach-of-contact claim. “The burden of proving waiver rests on the party asserting it.” Safety Signs, LLC v. Niles-Wiese Constr. Co., 840 N.W.2d 34, 42 (Minn. 2013).
“Waiver is the voluntary and intentional relinquishment of a known right.” Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 798 (Minn. 2004). “Knowledge and intent are essential elements of waiver . . . [b]ut the requisite knowledge may be actual or constructive and the intent to waive may be inferred from conduct.” Id. (quotation and citation omitted).
“To establish a waiver or ratification of fraud, there must be evidence that the waiving party had full knowledge of the facts and his or her legal rights, and intended to relinquish these rights.” Carpenter v. Vreeman, 409 N.W.2d 258, 262 (Minn. Ct. App. 1987). Waiver “must be manifested in some unequivocal manner.” Ohio Confection Co. v. Eimon Mercantile Co., 154 Minn. 420, 424, 191 N.W. 910, 911 (1923). Although waiver may be implied from conduct, the facts provided in support of waiver must “fairly and reasonably . . . lead to the inference that the person . . . did in fact intend to waive his known right.” Pruka v. Maroushek, 182 Minn. 421, 424, 234 N.W. 641, 642 (1931).
Waiver cannot be inferred from mere inaction, but “must be an expression of intent to relinquish the right at issue.” Safety Signs, 840 N.W.2d at 42 (quotation omitted). Waiver must arise from “voluntary choice” and “not mere negligence.” City of Minneapolis v. Minneapolis Police Relief Ass'n, 800 N.W.2d 165, 178 (Minn. Ct. App. 2011) (quoting In re Commitment of Giem, 742 N.W.2d 422, 432 (Minn. 2007)).
Generally, waiver is a question of fact and “is rarely to be inferred as a matter of law.” Valspar Refinish, Inc. v. Gaylord's, Inc., 764 N.W.2d 359, 367 (Minn. 2009) (quotation omitted). “The intent to waive, which involves an operation of the mind, must be clearly established as a fact.” Local 1142 v. United Elec., Radio , 247 Minn. 71, 77, 76 N.W.2d 481, 484 (1956).
“When a party acts in a way that is inconsistent with the terms of a contract, a fact finder can reasonably conclude that a party waived those contractual provisions.” Valspar Refinish, Inc., 764 N.W.2d at 367.
The takeaway is that waiver can be an effective defense to a breach-of-contract claim, but the defendant has the burden to show facts that support it.
Waiver Under the UCC
The UCC has special rules regarding waiver of contractual rights. Waiver comes up in a few contexts under the UCC, including in the sale of goods, leases, and security interests in goods.
There is a general rule in the UCC that allows a party to voluntarily waive rights after the other party breaches the contract. Minn. Stat. § 336.1-306 states:
A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.
There is a similar rule for leases set forth in Minn. Stat. § 336.2A-107.
Sometimes, the parties try to modify or terminate the contract, but fail to do it properly. If so, the situation can still be viewed as a waiver of rights. In effect, this protects a party that relies on the modification or termination attempt.
Minn. Stat. § 336.2-209 states in relevant part:
MODIFICATION, RESCISSION AND WAIVER.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
While this statue provides for waiver under certain circumstances, the law also prevents a party from “retracting” a waiver if the other party relied on it.
There is a nearly identical rule for leases in Minn. Stat. § 336.2A-208.
Failure to Object
When goods are defective and the buyer could have discovered the defect, the buyer must object. If he fails to object, he generally waives the right to reject the goods. Minn. Stat. § 336.2-605 states in relevant part that:
WAIVER OF BUYER'S OBJECTIONS BY FAILURE TO PARTICULARIZE.
(1) The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes the buyer from relying on the unstated defect to justify rejection or to establish breach
(a) where the seller could have cured it if stated seasonably; or
(b) between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.
There is a nearly identical rule for leases in Minn. Stat. § 336.2A-514.
UCC Article 9 addresses security interests in goods. There are waiver rules relating to security interests.
For example, there are certain things that the debtor (the borrower) cannot waive as part of a security agreement. These are protections for a debtor. Non-waivable items are listed in Minn. Stat. § 336.9-602.
Also, Article 9 has some specific rules about a debtor's waiver of rights to repossessed collateral. Minn. Stat. § 336.9-624 states:
(a) Waiver of disposition notification. A debtor or secondary obligor may waive the right to notification of disposition of collateral under section 336.9-611 only by an agreement to that effect entered into and authenticated after default.
(b) Waiver of mandatory disposition. A debtor may waive the right to require disposition of collateral under section 336.9-620(e) only by an agreement to that effect entered into and authenticated after default.
(c) Waiver of redemption right. Except in a consumer goods transaction, a debtor or secondary obligor may waive the right to redeem collateral under section 336.9-623 only by an agreement to that effect entered into and authenticated after default.
In other words, a debtor's waiver regarding collateral must be formally done.
Waiver in Various Contexts
Waiver could apply to any type of contract. Here are some situations where the issues could arise.
Contracts for goods will generally be governed by the UCC rules set forth above. Commercial contracts involving services will likely be governed by common-law principles. Regardless of whether the contracts involves goods or services, the waiver issue arises when one party allows the other party to deviate from the contract. One of the key strategies is to assess and promptly object to any deviation from the contract. The waiver issue also comes up when a party accepts money after observing a problem with the other party's performance.
Business contracts commonly have arbitration clauses that require a party to use an arbitrator rather than a court for any contract dispute. Arbitration clauses are generally enforceable. However, it is not uncommon for consumers, workers, other people to challenge arbitration clauses and have the case heard in a court of their jurisdiction.
One way a party may waive a contractual right to arbitration is if “judicial proceedings based on that contract have been initiated and have not been expeditiously challenged on the grounds that disputes under the contract are to be arbitrated.” Bros. Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422, 428 (Minn. 1980). The party alleging waiver must provide evidence of knowledge of the right in question and the other party's intent to waive that right. Stephenson v. Martin, 259 N.W.2d 467, 470 (Minn. 1977).
Therefore, if a party has a contractual right to have the dispute arbitrated, it must pursue that right and promptly object to any other procedure.
Waiver can arise in the construction context where the property owner accepts a deviation from construction plans. Projects are often complex and plans may not address every fine detail of the project. For instance, a certain finishing material may become unavailable, forcing the owner and contractor to agree on a backup preference.
Likewise, waiver arises due to timing issues. Construction delays are common and owners may allow the contractor to finish the project beyond the deadline. If so, the owner may have waived the right to sue for an untimely performance by the contractor.
Waiver issues come up in many real estate contexts. For example, purchase agreements may give buyers and sellers the right to cancel the transaction; if the sale closes without any objection, the parties have arguably waived the right to object. Another example is contract for deed situations, where the buyer (“vendee”) may fail to fulfill a condition of the contract but the seller (“vendor”) continues accepting payments without any objection.
Tenants sometimes raise a waiver defense when a landlord files an eviction. This frequently comes up in residential evictions where the tenant is behind on rent.
“Waiver has historically been an affirmative defense to an eviction action.” Oak Glen of Edina v. Brewington, 642 N.W.2d 481, 486 (Minn. Ct. App. 2002). “A principal reason for the waiver rule is to instill a feeling of repose in the tenant; the landlord, by accepting the rent, effectively reaffirms the lease between parties.” Id.
The problem comes in for the landlord when the tenant has breached the lease (i.e., failed to pay rent or violated a lease condition), but the landlord still accepts the rent. Courts have said that “[a]cceptance of rent operates as an election by the [landlord] to continue the lease.” Priordale Mall Inv'rs v. Farrington, 411 N.W.2d 582, 584 (Minn. Ct. App. 1987), review denied (Minn. Sept. 24, 1986). This may be more likely to occur when the landlord observes the tenant breach the lease, later accepts rent from the tenant knowing of the breach, and then tries to evict.
On the other hand, courts have said that acceptance of rent may not be a waiver of breach if the lease contains a nonwaiver provision or when manifest intent to waive is not present. Oak Glen of Edina v. Brewington, 642 N.W.2d 481, 487 (Minn. Ct. App. 2002); Minneapolis Cmty. Dev. Agency v. Powell, 352 N.W.2d 532, 534 (Minn. Ct. App. 1984).
It seems unfair to punish a landlord for being flexible with a tenant, but the landlord must be aware that the tenant is relying on the landlord's inaction.
Legal Theories Related to Waiver
The waiver defense is one of many tools in the lawyer's “toolbox.” Here are some other theories that may come up in waiver cases.
Modification or Cancellation
Defendants sometimes argue that there was no breach of contract because the original contract was modified or cancelled. If the parties have strayed from the contract terms, it may be unclear whether the original contract terms still apply. These can be effective alternate theories to go along with a waiver defense. Sometimes, there may even be a mixed question of whether a party waived the right to a written modification of the contract (i.e., the parties agreed to verbally modify the contract).
Laches is a similar defense to waiver. Laches “prevent[s] one who has not been diligent in asserting a known right from recovering at the expense of one who has been prejudiced by the delay.” Winters v. Kiffmeyer, 650 N.W.2d 167, 169 (Minn. 2002) (quoting Aronovitch v. Levy, 56 N.W.2d 570, 574 (Minn. 1953)).
Laches is an equitable doctrine that provides that a person's legal or equitable claim should be barred if it is brought “after unreasonable delay” and “results in prejudice” to the opposing party. In re K.L.B., 759 N.W.2d 409, 413 n.2 (Minn. Ct. App. 2008), review denied (Minn. Feb. 25, 2009).
While delayed action by a plaintiff can sometimes constitute waiver, it can also constitute laches when the delay harms the defendant.
Statute of limitations
An extended period of inaction by a plaintiff can lead to a statute-of-limitations issue. If the person's legal claim is brought beyond the statutory deadline for that type of claim, then the person forfeits the right to bring the claim.
Estoppel is a similar theory to waiver. Estoppel means unfair reliance. While waiver involves a party giving up a right, estoppel focuses more on promises made by the other party.
“Promissory estoppel is the name applied to a contract implied in law where no contract exists in fact.” Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 283, 230 N.W.2d 588, 593 (1975). To establish a promissory estoppel claim, a plaintiff must show these elements:
1) a clear and definite promise was made,
2) the promisor intended to induce reliance and the promisee in fact relied to his or her detriment, and
3) the promise must be enforced to prevent injustice.
Martens v. Minnesota Mining , 616 N.W.2d 732, 746 (Minn. 2000).
In other words, there is a promise relied on by the other party. The party making the promise may be “estopped” to denying the existence of the promise. While estoppel is sometimes used to create a “quasi-contract” where no contract existed, it can also be used as a defense when the non-breaching party makes a promise to the breaching party.
Similar conduct may create both a waiver and an estoppel defense. Estoppel may be harder to prove, so even if the estoppel defense is not proven the waiver defense could still be valid. See, e.g., Engstrom v. Farmers & Bankers Life Ins. Co., 230 Minn. 308, 312-13, 41 N.W.2d 422, 424 (1950) (recognizing that “estoppel may exist when there is also a waiver, but waiver may be established even though the acts, conduct, or declarations are insufficient to establish an estoppel”).
Reformation and Rescission
If the parties have strayed from the original contract terms and accepted the other party's performance, waiver may be an appropriate defense.
But if the parties have strayed because they were mistaken about the original contract terms, they may assert an equitable claim for “reformation”. Reformation “is available when a party seeks to alter or amend language in a contract so that the contract reflects the parties' true intent when they entered into the contract.” SCI Minn. Funeral Servs., Inc. v. Washburn-McReavy Funeral Corp., 795 N.W.2d 855, 864 (Minn. 2011).
Similarly, the parties' misconceptions about key terms in the agreement may create a “rescission” claim. Rescission is a court-ordered termination of a contract, generally due to a formation problem. A contract may be rescinded if “both parties were mistaken with respect to facts material to the agreement.” Id. at 861.
The waiver defense may be better for a circumstance where the defendant wants to keep the original contract intact but simply show that the plaintiff waived an isolated part of it.
Practical Suggestions for Waiver Issues
- Consider a non-waiver clause in the contract to try and limit a court's ability to validate a waiver defense.
- Be prompt when you see evidence of a breach of contract and when taking legal action. “Sitting on your hands” can result in waiver issues.
- Make sure you clearly communicate your objections to the other party's deviation from the contract, such as before you make or accept payment. If you expect full compliance with the contract, tell the other party of that expectation.
- If the other party fails to fully perform, consider whether you are accepting partial performance. Communicate your acceptance or rejection to the other party.
- Document your actions in addressing any waiver issues, including reasons for your actions.
- If there are performance issues, communicate with the other party about whether a modification to the contract is being requested or accepted.
- For “goods” contracts, consider the UCC-specific rules.
- As a defendant, ensure that the affirmative defense of waiver is pled in the answer and be aware that you have the burden of proof on that defense.
Waiver penalizes a party that fails to assert his or her legal rights under a contract. While waiver generally requires clear relinquishment of a legal right, the parties must be aware of how their actions may be interpreted.
While waiver will not apply in every case, it can be an effective strategy for a defendant faced with a breach-of-contract claim.
If you need legal advice or representation on a contract dispute, Contact Us for a free consultation. With offices in Shakopee (Scott County) and Litchfield (Meeker County), we serve clients throughout the Twin Cities and Greater Minnesota.