WAIVER OF A RIGHT OR OBLIGATION IMPOSED BY THE TERMS OF A CONTRACT

Background:

One often reads a clause along the following lines in agreements:

"The suspensive condition is inserted for the sole benefit of Party 1 and may therefore only be waived by Party 1 in writing."

What does it mean when such a clause is included in a contract? Can Party 1 waive the suspensive condition if this clause was not inserted in the contract?

To answer these questions, one must look at the nature of a waiver.

This article however, only refers to the waiver of rights granted and obligations imposed by a contract. The waiver of rights and obligations imposed by law is not conferred on a contractual basis and is not included in the scope of this article.

Nature of a waiver:

A waiver is a release of any right or obligation imposed by the terms of a contract. This can include both the waiver of a contractual right conferred upon a party, or the waiver by that party of an obligation that the other party has to perform in favour of the first mentioned party. Both of the aforesaid situations are waivers of a term of a contract. Therefore, in essence, a waiver is a donation by a party to the other party, the donation being the gratuitous waiver of a right of that party, or an obligation by the other party, imposed by the terms of a contract. Like a donation, a waiver is a contract and not a unilaterally effective act, so unless an offer to waive is accepted (or agreed upon upfront), there can be no waiver. To provide an example in explanation of the aforesaid:

A young artist verbally contracts with a wealthy and famous man, to paint a portrait of the wealthy man to be hanged in his living room, for free. The wealthy man changes his mind and decides to "waive" the young painter's obligation of painting the portrait, as the wealthy man has received an offer from a more prestigious and older painter to paint the portrait for his living room. However, the young artist with whom the wealthy man first contracted, is not obliged to accept his waiver. The young artist may have hoped to enhance his reputation as an artist and would have received substantial exposure by painting the wealthy man's portrait. The young artist would in these circumstances be entitled to either accept the waiver, or to take the wealthy man to court and to request an order enforcing the contract and obliging the wealthy man to adhere to the contract, and/or to claim damages from the wealthy man (which may be a substantial amount).

However, let us say the wealthy man has concluded a written contract to purchase immovable property. The contract stated that as a suspensive condition to the contract, the wealthy man had to obtain a mortgage bond for at least R10 million from a bank. However, the contract also states that this condition was inserted for the benefit of the wealthy man and may be waived by the wealthy man in writing, before a certain date. In this case, the seller has pre-agreed with the wealthy man (the purchaser) in respect of the wealthy man's right to waive. Now the wealthy man may waive this suspensive condition, and rather pay in cash, without the seller having to accept his waiver (as the seller has pre-accepted the wealthy man's right to waive in terms of the contract). The seller would therefore be unsuccessful in a claim for specific performance and/or damages against the wealthy man if he exercised his right to waive in terms of the contract (and still adheres to his other obligations in terms of the contract).

Returning to the example of the young artist:

Should the wealthy man and the young artist have entered into a written contract, which stipulates that the young artist's obligation to paint may be waived by the wealthy man in writing, before a certain date, then the young artist has pre-agreed with the wealthy man in respect of his right to waive. Accordingly, if the wealthy man exercises his right to waive in terms of the contract, he would be free to conclude a contract with the older painter, without any risk of receiving a claim for specific performance or damages from the young artist.

Recommendations:

It is clear from the aforesaid that the insertion of one clause in a contract can safeguard a party from potential claims for specific performance, cancellation and damages, which can prove to have detrimental consequences for that party.

VDMA's team of experts is at your disposal for any assistance that you may require with the drafting, reviewing and/or the amending of contracts to ensure that your risk exposure is limited and your rights are protected.

Source: VDMA