Corporate & Securities Law

Rethinking Waiver Provisions

By Ken Adams

Here’s a standard waiver provision:

Waiver. No provision in this agreement may be waived, except by means of a writing signed by the party against whom the waiver is sought to be enforced.

I find such provisions very odd.

Let’s start by considering what a waiver is. There are two kinds of waiver:

First, a contract might specify that Widgetco has to satisfy a condition before Acme can be required to perform. Acme could elect to waive satisfaction of that condition and perform even though the condition hasn’t been satisfied.

Second, if Widgetco fails to perform an obligation, Acme could elect to renounce damages and proceed with the contract as if there had been no breach. That’s commonly understood to constitute a waiver.

What bearing does that have on the standard waiver provision? Well, the standard provision is phrased as a prohibition. Since Acme is the party that would be making the waiver, the prohibition in effect operates against Acme?it may not waive satisfaction of a condition or nonperformance of an obligation unless that waiver is in writing. That’s flat-out illogical.

Instead, the provision should say that a waiver won’t be effective unless it’s in writing. Here’s how:

Waiver. No waiver of satisfaction of a condition or nonperformance of an obligation under this agreement will be effective unless it is in writing and signed by the party granting the waiver.

The above provision also improves on the standard provision in three ways: It makes clear what a waiver is. It uses the adjectival phrase in writing instead of using the archaic noun writing. And it omits the clumsy “against whom the waiver is sought to be enforced.”

Note that I didn’t set out this afternoon to recast the standard waiver provision. But that sort of remedial work is inevitable, given the pervasive dysfunction in mainstream contract drafting. I hope at some point to undertake a comprehensive reworking of boilerplate.

But I’ve given this a half-hour of thought. I’m sure you won’t hesitate to point out any flaws in my logic.

Full post as published by AdamsDrafting on April 29, 2008 (boomark / email).