Waiver by estoppel

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The other kind of waiver. The difficult one. Though not half as perilous as your earnest counsel may have you believe.

Waiver by estoppel may arise when a party who is entitled to exercise contractual rights, by its conduct leads the other party to believe it will not, so that the other party relies on that representation to its detriment. It is an outflowering of the great case of Hughes v Metropolitan Railway (1877) 2 App. Cas. 439.

So: some kind of representation; and a reliance on the representation to the receiving party’s detriment.

Ingredients

For us to even be in the ballpark for waiver by estoppel, therefore, you need:

• Relationship: A legal relationship — maybe a contract, maybe something statutory — between the “rightsholder” and the “beneficiary” creating the rights and obligations;
• Representation: A clear representation by the rightsholder that it will not strictly enforce its rights — the representation need not be written or explicit, but it must be unequivocal In any case, the point here is to differentiate between someone unambiguously giving the impression that they will not enforce a contractual term — entitling a counterparty to rely on that representation — and a rightsholder simply refraining from enforcing a term of the contract it was entitled to. The latter will not give rise to a waiver.
• Reliance: The beneficiary must actually rely on the representation to its detriment ...
• Inequity: ... so as to make it inequitable for the rightsholder to go back on the representation.

Effect

• Unlike waiver by election, generally a waiver by estoppel only suspends the rightsholder’s legal rights and does not permanently extinguish them — unless it would be inequitable to allow the waiver to be withdrawn. So (as per Hughes v Metropolitan Railway (1877) 2 App. Cas. 439, if your tenant is obliged to repair the property within six months of your notice and, having given notice, you then represent you won’t insist on it doing so while you negotiate the potential sale of the property to the tenant, when those negotiations inevitably fall through and you decide you do want your property repaired after all, you can’t insist on the tenant getting everything done in the remaining two weeks of the original notice period. Instead, the six month period is reset from when you give further notice of the repairs.

Codified common sense, really.

Observations

• A representation must be some kind of positive act: Simply not enforcing a term does not give rise to an estoppel or a waiver: “It is difficult to imagine how silence and inaction can be anything but equivocal”.
• The estoppel is specific to the particular circumstance. If you have a recurring right (you know, like to make a margin call), then just because you waived it once — even if you somehow permanently waived it — that doesn’t mean you have waived it for all time. Just because you didn’t enforce this time, that doesn’t mean you are prevented from ever enforcing in the future.

Different approaches to evidence of the contract in the UK and US

England and the US have taken different paths when it comes to respecting the sanctity of that four-cornered document representing the contract. Whereas the parol evidence rule gives the written form a kind of “epistemic priority” over any other articulation of the abstract deal in the common law, in the new world greater regard will be had of how the parties behave when performing their contract, and less significance on what at the outset they wrote down.

So whereas in England action to not insist upon strict contractual rights will have scarce effect on those rights (at best a waiver by estoppel might arise, at least until it is withdrawn), in the United States Uniform Commercial Code a “course of dealing” between the parties at variance with the written terms of their bargain will tend to override those written terms. Thus, by not insisting on the strict terms of her deal, an American risks losing that deal, and will be taken by the course of dealing to have agreed something else; whereas an Englishman, by granting such an indulgence, at worst suspends his strict contractual rights but does not lose them.

In this way the parol evidence rule is less persuasive in American jurisprudence than in British.

See also

• Waiver | Waiver by election | Waiver by estoppel
• Course of dealing under the Uniform Commercial Code
• Estoppel
• No waiver boilerplate clause
• Don’t take a piece of paper to a knife fight