Under New York law, a waiver is “a voluntary relinquishment of a known right, which would have been enforceable, but for the waiver.” In other words, a waiver occurs when a party intentionally gives up a right that it knows that it has and that it would otherwise have been able to enforce.
New York case law establishes that a waiver “should not be lightly presumed” and that “vague and unsubstantiated allegations of the conduct constituting the alleged waiver are not sufficient.” Waiver requires a strong and clear showing of intent to waive and cannot arise from negligence or silence. In addition, a waiver can be withdrawn if the other party is given notice and a reasonable opportunity to perform. A waiver cannot be withdrawn if the other party has relied upon the waiver to its detriment (this has its roots in the doctrine of promissory estoppel).
An oral waiver may be enforceable, even if the contract contains a no oral modifications clause.
As we discussed last week, there is a statute in New York that requires courts to honor no oral modification clauses; however, New York courts have held that the statute does not preclude a claim of waiver. That being said, some relatively recent New York cases have indicated that in the face of a no oral modifications clause an oral waiver may not be binding — not because the statute precludes the claim — but because the required intent to waive is lacking.
In the 1982 case of Nassau Trust Co. v. Montrose Concrete Products Corp., the defendant borrower claimed that the foreclosing lender had orally waived its right to foreclose in order to give the borrower time to complete a sale of the property that would satisfy the loan. The Appellate Division, on appeal, granted summary judgment in favor of the lender, allowing the foreclosure, and struck defendant’s defenses as invalid. But on further appeal, the Court of Appeals overturned the Appellate Division’s decision.
The Court of Appeals found that “in a foreclosure action based upon nonpayment, the mortgagee’s oral waiver of the right to accelerate the principal and foreclose in order to give the delinquent mortgagor a reasonable opportunity to negotiate an unforced sale of the mortgaged premises constitutes a valid affirmative defense to foreclosure, absent withdrawal of the waiver upon reasonable notice to the mortgagor.”
The court reasoned that “the provision in the extension agreement against oral change or termination [does not] foreclose the defense Montrose now asserts, for subdivision 1 of section 15-301 of the General Obligations Law speaks only to a change by agreement (that is, a modification) and not to a waiver.”
The court drew a distinction between the doctrines of waiver and estoppel.
Estoppel “‘rests upon the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury.’ It is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party’s words or conduct, has been misled into acting upon the belief that such enforcement would not be sought.” (More on this next week.)
Waiver, on the other hand, “requires no more than the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable.” While a waiver can be withdrawn if both parties have not fully performed the agreement, the withdrawing party must give the other party notice and a reasonable opportunity to perform.
In this case, Montrose alleged that Nassau Trust waived its right to foreclosure until Montrose could sell the property and then withdrew the waiver without notice before the borrower could complete a sale. The court held that the borrower should be given the opportunity to prove these allegations and that the Appellate Division erred in precluding the defense.
A 2010 decision involved similar facts, but the court came to a different conclusion.
In Brooklyn Fed. Saving Bank v. 9096 Meserole St. Realty LLC, the borrower alleged that the lender had orally represented that it would delay declaring a default to allow the borrower to refinance the loan and that this amounted to a temporary waiver of its right to foreclose. The mortgage contained an express no oral modifications clause, which provided as follows:
“This Mortgage cannot be altered, amended, waived, modified or discharged orally, and no executory agreement shall be effective to modify, waive or discharge, in whole or in part, anything contained in this Mortgage unless it is in writing and signed by the party against whom enforcement of the modification, alteration, amendment, waiver or discharge is sought.”
In the Nassau Trust case, the court found that the New York statute governing no oral modification clauses did not preclude a claim of waiver. In this case, the court found that the claim of waiver was not valid — but not because of the statute.
The judge reasoned that since the parties had agreed in advance that no provision in the documents could be waived orally, the lender could not have intended to waive its rights when it made the oral representations the borrower was relying on. Therefore, the intent required to establish a binding waiver was not present.