Waiving Goodbye to Your Rights

By Joseph P. Dirik,
Joe Dirik is a graduate civil engineer and attorney.
He is a member of the construction law practice group at the Dallas office of Jenkens & Gilchrist, PC.

The construction industry should be aware of FHA requirements. Failure to design and construct buildings covered by the FHA in accordance with its requirements has resulted in significant penalties.

In Texas, you can waive a right - even if you didn't mean to.

You've just negotiated and signed a contract. It contained several clauses that you believe will protect your company. Can anything go wrong? Unfortunately you, or your employees, could intentionally or inadvertently waive rights under the contract. This could happen even if the contract contains no waiver or no oral modification provisions.

Waivers occur in the construction industry all the time. Waiver is the voluntary or intentional relinquishment of a known right. Conduct inconsistent with claiming that right supports a claim of waiver. In construction projects, waiver is an important concept and oftentimes is the root cause of claims, delays, disputes and other problems on projects. It happens when a contracting party dispenses with the performance of something that he or she has a right to exact from the other party. The key for construction industry leaders is to make sure employees understand and strictly comply with the contract.

Under Texas law, the elements of waiver include: (1) an existing right, benefit or advantage; (2) actual or constructive knowledge of its existence; and (3) actual intent to relinquish the right. It is not necessary to determine a person's actual intent because such intent can be inferred from the conduct of the person who possesses the right or is authorized to act on behalf of an entity. In other words, you can waive a right even if you didn't mean to. Waiver can occur by action or inaction in a given situation.

In the construction industry, the existence of the disputed right and the knowledge of its existence are usually satisfied by the construction contract's express terms. Even if a person hasn't read his or her contract, Texas law presumes that a person signing a contract has read the entire contract. The third element - intent - usually presents the challenge in proving or disputing whether a waiver occurred.

We can examine intent by looking at several examples. In one Texas case, the court found that a bidder on a school construction project could not complain or assert any claims relating to the bidding process against the owner. In this case, the bidding documents included a provision waiving each bidders' right to challenge the award. By submitting its proposal, the bidder implicitly acknowledged that it understood all the terms within the bidding documents and demonstrated the actual intent to relinquish its right to complain. What this tells us is that a party can waive its rights in writing. No-damage-for-delay clauses, if enforceable, are another example of a written waiver.

It is much more difficult to discern intent that involves conduct, action or inaction. Perhaps the classic example involves a contract with a written change-order clause. The contractor performs extra work without prior approval and the owner accepts the performance without requiring a written change order. In this case, the contractor who performed the extra work without a written change must prove that the owner, through its conduct, waived the requirement for a written change.

Waiver disputes often include another hurdle. Did the person whose conduct is at issue even have the authority to waive its employer's contract rights? Actual, apparent or constructive authority can provide the authority necessary to waive rights. Proceed with caution if you are not sure of your counterpart's authority. It is always a good idea to ask for the scope and level of a party's authority in writing.

So how can you protect your carefully negotiated contract rights? A good practice is to include a "no-waiver" clause in your contracts. Such clauses are generally enforced in Texas. By including a no-waiver clause, the parties agree by contract that a prior waiver of default cannot waive a subsequent default or breach. Even if the parties have established a custom and prior course of dealing, such conduct will not apply to subsequent events.

Another approach involves adding a provision prohibiting oral waiver or modifications. But such clauses have less force in Texas because the clause prohibiting oral modifications can itself be orally modified. This is because in Texas written contracts have no greater efficacy than oral contracts.

The best advice I can give is carefully identify the rights and obligations included in your contracts. Make sure that your conduct and that of your employees tracks these obligations and you will be less likely to "wave" goodbye to your rights.