The Supreme Court of New York County recently issued a decision in the case of Mill Financial v. Gillet. The case is quite complex, with a variety of issues regarding breach of contract as well as other issues. However today we will just focus on one narrow area of the case – a waiver. Simply put, assume there is a valid contract between party A and party B, and party B breaches the contract. Party A obviously has a right to sue or recover on the contract, but it also has the ability to waive or state that although the breach has occurred, it chooses to continue the deal agreed to in the contract. Of course, nothing is quite that simple in contract law. Express, written waivers are rarely at issue, what comes up more frequently are situations in which the breaching party, when sued, argues that the non-breaching party issued a waiver by implication from the actions it took.
Background of the Case
The case involves a complex arrangement between Mill Financial, the plaintiff, and multiple defendants all involved in some way with owning or financing the professional soccer team known as Liverpool Football Club of the English Premier League (Note that soccer is referred to as football by the rest of the world, though oddly the word “soccer” is a slang term coined by the British.)
Mill claims that one of the defendants, The Royal Bank of Scotland (RBS) breached something known as the “Tri-Party Agreement” between Mill, RBS, and Wachovia Bank. Essentially the members of the Tri-Party Agreement all loaned funds to the owners to purchase the Club, in return for a security interest.
The relevant portion of the Tri-Party Agreement stated that each member would notify all of the other members in the event of basically any relevant occurrence, such as breach or default or the threatening of enforcement actions (lawsuits).
The Club, for whatever reason, had problems paying back the loans. RBS, because of this, sought to take over The Club’s Board of Directors, without notifying Mill Financial. Mill Financial alleges that this was a breach of the Tri-Party Agreement by RBS.
RBS, in the current action, seeks a motion to dismiss Mill Financial’s claim for breach. RBS’s theory is that Mill Financial created an implied waiver of the breach by continuing to perform under the contract without notifying RBS of RBS’s breach.
Plaintiff of course argued that they did not know of the RBS breach and thus could not have waived it. The contract stated that waivers must be in writing signed by each of the Gillett creditors.
The court stated the legal standard in New York. Waiver has two parts: knowledge of a right and intentional relinquishment of that right. A waiver should not be “lightly presumed” and the party asserting the waiver (RBS) has the burden of proving it.
Here, the court reasoned that RBS has not met its burden of proof. The only evidence RBS has is that plaintiffs received notice of RBS’s action from a third party via what are known as the “Side Letters.” This satisfies the ‘knowledge’ requirement – however the contract language states that waivers must be in writing. In New York, this type of clause is valid and enforceable. RBS cannot produce a written waiver by plaintiff. Thus the intent element of waiver is not satisfied and RBS loses its motion on this point.
The issue of waiver is a fiendishly complex area of contract law that may or may not be contemplated by a written contract. Please don’t hesitate to contact our office for a consultation.