Legal Updates

A waiver of a contractual right must be made explicitly and not implicitly

February 19, 2023

A startup company entrepreneurs agreed to back the company's commitment to repay an investor within a year by a mortgage on their house and even agreed to allow the investor to choose instead to receive shares of the company owned by the entrepreneurs. At the end of the year, the company did not repay the debt and the investor did not choose to receive the shares, which were of high value at the time. About 6 years later and after the collapse of the company, the investor demanded the realization of the mortgage.

The Court held that the investor may realize the mortgage on the house. Failure by a creditor to insist on collecting a debt cannot be construed as a waiver of rights, as a waiver of a contractual right has to be explicit and not implicit. Here, the investor had the possibility of waiving the mortgage while realizing the shares that were controlled by the entrepreneurs and while it did not choose to exercise the shares, it never made an explicit waiver of the right to repayment and thus could not be seen as waiving its contractual rights and is entitled to realize the mortgage.