Waiver of defenses: Overview, definition, and example
What is a waiver of defenses?
A waiver of defenses is a contractual provision in which a party agrees not to assert certain legal defenses against the enforcement of an agreement. This means that even if certain legal arguments could be used to challenge the validity or enforcement of a contract, the party waiving their defenses voluntarily gives up that right.
This clause is commonly found in loan agreements, guaranties, promissory notes, and financial contracts, where lenders or creditors want to ensure they can collect payments without facing unexpected legal objections from the borrower or guarantor.
Why is a waiver of defenses important?
A waiver of defenses protects the enforcing party (such as a lender or creditor) by ensuring that the obligated party cannot later avoid their obligations by raising certain legal defenses. Without this clause, a borrower or guarantor might argue that the contract is unenforceable due to fraud, misrepresentation, or other legal grounds.
However, courts sometimes limit the enforceability of waivers, especially if they attempt to waive fundamental rights such as fraud or violations of public policy. This means waivers must be carefully drafted to be legally valid.
Understanding a waiver of defenses through an example
Imagine a company takes out a business loan and a third party (the guarantor) agrees to guarantee repayment. The loan agreement includes a waiver of defenses clause stating that the guarantor cannot challenge repayment based on any defenses the borrower might have.
Later, the borrower claims the lender misrepresented the loan terms and stops making payments. Even if the borrower has a valid defense, the guarantor remains obligated to pay because they waived their right to assert defenses related to the borrower’s claims.
An example of a waiver of defenses clause
Here’s an example of how this clause might appear in a contract:
“The Guarantor unconditionally waives any and all defenses, setoffs, and counterclaims that may be available to the Borrower in connection with the enforcement of this Agreement. The Guarantor acknowledges that its obligations hereunder shall remain in full force and effect regardless of any claim, defense, or dispute asserted by the Borrower.”
Conclusion
A waiver of defenses clause strengthens contract enforcement by preventing a party from using certain legal arguments to avoid their obligations. While it provides security to lenders and creditors, parties should carefully review such clauses to ensure they do not waive essential rights unfairly.
Before agreeing to a waiver of defenses, understand the legal implications—because once you waive certain rights, enforcing a defense later may not be an option.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.