Contracts and Sales Multistate Bar Practice Exam

What situation allows for the finding of a waiver?

1. When changes are made without notification

2. When no reliance is placed on the agreement

3. When the other party has detrimentally relied on the modification

4. When both parties agree verbally

The correct answer is: When the other party has detrimentally relied on the modification

A waiver can occur when one party to a contract voluntarily relinquishes a known right, which can sometimes arise from the other party's actions or reliance on a modification of the agreement. In this context, when the other party has detrimentally relied on such a modification, it signals that they have taken significant actions based on their understanding of the altered agreement. This detrimental reliance establishes that the party making the modification has created a situation where it would be unfair or inequitable to allow them to later assert that the original terms should apply. The legal principle behind this is to prevent one party from benefiting from its own inconsistency in behavior or statements that led the other party to change their position. The other options do not accurately represent the circumstances that lead to a waiver. Making changes without notification does not inherently demonstrate a waiver; a party can still assert their rights unless they affirmatively act in a way that implies a waiver. Similarly, if no reliance is placed on the agreement, waiving a right is less relevant because there is no change in position that creates the basis for a waiver. Lastly, while verbal agreements can be binding, mere verbal agreement by both parties does not alone constitute a waiver, especially if no reliance or consideration is involved in those discussions.