Time is of the Essence
A time is of the essence provision is used in a contract wherein a missed deadline could damage one or more of the parties. For example, time is of the essence when a lender must fulfill a loan contract by funding a loan on time, else the buyer will miss out on his chance to buy the property in question, or fund the pending business opportunity. Normally, missing a deadline does not immediately translate to breaching a contract. However, in a contract that is more time-sensitive, a time is of the essence clause is used to ensure that the parties will stick to their deadlines. To explore this concept, consider the following time is of the essence definition.
Definition of Time is of the Essence
- A contract provision requiring the terms be fulfilled by a certain date.
What Does Time is of the Essence Mean
“Time is of the essence” is the concept that, should the terms of a contract not be met by a specific deadline, one or more parties could be negatively impacted. In such cases, it is important to include a provision in the contract establishing a specific deadline, as well as the consequences for failing to meet the deadline.
A time is of the essence clause adds urgency to the contract to ensure that the parties abide by the timeline the contract is attempting to enforce. Normally, parties to a contract do not have to uphold the terms of the contract by a specific date, or face breach of contract action. They simply need to fulfill the contract within a reasonable period of time. However, when a time is of the essence clause is in effect, parties can be sued for breach of contract if they fail to fulfill the contract on time.
Reasonable Time vs. Date Certain
When establishing time in a contract, the parties can refer to a “reasonable time” period, or a “date certain.” Reasonable time is an amount of time that is considered to be fair and necessary insofar as however long it takes to meet the needs of the contract, circumstances permitting. A date certain, however, is just as it sounds: it is a date on or by which the contract can be expected to be completed. A date certain is crucial, as it is typically legally binding.
For instance, if a vendor agrees to deliver products to a store on the second Thursday of every month, this is a date certain. If the vendor does not deliver the products by this date, then the store can sue the vendor for breach of contract, as well as for damages resulting from that breach, such as potential profits lost from not having the merchandise on time.
Examples of Time is of the Essence
Contracts that benefit from a time is of the essence clause include those pertaining to real estate loans and construction contracts. For the former, if a loan is not provided by the lender to the borrower by a certain date, then the buyer may miss out on the chance to buy a home or business. For the latter, if a construction project is not completed by a certain date, this can affect other aspects of the project as a whole.
For instance, contractors can only be scheduled to install electric and plumbing once the framework of a building has been constructed. Further, the investor who is financing the construction of the building must be able to put it on the market within a reasonable timeframe, else he will lose money in upkeep, and will make less on the sale of the building. The building cannot be placed on the market until construction is complete, which is why it is imperative that the parties to a construction contract adhere closely to the deadlines established by the contract.
Another type of case wherein a time is of the essence provision is important is one involving the delivery of goods. If a seller fails to deliver goods by a specified delivery date, then he is usually considered to be in breach of the contract. A date set for paying for goods, however, is different. If a party misses the deadline for payment, the courts are usually less strict because the situation can typically be rectified by simply charging interest on the amount in arrears.
Time is of the Essence Clause
Courts don’t typically consider timing to be a deal-breaker when it comes to contracts. This is why, for contracts wherein it is important, a time is of the essence clause is necessary. This clause alerts the courts that the contract was to be fulfilled by a particular date. If the case is coming before the courts in the first place, then this means that the timeline was not upheld, and therefore time becomes the most important factor in the case.
Most courts hold that a party’s failure to meet a time is of the essence clause equates to a breach of contract. Conversely, if a time is of the essence clause is left out, then the courts will not consider the timing to be as imperative. However, there are times when such a clause is included in the contract, yet the court will give the breaching party time to “cure,” or fix, the breach. The court may even choose to disregard the clause completely if other evidence shows that it would be unfair to enforce it. Similarly, the court may disregard the clause if the parties did not intend for the contract to be terminated simply because one deadline was missed. For these reasons, it is important to be very specific about what will happen if the deadline specified in the time is of the essence clause is not met.
Time is of the Essence Example Clauses
There are several time is of the essence example clauses that can be helpful, depending on the contract being drafted. There does not exist one time is of the essence example clause that fits every situation. Listed below are some time is of the essence example clauses that have been tailored to neatly fit their related contracts:
Example 1: “The parties hereby agree that time is of the essence with respect to performance of each of the parties’ obligations under this Agreement. The parties agree that, in the event that any date on which performance is to occur falls on a Saturday, Sunday, or state or national holiday, then the time for such performance shall be extended until the next business day thereafter occurring.”
Example 2: “Guarantor agrees that, with respect to each and every obligation and covenant contained in this Guaranty, time is of the essence.”
Example 3: “With regard to all dates and time periods set forth, or referred to, in this Agreement, time is of the essence.”
Example 4: “Time is of the essence under this agreement, and in the performance of every term, covenant, and obligation contained herein.”
Example 5: “Time is of the essence of each and every provision of this Agreement.”
Time is of the Essence Example Involving the Sale of Real Estate
In the summer of 2007, Roy Studer owned two pieces of real property consisting of 40 acres of land, in Town of Kirkwood, New York. During that summer, Studer placed a “For Sale” sign on the land. Richard Kutalek was interested in the land, and approached Studer about purchasing it. Kutalek’s motivation was that the land was adjacent to both his parents’ farm and property that his brother owned. Studer was initially asking $90,000 as his purchase price, but Kutalek offered him $60,000. In September, the parties compromised on a $70,000 purchase price for the property.
The following month, they entered into a handwritten contract, drafted by Kutalek, which stated in its entirety:
This agreement between Rich Kutalek, and Roy Studer, is for the purchase of 122, and 134 Brink RD. 40 acre parcel, Sale Price $65,000. Down payment of $5,000, 10% held if not closed in May 2008. Total Due at closing $65,000.”
On October 11, Kutalek paid Studer $5,000 in cash as a down payment, as stated in the contract. Studer then went south to Florida for the winter, as he had previously planned. While the two maintained phone contact while Studer was out of town, Studer did not return until the end of May 2008. Therefore, the closing did not occur in May 2008 in accordance with the contract.
Kutalek told Studer in the spring of 2008 that he still wanted and intended to close. Studer did not respond, and so Kutalek hired an attorney. In July of 2008, Kutalek’s attorney formally notified Studer, in writing, that Kutalek was ready, willing, and able to close. Still without a response, Kutalek sued Studer at the end of July 2008 in the Supreme Court of Broome County for breach of contract.
Kutalek argued that he had inserted the “May 2008” deadline into the contract because he knew Studer was leaving for Florida and would not return until the spring. Studer disagreed, stating that the deadline was included because Kutalek was unable to finance the purchase at the time, and that Studer needed to put an end date in the contract.
Ultimately, the Court held that the May 2008 was arbitrary and ordered the closing to proceed. The Court’s reasoning was that, although there was a “date certain” in the contract, the contract was missing the time is of the essence clause that would have legally bound the parties to close by the specified May 2008 date. Specifically, the Court held:
“It is undisputed that this contract does not contain the so-called magic words ‘time is of the essence’. It is well-settled that the inclusion of a date by which a real estate contract should close does not, in and of itself, make that date the essence of the contract. … By way of comparison, case law establishes that real estate contracts containing the phrase ‘in no event later than’ are not contracts in which time is of the essence … In this court’s view, the language here – ‘10% held if not closed in May 2008’ – is comparable to the ‘in no event later than’ language. Consequently, the court finds that the parties’ inclusion of the date May 2008 did not make this contract one in which time was of the essence.
Parenthetically, the court finds that even if it had concluded that this contract contained a time of the essence clause, it would have found defendant estopped from asserting said clause.”
Related Legal Terms and Issues
- Arrears – Monies that are owed and that should have been paid earlier.
- Breach of Contract – A violation of contract through failure to perform, or through interference with the performance of the contractual obligations.