Corporate & Securities Law

More on ?Time Is of the Essence?

By Ken Adams

Drafters use the phrase time is of the essence to indicate that failure to meet a contract deadline constitutes grounds for termination. But as I explain in MSCD 12.394?403 and in this May 2006 blog post, saying Time is of the essence for purposes of this agreement is problematic, in that such provisions suggest that the draconian termination-for-any-tardiness standard applies to all contract promises, of whatever nature and no matter how trivial. That’s why courts are willing to ignore such provisions and instead regard tardiness as constituting breach, with damages to be assessed based on the harm caused by the breach.

Given my interest in time is of the essence, I was pleased to have Phil Scheibel, a partner at the Calgary office of Fraser Milner Casgrain, sent me a link to his recent FMC newsletter on the implications of time is of the essence for purposes of construction contracts.

Phil makes the same point I do, but he also notes that delay is often expected in construction projects, and that construction contracts routinely address delay by means of liquidated-damages provisions and express termination provisions. Such specific provisions should override a generic time is of the essence provision.

Phil also notes that whereas termination for any tardiness may make sense when something is being sold, a missed deadline in a construction project may occur after substantial performance?allowing the other party to terminate could result in unjust enrichment.

These arguments bolster my aversion to time is of the essence. You want to be able to terminate without any discussion of harms if the other party misses a deadline? Then you’d be much better off saying so clearly instead of relying on jargon.

Full post as published by AdamsDrafting on March 09, 2009 (boomark / email).