top of page

"Time is of the Essence" (Common Clauses)

Updated: Nov 11, 2023

(This post is part of a series called “Common Clauses,” focused on explaining so-called boilerplate provisions of contracts. Click the link to see other posts in this series).


You have probably seen this exact language before. Not only is this common, the contract almost certainly said exactly that: "time is of the essence." Although some of the other clauses in this series might be more common, this language will be almost identical from contract to contract. But what does it mean? What's its purpose? What if it isn't included? Why does it matter?


What does this look like?


This clause will look like this: "Time is of the essence with regard to all terms of this Agreement." It will almost always use the exact language "time is of the essence," and the heading will probably be "Time is of the Essence."


There are other ways to express the same point. "The deadlines set forth in this agreement are material terms; failure to meet a deadline shall constitute a material breach" or "Unless specifically stated to the contrary herein, time shall be of the essence for all events contemplated hereunder" (the second quote is from the California case described below).

Sometimes, terms might be expressly excluded from this clause. "Time is of the essence, except with regard to delivery of possession" comes up in leases.


What does this mean?


It means performance must be completed in a timely manner. In legal terms, this clause makes the timeline a material term of the contract.


A "material term" is one that is considered critical to the agreement. If a party breaches a material term (for example, the obligation to pay), the non-breaching party will often be excused from having to perform their side of the contract. If a party breaches a non-material term (for example, if there is no "time is of the essence" clause, finishing a project a day or two late), the non-breaching party is not excused from performance.


Consider a home improvement contract. In January, a homeowner hires a construction company for an addition to the home. The contract states that the project "shall be completed by January 31" and that "time is of the essence." On February 1, the project is 90% complete, but the homeowner fires the construction company, hiring a new company to complete it. The original construction company sues for damages. Because the construction company breached a material term of the contract, they might not recover.


What kinds of contracts include this language?


This clause is so common that it appears in many, if not most, of the contracts you will sign. It even appears in contracts where time really isn't "of the essence." But you will see them in leases, purchase and sale agreements, escrow instructions, buy-sell agreements, home improvement contracts, trademark assignment agreements, etc.


What happens if this language is not included?


Without this language, a timeline set forth in a contract might not be considered a material term. That is, both sides will have to make an argument that the timeline is or is not a material term.


The point of including extensive "boilerplate" provisions in lengthy contracts is actually to decrease the likelihood of uncertainty in a dispute. If you include "time is of the essence" language, the parties are agreeing from the outset that the timeline is important. This decreases the likelihood of an argument over whether failure to meet milestones actually constitutes a material breach of the contract. It makes it a settled issue (for the most part).


Does this ever make a difference?


Absolutely.


The Texas Supreme Court has established that "time is of the essence" clauses make timelines per se material terms of the agreement. Mustang Pipeline Co. v. Driver Pipeline Co., 134 SW3d 195 (Tex. 2004). In Mustang, the contract at issue required Driver Pipeline Co. to complete construction by April 30, 1997, and the contract contained a "time is of the essence" clause. In March, it became clear that Driver would not complete the project in time, so Mustang hired a new contractor, and sued Driver. The trial court (affirmed by the appellate court) held that the jury did not determine whether the breach was material. The Texas Supreme Court held that the jury did not need to make such a determination: the inclusion of the "time is of the essence" clause made the timeline material.


California's rule isn't as cut-and-dry. In California, "time is of the essence" previously would have made the timeline material. However, a 2019 appellate decision changed that. See Magic Carpet Ride LLC v. Rugger Investment Group, L.L.C., 41 Cal. App. 5th 357 (2019). There, the Court explicitly said that "does not automatically render Rugger's untimely performance a breach." At p. 369. The clause alone is not enough; you need facts to show that it is actually a material term.


Conclusion


If you haven't seen (or, more likely, haven't noticed) this language before, you will need to bear it in mind when negotiating a contract. If there are no strict timelines in a contract, than it may be better to request that it be removed. But it can impact your rights and duties down the line.

0 views0 comments

Recent Posts

See All

Texas Business Courts – What, Why, and How?

In 2023, Texas adopted HB 19, establishing the Texas Business Courts ("TBC"). The TBC will operate in several metropolitan areas, the TBC will have specific jurisdictional and procedural rules, and th

Severability (Common Clauses)

(This post is part of a series called “Common Clauses,” focused on explaining so-called boilerplate provisions of contracts. Click the link to see other posts in this series). What is it? A severabili

Opmerkingen


bottom of page