Time Really Is "Of The Essence"

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Taylor McCaffrey

Contributor

Taylor McCaffrey LLP has a grassroots history and we have grown into one of Manitoba’s leading law firms. We are driven by a dedication to ensuring client success through excellence in the delivery of legal services. We have a genuine commitment to serving the community. We are a full-service law firm with extensive experience across a broad range of practice areas and industries. We act for clients from multi-national and national companies, to medium and small businesses, as they progress through different stages of life. We are proud of the calibre of the legal advice we provide.
We've all seen these provisions in agreements, but there appears to be some confusion as to the real impact of these words and why they are needed in the first place.
Canada Corporate/Commercial Law
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"Time shall be of the essence hereof."

"Time is of the essence in the performance of the Parties' respective obligations."

"Time shall be of the essence of this agreement."

We've all seen these provisions in agreements, but there appears to be some confusion as to the real impact of these words and why they are needed in the first place.

My old copy of Black's Law Dictionary (which was my first book purchase in my first year of law school – and is the only book I still have from that first year) states:

Time is of the essence of contract – . . . When this phrase is in a contract, it means that a failure to do what is required by the time specified is a breach of the contract.1

This seems pretty clear and likely aligns with what most of us would read this clause to mean. In addition, the ellipse at the beginning of the quote is:

Time is the essence of contract. Means that performance by one party at time or within period specified in contract is essential to enable him to require performance by other party.

To put this in plain language, "Time is of the essence." and similar phrases mean:

  1. You must perform your contractual obligations within the time provided or you will be in breach of your obligations in the contract. It is not sufficient that you have performed your obligations, you must have performed them within the time provided.
  2. If you fail to perform your obligations within the time provided, you cannot enforce the contract against the other party.

I started thinking about all of this again when a colleague suggested reading a case analysis of 3 Gill Homes Inc. v. 5009796 Inc.2 The 3 Gill Homes Inc. case is particularly interesting because the breach in this case was a mere 35 minutes. This was a real estate transaction case where the purchaser tendered 35 minutes after the time provided in the contract. The Ontario Court of Appeal held that this was a sufficient breach to permit the vendor to hold that the purchaser was in breach of its obligations under the contract. The short passage of time resulting in a breach, in this case, highlights the importance of strict compliance with the timelines set out.

While we do not have separate courts of law and courts of equity in Canada, we inherited both systems of law from England. The United Kingdom abolished the separate jurisdictions of law and equity through the Judicature Acts of 1873 and 1875, other countries maintained separations between common law and equity for various periods. In Canada, most provinces did not have distinct jurisdictions for law and equity as they were established after the UK Judicature Acts. Quebec was an exception due to its civil law system. The provinces with separate jurisdictions for law and equity – Ontario, Manitoba, New Brunswick, Nova Scotia, and Prince Edward Island – gradually transitioned to concurrent jurisdictions: New Brunswick in 1854, Nova Scotia in 1856, Prince Edward Island in 1873, Ontario in 1881, and Manitoba in 1895. In Manitoba, the Court of Queen's Bench in Equity existed from 1872 until 1895. In 1895, a new Queen's Bench Act was passed which accomplished a similar outcome to the Judicature Acts.3

In Manitoba, the principle established in the Earl of Oxford case, which prioritized equity over common law, was integrated into the province's legal framework.4

At common law, strict compliance with times was required even if only a completion date was specified. However, the Courts of Equity required clear evidence of the parties' intent for time to be of the essence of the contract, failing which, completion within a reasonable time was sufficient. Given that equity was to have priority over common law, this resulted in the need for specific language creating the need to comply with timeframes set out. An explicit provision that time is to be of the essence is a sufficient declaration of the parties' intention unless surrounding circumstances suggest otherwise.5 Understanding the factors that could warrant setting aside a "time is of the essence" clause by the courts is crucial for contract interpretation and enforcement.

56566 Manitoba Ltd. v. Samson6

In this case, the judge granted summary judgment in favour of the vendor, who was contesting an application for specific performance because the purchasers failed to tender the purchase price within the specified time in the purchase agreement.

Under the general law of contract, the failure by one party to comply with a material term of an agreement permits the other party, at his or her option, to terminate, cancel or rescind the agreement. Failure to pay the purchase monies within a time specified, where the contract provides that time is of the essence, prima facie permits such termination.

Although the case was reversed on other grounds, the reasoning regarding "time is of the essence" clauses has subsequently been referred to in other Manitoba cases.

Peg-Man v. Pallen Estate7

In this case, the court granted specific performance of a transfer of land that was subject to an option to purchase. The vendor argued that the purchaser's failure to tender the purchase proceeds on the closing date breached "the time is of the essence" clause in the option agreement, thereby voiding the transaction. However, the court determined that neither the purchaser nor the vendor was in a position to conclude the agreement on the closing date. The vendor's failure was therefore fatal to its attempt to enforce strict time compliance on the purchaser.

6486976 Manitoba Ltd. v. 7344989 Manitoba Ltd.8

The Court of Appeal upheld the findings of the trial judge, which stated that in the absence of a waiver of default, failure to tender funds on closing entitled the vendor to cancel the contract.

Courts in various jurisdictions have deemed it unjust and inequitable to enforce the "time is of the essence" clause in certain situations:

  • "If one party to a real estate transaction conducts themselves in a way that makes it practically impossible for the other to complete its obligations."9
  • If neither party is ready, willing and able to conclude the agreement on the closing date.10
  • If a party has waived the "time is of the essence" clause and later tries to enforce it again without giving proper notice to the other side. 11

In cases where a waiver of the "time is of the essence" clause has been recognized, the following situations serve as examples:

  • The vendor extended the completion date until payment "is received by this office or some other arrangements can be made."12
  • The contract language implicitly accepts that completion after the specified closing date is acceptable.13
  • After the completion date specified in the agreement for sale had passed, the vendor engaged in discussions regarding the property title that was the subject of the agreement.14

A breach of time can occur at various stages of an agreement, including due diligence dates and closing dates. It is essential to recognize the potential consequences of failing to adhere to "time is of the essence" clauses in contracts. Such breaches can lead to disputes, financial losses, and damaged relationships between the parties. Therefore, a proactive approach to understanding and enforcing "time is of the essence" clauses is crucial in safeguarding the interests of all parties involved and maintaining the integrity of contractual agreements.

When dealing with an express "time is of the essence" clause in a contract:

  • Clients should be specifically advised/reminded of the dates in the agreement – critical dates lists can be valuable tools for managing a file and ensuring clients are aware of those critical dates.
  • Clients should be advised of the meaning and importance of a "time is of the essence" clause and the consequences of failing to meet those deadlines, including the potential cancellation of the contract and the inability to enforce the contract against the other party.
  • Critical dates should be diarized and clients reminded of the dates in advance.
  • If due diligence dates are missed, do not rely on subsequent conduct and assume the transaction will proceed regardless. Formally revive the agreement and amend dates to rectify the client's delay by preparing and executing a revival and amendment of the agreement.
  • If closing dates are missed by your client, advise them immediately of potential consequences and seek instruction.
  • If closing dates are missed by the other party, advise your client immediately of the breach and potential remedies, and seek instruction.
  • DO NOT accept a late tender from the other side without instruction from your client permitting you to do so since acceptance of the late tender would likely be deemed a waiver of the breach.

Footnotes

1. Henry Campbell Black, Black's Law Dictionary, (St. Paul, MN: West Publishing Co., 1990) sub verbo "Time is the of the essence of contract".

2. 3 Gill Homes Inc v 5009796, 2024 ONCA 6.

3. Leonard I Rotman, The "Fusion" of Law and Equity?: A Canadian Perspective on the Substantive, Jurisdictional, or Non-Fusion of Legal and Equitable Matters, 2016 2-2 Canadian Journal of Comparative and Contemporary Law 497, 2016 CanLIIDocs 83.

4. The Court of King's Bench Act, CCSM c C280, s 33(4); Earl of Oxford's Case (1615), 21 ER 485; Sharon Gail McCullough, "Manitoba Court of Queen's Bench in Equity, 1872-1895: a Study in Legal Administration and Records" (Masters of Arts' Thesis, University of Manitoba, 2000).

5. CED, Sale of Land, "Time is of the Essence" (XIII(b)) at§ 102,

6. 56566 Manitoba Ltd v Samson, [1992] 2 WWR 703, 1992 CarswellMan 101.

7. Peg-Man Ltd v Pallen Estate, 2009 MBQB 120.

8. 6486976 Manitoba Ltd. v. 7344989 Manitoba Ltd, 2021 MBCA 61.

9. Grewal v Lal, 2021 BCSC 844 at para 139.

10. Shaw Industries Ltd. v Greenland Enterprises Ltd (1991), [1991] 4 WWR 222, 1991 CarswellBC 49; Domicile Developments Inc v MacTavish (1999), [1999] OJ No 1998, 1999 CarswellOnt 1622.

11. Woels v Mashinter (1976), [1976] 5 WWR 79, 1976 CarswellAlta 106; Bigham v Adam Yewchuk Management Ltd (1981), [1981 AJ No 853, 36 AR 148; Kapchinsky v Begam Holdings Ltd (1982), [1982] 5 WWR 135, 1982 CarswellAlta 113.

12. Bigham v Adam Yewchuk Management Ltd (1981), [1981] AJ No 853, 36 AR 148.

13. Beacon Industrial Development Corp v GC Farms Supply Ltd (1981), 123 DLR (3d) 467, 1981 CarswellAlta 410.

14. Schmitt v Terrace Corp Construction (1981), 1981 CarswellAlta 351, 30 AR 518.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Time Really Is "Of The Essence"

Canada Corporate/Commercial Law

Contributor

Taylor McCaffrey LLP has a grassroots history and we have grown into one of Manitoba’s leading law firms. We are driven by a dedication to ensuring client success through excellence in the delivery of legal services. We have a genuine commitment to serving the community. We are a full-service law firm with extensive experience across a broad range of practice areas and industries. We act for clients from multi-national and national companies, to medium and small businesses, as they progress through different stages of life. We are proud of the calibre of the legal advice we provide.
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