- January 26, 2010
- Posted by: Christopher Hanson
- Category: Real Estate
It’s right there in paragraph 24 (or 16, or 32): “Time is of the essence.” So what?
Many agents will tell a client “It’s just the boilerplate.” Or, even worse, “It doesn’t really mean anything, as long as you close close to the closing date.” (Say that three times really fast.)
This “boilerplate” means something. (As does all the other “boilerplate.”) “Time is of the essence” means that you must perform within the time specified or the contract is breached. There is no “slippage” allowed. “Close” is only good enough for hand grenades. Some of you already understand exactly what I’m talking about. And have the horror stories to go along with it. Other are saying, “Wait a minute, I’ve been in hundreds of deals where the close of escrow gets bumped because of one reason or another. It’s never been a problem.” Wrong! Very wrong.
The California Courts have addressed this issue in Jeffrey Pittman v. Lily Canham, (2 Cal. App. 4th 556), where the court ruled that the failure of both parties to perform concurrent conditions did not leave the contract open for an indefinite period so that either party could tender performance at his or her leisure. The failure of both parties to perform concurrent conditions during the time for performance results in a discharge of both parties’ duty to perform. Thus, where the parties have made time the essence of the contract, at the expiration of time, without tender by either party, both parties are discharged. (See also, Corbin on Contracts (1960) § 663, p. 181.)
But, like most things in the law, there are exceptions. You can waive the “time” provision in a contract.
Waiver of the “time is of the essence” clause can occur whenever the seller acquiesces in a delay, or otherwise affirmatively agrees, either by modification of the contract in a writing, or by conduct, such as accepting payment or otherwise signaling approval of a delay.1
A case on point, is Galdjie v. Darwish (2003) 113 Cal.App.4th 1331 (7 Cal.Rptr.3d 178), in which Galdjie submitted a purchase offer on an apartment building located in Santa Monica. The seller, Barbara Darwish, penned a counteroffer which Galdji readily accepted. Id. at 1334.
The purchase agreement contained a “time is of the essence” clause and the parties agreed that escrow was to close on April 9, 1998. On April 1, 1998, in connection with faxing respondent some information needed by a prospective lender, Darwish wrote a note to Galdjie stating that the contract would not be extended beyond April 9th. In May, Darwish cancelled escrow and Galdjie filed suit seeking specific performance under the purchase agreement.
Galdjie prevailed in trial court and was affirmed on appeal. The appellate court recognized that “the trial court found that Barbara Darwish waived the time provisions by continuing to deal with respondent after the dates specified in the contract. The court found that Barbara Darwish’s statement in her April 1 letter that time would not be extended past April 9 was contradicted by her actions in staying in communication with respondent and approving and assisting his efforts to locate a willing lender. Thereafter, she did not reestablish time conditions by giving notice that the deal must close by a certain date. Instead, she simply cancelled escrow without informing respondent or the realtor just as respondent finally obtained a firm loan commitment.” Id. at 1340.
1 The court in Leiter v. Handelsman (1954) 125 Cal. App. 2d 243,251 suggests that waiver includes inaction after the passing of the original closing date. The court stated, “there is language in some cases, notably Chan [citation omitted] suggesting that after a waiver or when the date originally provided for performance has passed without decisive decision action, a definitive notice demanding performance by another reasonable and specific date is required.”