Corporate & Securities Law

Enforceability of ?Time Is of the Essence? Provisions in Civil-Law Jurisdictions

By Ken Adams

At the 2008 ABA annual meeting I appeared on a panel with Kevin Kyte, partner at the Montreal office of Stikeman Elliott.

Kevin’s topic was things to bear in mind when drafting contracts governed by the law of a civil-law jurisdiction. It’s a topic I haven’t seen addressed in print, so I permit myself to bug Kevin sporadically. Yesterday I followed up with him regarding his assertion, during our panel discussion, that time is of the essence provisions are of questionable enforceability in civil law jurisdictions.

In response, Kevin sent me the following language from article 1604 of the Quebec code: “[A creditor] is not entitled to resolution or resiliation of the contract if the default of the debtor is of minor importance, unless, in the case of an obligation of successive performance, the default occurs repeatedly, but he is then entitled to a proportional reduction of his correlative obligation.”

I incorporated Kevin’s input in my latest attempt to summarize the problems with time is of the essence:

First, the phrase is often used in a provision stating?the exact wording varies?that Time is of the essence for purposes of this agreement, even though it?s hard to imagine that the parties contemplated time being of the essence for purposes of all performance under the contract.

Second, even if it?s clear what performance it applies to, the phrase is silent as to the exact consequences of untimely performance.

Third, you see time is of the essence provisions even in contracts that use liquidated-damages provisions and express termination provisions to specify the consequences of delay. Such specific provisions should override a generic time is of the essence provision.

And fourth, whereas termination for any tardiness may make sense in some contexts, in other contexts?for example, in a construction project?a missed deadline might occur after substantial performance, and allowing the other party to terminate could result in unjust enrichment. A common-law judge might or might not be troubled by that unfairness, but it would likely create problems in civil-law jurisdictions, which frown on rescinding a contract based on trivial nonperformance.

So if one or more deadlines in a contract are particularly important, address the issue directly and explicitly rather than using the jargon that is time is of the essence.  I suggest in MSCD 12.403 some language that one could use in one particular context. There’s no magic to it, but I wouldn’t just say “The deadlines in this agreement are essential,” as that’s simply a plain-English equivalent of time is of the essence. Instead, I’d focus on the consequences of failing to meet any deadlines, and might also say why the deadlines are important and have the other party acknowledge as much.

I know I’ve addressed time is of the essence previously, most recently in this March 2009 post. But it usually takes several attempts before I’m satisfied with my take on a particular subject. I suspect this won’t be the last time I tackle time is of the essence.

Full post as published by AdamsDrafting on June 23, 2009 (boomark / email).