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Avoiding Breach of
Contract When Time Is of the Essence
In the construction
industry, the phrase “time is of the essence” is far more than a mere cliché
In writing or not, “time
is of the essence” places specific obligations on the contractor and
subcontractors that, if not fulfilled, could hold grave legal and financial
consequences.
A time-of-essence
provision is a powerful weapon, since it can give an otherwise minor delay the
legal effect of a material breach of contract.
The difference between a
minor and material breach can be enormous. While the victim of a minor or
partial breach can recover whatever loss the minor breach has caused him, he is
still obligated to fulfill his part of the contract. But the victim of a
material or total breach is excused from further performance, and the party who
breached the contract may be booted off of the job and held liable for costly
penalties.
When is time of the
essence? Whether untimely completion will warrant termination and remedies
depends partly on the contract language. But even where time-of-essence language
does not appear in the contract, the courts may interpret the conduct and
communication of the parties as creating a de facto agreement that, indeed, time
was of the essence.
Fortunately for
contractors and subs trying to meet a deadline, the Arizona Supreme Court has
ruled that a time-of-essence provision is merely one factor to be considered
when determining if a breach is material. The mere indication that “time is of
the essence” generally will not transform trivial un-timeliness into a material
breach.
For example, the Arizona
Supreme Court has held, in Foundation Development Corp. v. Loehmann’s, Inc.,
that if failure of performance at the exact time will not cause injury, time
cannot be absolutely “of the essence,” even though, technically, the delay
constitutes a breach of the contract.
Despite these apparent
safety nets, you should carefully read the contract for language stating that
“time is of the essence” and carefully consider whether you or the owner has
treated time as of the essence. Here are some indications that time may be of
the essence:
-
the phrase “time is of
the essence” appears somewhere in the contract documents;
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the owner has insisted
on performance of some element by a specific date;
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the owner has requested
that you or your subs devote more resources to completion;
-
the contractor or
subcontractor has promised completion by a certain date;
-
the owner will suffer
damages if completion is not made by a specific date; or
-
the owner intends to
make use of the property by a specific date.
Avoiding delay
damages. Where time has been made of the essence to a contract, you will
want to monitor changes to the schedule with extra care and at frequent
intervals. Always utilize change orders and written extensions to permit delays,
and allow for modifications to extend time in the contract documents.
Monitoring will help you
readjust scheduling to meet the deadline. If a project should fall irretrievably
behind schedule, monitoring will help you predict the delay and bring it to the
owner’s attention in time to modify the agreement to extend the time for
completion.
In addition, each written
change order will give the owner notice that the change will delay the project.
That notification may avoid disputes (or strengthen your position in case a
dispute arises), serving as a record that the owner agreed to a later completion
date.
Before you even begin a
project, be sure that the contract provides for extensions of time to complete
the project for added work, weather delays and other obstacles beyond your
control.
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