Avoiding Breach of Contract When Time Is of the Essence

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.

WHAT 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,
  

• the owner has insisted on performance of some element by a specific date,
  

• 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.