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.
A few thoughts, Ken:
1. “Time is of the essence” is one of those old-fashioned phrases that appear in contracts. Another is “determine this agreement”. A more modern version might be “time of performance is an essential term of this agreement”. [But note my penultimate paragraph–KAA] Another way of saying “essential term” is “condition”, ie (under English law) an important provision where breach may result in termination rather than just damages.
2. A liquidated damages clause is only in conflict with the above if it is intended that liquidated damages should be the only remedy for late performance, ie the non-breaching party should not be allowed to terminate as an alternative to claiming damages.
3. I am seeing an increasing tendency for contracts to include boilerplate language saying that any remedy stated in the agreement is without prejudice to any other remedy that may be available under applicable law. This is to get over the principle of construction that if the parties have agreed a remedy that should be to the exclusion of all other remedies – I can’t remember the Latin name for this principle just now but it includes the phrase “exclusio alterius” or similar. I have always thought this boilerplate language is dangerous where the agreement includes a liquidated damages clause as (at least under English law) the whole point of a liquidated damages clause is to replace “damages at large” that may be otherwise available under general principles. But such language may be helpful to the extent that it clarifies that you can terminate as an alternative to (continuing to) claim liquidated damages.
Here are some more thoughts(!)
In my experience, clients are often unaware of the implications of saying “time is of the essence”. They know that performance on time is important, but they often miss the point about being able to terminate. I give drafting talks in the UK several times per year, and I would say a minority of the non-lawyers attending are aware of this point.
I am in two minds as to whether to use this phrase. I think it has the benefit of being a well-established expression that business people are familiar with – even if they don’t understand the legal implications of breach, they understand the broad commercial point that strict adherence with deadlines is required.
I agree that moving to a plain English version of the phrase is probably not appropriate. If a change is to be made, I suggest that it should be to add a provision to the termination clause to state that a party may terminate if the other party fails to comply strictly with a stated deadline for undertaking an activity (not exact words).
Ken and Mark, ‘Time is of the essence’ or Time is of essence’ may be old-fashioned but in English law it is a recognised concept. The facts, as usual, are open to interpretation i.e. dispute. I would suggest a half-way house: To keep the phrase but link it to the remedies, as Ken suggests. Ofcourse, ultimately, you are both right and the language could be simplified.
The issue, in English law, is a wider one of course: The use of labels and not enough attention in the drafting to the linked consequences.
Regarding Mark’s suggestion to use ‘condition’ or ‘Condition. True, but I would advise a client not to rely solely on that label, as per my above comment i.e. an issue of definitions.
This leads me to Mark’s third point in that under (for example) German law, as I understand it from my German colleagues and from my own reviews of contracts, there does exist the possiblity for claiming punative damages. I assume that this is why Mark, correctly, regards his boilerplate example as dangerous.
Given your interest in civil law & Canadian bilingual drafting issues, I’m surprised you haven’t addressed the possibility that “time is of the essence” could be construed as “time consists of gasoline” (“le temps se compose de l’essence”[?]); giving new context to “liquidated damages.”
I enjoy reading your blog.
Peter: I love it! Ken
Another translation required? In this Agreement, “gasoline” includes “petrol”?
Time is of the essence in civil law regimes is covered by: contract deadline must be adhered to. Even in English it could be rewritten that way, right? Contract deadlines must be adhered to. Or adherence to contract deadlines.
French: respect du/des délai(s) d'éxécution
Portuguese: cumprimento do(s) prazo(s) de execução.
In terms of Quebec drafting and civil law, the Civil Code generally requires a contracting party to send the other party a formal demand to cure a breach before they can sue for that breach. However, this requirement can be dispensed with via a clause that would be the functional equivalent of a “time is of the essence” clause (see first sentence of article 1594, below).
Interestingly, most of the clauses I’ve seen that implement this do so by simply reiterating the same phraseology as is found in 1594. So much like “time is of the essence”, there is a customary way of expressing the concept that missing a deadline is a capital offence under the contract.
1594. A debtor may be in default for failing to perform the obligation owing to the terms of the contract itself, when it contains a stipulation that the mere lapse of time for performing it will have that effect.
A debtor may also be put in default by an extrajudicial demand to perform the obligation addressed to him by his creditor, a judicial application filed against him or the sole operation of law.
can I use “Time is of the essence for purposes of this agreement” if it is for a repeated time and day such as every wed between 9am and 1pm the lawn will be cut?