Opinion ID: 5054
Heading Depth: 2
Heading Rank: 1

Heading: time of the essence:

Text: The current litigation arose because Childers claims PSI materially breached the Royalty Compensation Agreement by paying the royalty one day late. In other words, Childers is claiming time is of the essence of the agreement. Under Texas law, time is not of the essence of a contract unless the contract explicitly makes it so or the contract is of such a nature or purpose that it indicates the parties' intention that they must perform the contract at or within the time specified. Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc., 513 S.W.2d 210, 216 (Tex.Civ.App.—Corpus Christi 1974, writ ref'd n.r.e.); Siderius, Inc. v. Wallace Co., Inc., 583 S.W.2d 852, 863 (Tex.Civ.App.—Tyler 1979, no writ). The Royalty Compensation Agreement does not specify that time is of the essence. Although the agreement specifies the dates payments were due, the Texas courts hold that designation of a particular date for performance does not, of itself, indicate time is of the essence. Seismic & Digital Concepts, Inc. v. Digital Resources Corp., 590 S.W.2d 718, 720 (Tex.Civ.App.—Houston [1st Dist.] 1979, no writ); Builders Sands, Inc. v. Turtur, 678 S.W.2d 115, 118 (Tex.App.—Houston [14th Dist.] 1984, no writ); Argos Resources, Inc. v. May Petroleum, Inc., 693 S.W.2d 663, 664–65 (Tex.App.—Dallas 1985, writ ref'd n.r.e.). The Royalty Compensation Agreement also is not a contract that, by its nature, mandates that time is of the essence. Texas courts, in contrast for example, have held time is of the essence in option contracts because the party is essentially buying time. Smith v. Hues, 540 S.W.2d 485, 488 (Tex.Civ.App.—Houston [14th Dist.] 1976, writ ref'd n.r.e.); Greenbaum v. Cortez, 644 S.W.2d 510, 512 (Tex.App.—Corpus Christi 1982, writ dismissed). Similarly, time might be of the essence if PSI paid Childers in stock because the stock price would fluctuate over time. PSI's delivery of the stock on the date specified would, therefore, be critical. In the present case, however, PSI was to pay cash based upon its revenues. The value of the royalty did not fluctuate depending upon what day PSI paid it. We conclude, therefore, that time was not of the essence of the agreement because delay in payment did not significantly harm Childers. Consequently, the delay in payment did no t materially breach the agreement.