Opinion ID: 1214373
Heading Depth: 1
Heading Rank: 10

Heading: Time of Essence

Text: The buyers reason that because the Agreement did not provide that time was of the essence, the closing was continued beyond March 22, 1993. They rely on Russell v. Ferrell, 181 Kan. 259, Syl. ¶ 1, 311 P.2d 347 (1957) (Time is not ordinarily regarded as of the essence of a contract unless it is so stipulated by express terms, or is necessarily implied from the character of the obligations assumed.). According to buyers, neither Russell condition is present in this case. They also contend that a reasonable time for performance of a contract is a question for the jury, citing Rymph v. Derby Oil Co., 211 Kan. 414, 418, 507 P.2d 308 (1973). The buyers marshal primarily real estate contract cases as support for their position. In Russell, a specific performance case, the real estate contract did not expressly make time of the essence, and neither did the circumstances surrounding the sale. 181 Kan. at 266-67. See Hochard v. Deiter, 219 Kan. 738, 742, 549 P.2d 970 (1976) (The real estate contract did not specify a time limit within which sellers were to furnish merchantable title. In buyers' action for specific performance, we held a reasonable time was intended.); Rymph, 211 Kan. at 418 (After the well was completed, plaintiffs sought to repudiate an agreement to drill because of delays, We held the well was drilled in a reasonable time and said: When time of performance is not fixed in an executory contract the usual rules of construction should be employed to ascertain the intention of the parties, and if the nature of the subject matter and the surrounding circumstances so indicate a reasonable time for performance shall apply.); Federal Deposit Ins. Corp. v. Slinger, 913 F.2d 7, 12-13 (1st Cir. 1990) (The vendor, who retained a $40,000 down payment, waived the time is of the essence clause in the contract by granting the purchaser's request for an open extension of time.); Poggioli v. Liebegott, 77 Misc.2d 449, 453, 354 N.Y.S.2d 57 (1974) (The vendor, who had requested an extension prior to closing, was entitled to a reasonable extension of time for the closing of real estate contract after neither party appeared at closing.). Jenkins and Hood point out that they tendered performance on the closing date, March 22, 1993. However, they knew that the Bank had not agreed to release the pledged TSI stock. There was no indication when the Bank might release the stock. TSI responds that the Agreement expired on March 22, 1993, because Section 2.1 required that the parties mutually agree to extend the closing date, and no mutual agreement took place. TSI relies on Morton v. Sutcliffe, 175 Kan. 699, 266 P.2d 734 (1954). Morton involved cancellation of an oil and gas lease. The lease expressly provided that it would cease to be of any force or effect if the annual payment was not made before the year in question. The payment was made 6 days late. Judgment, affirmed on appeal, was entered for the lessor, canceling the lease. The Agreement in this case does not contain an automatic termination provision as explicit as the one in Morton. However, the parties did mutually agree to extend the closing date twice, first from February 26 to March 15, 1993, and second from March 15 to March 22, 1993, but never beyond March 22, 1993. Buyers next argue that Part IX(e) of the Agreement shows that only the buyers had a right to unilaterally terminate the Agreement after the closing date, if sellers were unable to perform as of the closing date. Part IX provides: This Agreement may be terminated at any time prior to the Closing Date: .... (e) by Buyers at any time following February 26, 1993 in the event that Buyers are ready, willing, and able to fulfill Buyers' obligations hereunder and TSI, the Subsidiaries, Shareholders, Paul, or Hodes, have not fulfilled all of their obligations hereunder. Buyers argue that if the Agreement expired on the closing date (March 22, 1993), Part IX(e) is rendered a nullity, contrary to the basic principles of contract construction. However, Part IX provided the buyers with the right to terminate before closing. Once the closing date was extended past February 26, 1993, the buyers' right to terminate under Part: IX (e) would extend only up to the new closing date. Part IX (e) does not address the contingency that the February 26, 1993, closing date would be extended. If the words closing date had been inserted instead of February 26, 1993, in Part IX(e), then that contingency would have been covered. The rule that time is not ordinarily regarded as of the essence, absent an express stipulation or unless the nature or subject matter of the contract or circumstances indicate otherwise, is said to arise in equity. See 17A Am. Jur.2d, Contracts § 483. This rule is especially true in a real estate contract case involving a purchaser seeking specific performance, after having made a down payment. See Russell, 181 Kan. 259, Syl. ¶ 1. This case concerns the sale of a controlling interest in an operating business, not real estate. TSI was highly leveraged and needed an infusion of capital and new management. Buyers made no down payment and have withdrawn their claim for specific performance. The Agreement specified a closing date that could be changed only by mutual agreement. The parties negotiated two brief extensions of the closing date, but did not negotiate any extensions beyond March 22, 1993. The circumstances suggest that time was of the essence.