In some contracts, a party must meet its obligations by a certain date or forfeit its rights, and some of those contracts also include a “time is of the essence” clause. As most practitioners know, coupling a date for performance with a time is of the essence clause means that the deadline is inflexible. Having said that, there also are a number of cases where such hard deadlines were deemed to have modified by the conduct of the parties. See, e.g., McCarthy v. Tobin. However, it is perilous to assume that your negotiations imply an extension when a time is of the essence clause is in play. Indeed, that is exactly what happened to the defendant in Reem Property, LLC v. Transfer Financial, LLC.
Reem Property was the high bidder in a foreclosure sale of real estate, and it entered into a Memorandum of Understanding with Transfer Financial to purchase that property. Pursuant to the MOS, Reem paid a $10,000 deposit. The time for closing was set for 12:00 p.m. on June 30, 2014, and time was of the essence. Before the closing, Reem’s counsel found that there was a problem with the newspaper advertisement of the foreclosure that impacted title, and he notified Transfers’ counsel. A series of emails then went back and forth between counsel as to how to resolve the issue, part of which involved Transfer obtaining a curative affidavit.
On the day of the closing, the parties continued exchanging emails concerning resolving the issue with the newspaper advertisement, and neither counsel expressed any reservation in this regard. Unfortunately, Transfer’s counsel said that he would not be able to obtain the curative affidavit until after 12:00 p.m. on June 30, prompting Reems’ counsel to suggest that they move the closing to 3:30 that day. Nevertheless, Transfer was not able to obtain the requisite affidavit, and Reem’s counsel requested the return of his client’s deposit because Transfer could not deliver a good title.
Transfer refused to return Reem’s deposit, leading Reem to sue in the state District Court. As part of its defense, Transfer contended that the emails between counsel constituted an implicit extension of the closing time for it to perfect title. The District Court rejected Transfer’s position, and Transferred appealed. The Appellate Division affirmed the District Court’s ruling, noting that the fact that a party might be willing to grant an extension is different from actually granting one, and in this case, there was not sufficient evidence to show that an actual extension had been granted. Thus, Reem was entitled to the return of its deposit.
The moral of this story, like so many others, is clear: thinking you are on a path to an agreement or the modification of an existing agreement is all well and good, but don’t leave your ultimate objective to chance. Make it express, put it in writing, and get the writing signed by the other party.