Simon's Megalomaniacal Legal Resources

Contracts - Time is of the Essence

. Gatoto v. 5GC Inc.

In Gatoto v. 5GC Inc. (Ont CA, 2024) the Ontario Court of Appeal considered an appeal of a declaration application to enforce a formal 'Option to Purchase Agreement' (fairly, a 'rent to own'), or in the alternative a return of a deposit. The appellant optionee was a residential tenant in the premises at the time the contract was entered into.

Here the court holds that the absence of a 'time is of the essence' clause "is not determinative" of the case, where the timelines are otherwise plainly set out in the contract:

[3] Under the Option Agreement, the appellant could exercise an option to purchase the property for a fixed amount, provided she complied with the Lease. The Option could be exercised up until October 31, 2015, for $303,187 or from November 1, 2015 to October 31, 2016 for $318,346. The closing of an agreement of purchase and sale arising from the exercise of the Option was to occur within 30 days of the expiration of the Lease.

....

[9] First, she submits that the application judge erred in her interpretation and approach to determining that the Option had expired. The appellant relied on Jesan Real Estate Ltd. v. Doyle, 2020 ONCA 714, 26 R.P.R. (6th) 233 and Sail Labrador Ltd. v. Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265 to argue that the Option Agreement was a bilateral contract and, therefore, the appellant could only be deprived of its benefit if she substantially breached its terms. The appellant says that as no such breach occurred, the Option was available to her at a date later than the expiry date of October 31, 2016. She argues that this position is supported by the absence of a “time is of the essence” provision in the Option Agreement. She submits that because the lease agreement provided that the lease would continue as a month-to-month tenancy after October 31, 2016, the appellant could exercise the Option after that date as long as she was still leasing the property. While the appellant acknowledges that after October 31, 2016 she could no longer hold the respondent to the purchase price set out in the Option Agreement, she argues that she should be permitted to attend at the Superior Court to ask a judge to fix an appropriate purchase price.

[10] We disagree. The Option Agreement clearly spelled out the terms that governed the parties. The month-to-month tenancy that ensued after the fixed-term ended did not operate to extend the Option Agreement expiry date of October 31, 2016 or the availability of the fixed Option purchase price. Nor did the Option continue until 30 days from the expiration of the Lease. The 30 days was the time within which the agreement of purchase and sale was to close once the Option had been exercised. While the court’s interpretation in Jesan was aided by a “time is of the essence” clause, the lack of one in this case is not determinative. The Option Agreement set out a deadline by which the option and accompanying purchase price had to be exercised. Unlike Jesan, the Option Agreement does not contain a mechanism to calculate the purchase price after the expiry of the stipulated time period. The parties could not have intended that they be required to attend at the Superior Court to ask a judge to fix the purchase price, as the appellant suggests. Rather, the Option Agreement relies on clear time limits that had to be respected. The appellant was not in a financial position to exercise the Option and failed to do so. There was no error in the application judge's interpretation or her finding that the Option had expired.

. More v. 1362279 Ontario Ltd. (Seiko Homes)

In More v. 1362279 Ontario Ltd. (Seiko Homes) (Ont CA, 2023) the Court of Appeal considers a "time is of the essence" issue in an APS closure:

[18] The central issue underlying this appeal is whether the motion judge erred in finding that the appellant was in anticipatory breach of the three APS when it faxed the letter repudiating the transaction just after 5:00 p.m. on October 1. The appellant makes two primary submissions on the appeal.

[19] First, the appellant argues that the motion judge erred in finding that the proper closing time was midnight on October 1, 2020, and therefore, the appellant anticipatorily breached the APS by faxing a letter to Mr. More terminating the transaction shortly after 5:00 p.m. The appellant contends that since the APS contained the “time is of the essence” clause, the timeline for closing was to be strictly enforced and that the respondents repudiated the agreement by failing to deliver the closing funds on the closing day. The appellant also points out that because the Teraview System does not permit transfers to be electronically registered past 5:00 p.m. on any business day, closing funds had to be tendered no later than 5:00 p.m.

[20] I do not accept the appellant’s submission. As to the 5:00 p.m. deadline, the motion judge held that the appellant’s position was contradicted by the DRA Mr. Tomas prepared and delivered to Mr. More, which provided that if the APS was silent on the time of closing, the deadline for “release” of funds from escrow would be 6:00 p.m. on closing day. In any event, the motion judge found that the appellant could not rely on the “time is of the essence” clause since there was no specific time set out in the APS. I see no error in that finding because it is consistent with this court’s observation in Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at paras. 31, 35:

A “time is of the essence” clause is engaged where a time limit is stipulated in a contract. The phrase “time is of the essence” means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract.

[...]

[A] “time is of the essence” clause does not serve to impose a time limit but rather dictates the consequences that flow from failing to comply with a time limit stipulated in an agreement. [Emphasis added.]

[21] Put differently, the mere presence of the “time is of the essence” clause is of limited assistance to courts interpreting a contract where the contract is otherwise silent on the deadline to perform the obligations under the contract. This was squarely the situation before the motion judge.

[22] The motion judge also found that the appellant was not entitled to rely on the clause because it was “clearly not willing to close on the agreed date and terminated the transaction prematurely.” In my view, it was open to the motion judge to make those findings and I see no basis for appellate intervention: 1179 Hunt Club Inc. v. Ottawa Medical Square Inc., 2019 ONCA 700, at para. 14, citing Domicile Developments Inc. v. MacTavish (1999) 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.), at pp. 306-07 (paras. 10-12). In Domicile, this court expressly held that an innocent party must itself be “ready, desirous, prompt and eager” to carry out the agreement in order to take advantage of the “time is of the essence” clause.

[23] Second, the appellant challenges the motion judge’s finding that it acted unreasonably and in bad faith by prematurely cancelling the transaction owing to delays that should have been expected during the pandemic. The motion judge found that although Mr. More had explained the delays and sought an adjustment of the closing date to allow the funds to be delivered to the appellant, the appellant refused to consider that possibility. The motion judge further found that Mr. More was in receipt of the funds and would have personally delivered those funds to Mr. Tomas’ office, if necessary, had Mr. Tomas been responsive to communications. The appellant argues that there is no basis for the motion judge’s finding and highlights that Mr. Tomas continued to monitor his trust account until shortly after midnight going into October 2, and he determined no closing funds had been forwarded by Mr. More.

[24] I see no error in the motion judge’s conclusion that the appellant acted unreasonably and in bad faith. It was open to the motion judge to find, on this record, that purchase transactions would usually be honoured despite minor delays in the delivery of closing funds that the appellant “pounced on” in a “totally unexpected fashion”. The motion judge accepted that during the pandemic, it was common practice for lawyers to work together to complete the rest of closing steps after the closing of the Teraview System and before midnight on closing day.

[25] Nor is it necessary for this court to decide definitively whether, as a matter of law, a purchaser can rely on the fact that their counsel is in receipt of closing funds in order to cure minor delays in delivering the funds to the vendor and/or the vendor’s counsel. In this case, once there was a finding of clear repudiation by the appellant just after 5:00 p.m. on October 1, the fact that the mortgage funds were ultimately delivered the day after the closing date is irrelevant because the innocent parties, namely, the respondents, were relieved of the requirement of tender at that point. As this court held in Di Millo, at para. 49, “when a party by words or conduct communicates a decision not to proceed to closing, the other party is released from any obligation to tender in order to prove he was ready, willing and able to close.”

[26] In sum, the motion judge did not err in finding that the appellant anticipatorily breached the APS before the midnight closing deadline, the “time is of the essence” clause is of no assistance to the appellant, and there is no basis to disturb the motion judge’s finding that the appellant acted unreasonably and in bad faith. I would dismiss the appeal.

. 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada

In 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada (Sup Ct, 2022) the court considered the interaction between a contractual 'time is of the essence' provision and the duty of good faith:

[53] In Deangelis v. Weldan Properties (Haig) Inc., 2017 ONSC 4155, at paras. 41 to 43, Justice Ricchetti explained why the enforcement of “time is of the essence” clauses in commercial agreement of purchase and sale does not violate the principle that a contracting party must act in good faith:

It would be tempting to let principles of fairness and equity direct a finding that a three day delay in the closing in the four year history of the Agreement, is a minor breach resulting in a financial windfall to the builder and, therefore, the Agreement should be upheld.

However, in my view, it would be wrong in law to find that insisting on compliance with a term of the agreement, agreed to by both parties with the assistance of counsel, amounts to bad faith depriving a party of the ability to strictly enforce an agreement where time is of the essence. Such a determination would mean that no party could insist on strict compliance of the term of an agreement because to do so would or might amount to bad faith. This would throw the law of contract into chaos by creating uncertainty in the enforcement of contracts.

Such a decision would also be contrary to numerous authorities which provide that, when a party fails to comply with its obligation to complete the transaction at a specified time and there is a time of the essence clause, the other party has the right to terminate the agreement.

. Ching v. Pier 27 Toronto Inc.

In Ching v. Pier 27 Toronto Inc. (Ont CA, 2021) the Court of Appeal made useful comments of the contract issue of 'time is of the essence', commonly used in real estate agreements of purchase and sale:

[52] I would also add that, though not argued by the parties, even if there was no election to affirm and no election to disaffirm, by default, at law, there would be no election. Accordingly, on the July 30, 2014, closing date, the Agreement continued. Neither party was ready, willing or able to close on that date. As such, the rule in King v. Urban & Country Transport Ltd. (1973), 1973 CanLII 740 (ON CA), 1 O.R. (2d) 449 (C.A.) was applicable. This rule was explained in Domicile Developments Inc. v. MacTavish (1999), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.) as follows:

In King v. Urban the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. Arnup J.A. resolved the stalemate by applying two propositions:

1. When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.

2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party. [Footnote omitted.]

. Jesan Real Estate Ltd. v. Doyle

In Jesan Real Estate Ltd. v. Doyle (Ont CA, 2020) the Court of Appeal noted the effect of a 'time is of the essence' clause:

[38] As noted, the OPA also contains a clause that makes time of the essence. A “time is of the essence” clause is engaged where a time limit is stipulated in a contract. It means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract. Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at paras. 32-33, leave to appeal refused, [2019] S.C.C.A. No. 55.

....

[48] In any event, even if the timing for the deposit payment is ambiguous, Mr. Doyle was not entitled to pay the deposit anytime, as the application judge’s reasons imply. When an agreement does not expressly reference a time for performance, the law will imply a term that it must be performed within a reasonable time: Ju v. Tahmasebi, 2020 ONCA 383, 447 D.L.R. (4th) 349, at para. 20; Di Millo, at para. 38. ....