Time is of the Essence – Affected by "Good Faith" Doctrine #302

By Gerry Neely
B.A., LL.B.

The decision in the Beka v. Share case referred to in the preceding Column #301 was based upon the judge’s conclusion that the parties, by agreeing to fix a new date, had waived time is of the essence.

The "time is of the essence" clause raises another issue that may affect the rights of either the seller or buyer of property that is being subdivided. In each of the 1983 and 1999 decisions referred to in Column #301 actual registration took place within a week or so of the completion date. In neither case was it been argued that the operation of this clause should have been suspended because the delay was minor, registration was foreseeable (and likely inevitable) and therefore the buyer had a duty to act in good faith "to perform a contract honestly made."

This doctrine of good faith has been applied in a number of real estate cases, where buyers put forward technical objections of minor but easily corrected errors, to end their obligations under what was otherwise an enforceable contract. The doctrine allows a court to correct an apparent injustice, if the circumstances make it unjust or inequitable for a party to insist that time is of the essence. If those circumstances are not present then the party not in default is entitled to insist upon his or her legal rights.

A case where the court decided that an injustice would be committed was one involving a seller who had agreed to take back a second mortgage. The application for registration of the mortgage was rejected because it had been executed under power of attorney and the affidavit of the attorney was defective. Market values had increased dramatically and the seller seized this opportunity to instruct his lawyer to terminate the contract. The affidavit was corrected by 6:00 p.m. on the closing date. The seller’s actions were evidence of a lack of good faith which would have made it unjust to allow the seller to rely upon the "time of the essence" clause to terminate the agreement. Therefore the buyer was given an order for specific performance of the contract.¹

In an Ontario case, completion was subject to the seller obtaining a building permit which was delayed because of a water pressure problem in a fire hydrant in the subdivision that was quickly rectified. The buyer’s attempt to terminate the contract because time was of the essence was rejected because of the judge’s opinion that the buyer had to act in good faith and allow the seller the few days needed to correct the minor problem.²

A B.C. judge came to a different conclusion based upon a contract that gave the seller the right to 24 extensions of one week each to obtain municipal approval of the services installed by the seller. The seller missed the final deadline by two days. The decision was that since the seller anticipated the problem by contracting for extensions which turned out to be insufficient, it was not unjust to allow the buyer to exercise his legal right upon time being of the essence.³

The contrast between the Ontario and British Columbia cases indicates the difficulty of determining how the application of standards of reasonableness and good faith will be applied in deciding the rights and remedies of the parties to a breached contract.

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