Case: Buyer’s failure to close on specified date was not material when contract did not state that time was of the essence

Haidar v. Margetta, 352 So. 3d 206 (Miss. Ct. App. 2022)(en banc). Yazmine Haidar and Harold Katz, as buyers, and Chad and Lynette Margetta, as sellers, entered into a contract for the sale by the Margettas of land in Pearl River County to Haidar and Katz. The contract provided that closing would occur “on or before January 7, 2021” but did not provide that time was of the essence. According to the opinion, the buyer’s lender delayed the closing until February 2, 2021. On February 1, 2021, the sellers sent a text to the buyers that the sellers would not close. On the same day, the sellers entered into a contract to sell the property to another party. On February 11, the buyers filed a complaint against the sellers in Pearl River County Chancery Court seeking an injunction to prohibit the sellers from selling the property to another party, and for specific performance of the contract between the sellers and the buyers. The sellers filed a motion to dismiss asserting that the complaint failed to state a cause of action because the contract expired on January 7, 2021, the last day for closing according to the contract. The buyers argued that the contract did not expire because the parties had agreed to modify the closing date, and because the contract did not provide that time was of the essence. The Chancery Court granted the sellers’ motion to dismiss. On appeal by the buyers the Mississippi Court of Appeals, in an opinion by Justice Wilson joined by five justices and in part and in the result by one justice, reversed and remanded the case to the Chancery Court. Unless time is of the essence, a delay in one party’s performance will not be deemed to be a material breach of the contract that allows the other party to terminate; rather, the party whose performance was delayed must close within a reasonable time.

What constitutes a reasonable time to perform is a question of fact. Simply specifying a closing date does not make time “of the essence.” Time can be deemed to be of the essence in two ways: first, if the contract expressly states that time is of the essence, and second, if there is a clear intent of the parties that time is of the essence. Since the contract in this case did not state that time was of the essence, the Court of Appeals reviewed the complaint to see if it contained a clear indication by the parties that time was essential to the contract. The buyers had attached copies of text messages between the sellers and the buyers regarding the closing, but these did not establish that time was of the essence. Since the complaint did not establish that time was of the essence, the sellers were not entitled to terminate the contract because the buyers failed to close on the specified date for closing, and the chancellor erred in dismissing the complaint.

In a dissenting opinion, Justice Greenlee argued that the contract established January 7 as the closing date, that there was no provision in the contract for extension of the date, and that under general law, “A contract which specifies the period of its duration terminates on the expiration of such period.” Three justices joined in the dissent and one justice joined in part.

Note 1: An underlying principle of law that is not expressly stated in this decision is that a party cannot terminate a contract for breach unless the breach is material. Failing to close on time, by itself, is not considered sufficiently material to support the termination of a contract. The effect of adding a clause that time is of the essence is that the party seeking to enforce the contract does not have to prove that time really is of the essence.

Note 2: The reasoning of this case applies to any contract that has a closing date, not just sales and purchases of real estate.

Note 3: In the majority opinion, the Court of Appeals wrote, “If a buyer fails to close on time, the seller can make time of the essence by giving the buyer clear notice warning that the failure to close on a date certain will result in default and termination of the contract.” After the buyers in this case failed to close on the specified date, the sellers could have specified a date by which the buyer had to close or the seller would terminate, sometimes characterized as a “drop dead” date. In this case the sellers and the buyers exchanged text messages about possible closing dates, but the sellers did not make demand that the buyer close by a specific date, nor did the sellers demand additional consideration for extending the closing date.

Note 4: When representing a buyer who is financing the purchase, drafters should think twice about adding a “time is of the essence” clause to the contract. Every closing delay that the editor has seen recently has been due to a delay in the buyer getting its financing finalized. If the contract includes a “time is of the essence” provision, and the buyer does not have a right to extend the closing to finalize its financing, and the buyer has to go back to the seller and ask for an extension of time to finalize its financing, the seller may demand concessions from the buyer, such as requiring the seller to pay additional non-refundable earnest money or changing the date for prorating the taxes, as a condition to granting the extension.

Note 5: The dissent relied in part on Gunn v. Heggins, 964 So. 2d 586 (Miss. Ct. App. 2007) for the proposition that “A contract which specifies the period of its duration terminates on the expiration of such period.” In the Gunn case, the buyer was unable to close on the specified date. But the buyer paid the seller additional consideration for an extension of the time to close. The buyer later sent the seller a document granting the buyer a second extension of time to close, which the seller did not sign. The trial court in Gunn held that the seller was entitled to terminate the contract and entered judgment for the seller. The Court of Appeals in Gunn found that the buyer’s actions showed that the buyer knew that closing had to occur on the date of the first extension and affirmed the trial court’s judgment. The Haidar court wrote that the actions of the buyer in Gunn showed that the parties considered time to be of the essence.

Note 6: The seller also argued that changing the closing date orally violated the statute of frauds. The Court of Appeals wrote that the buyers were not arguing that the closing date was modified, but that time was not of the essence in the original written contract.

Note 7: The Court of Appeals reversed and remanded to the Chancery Court for proceedings consistent with the opinion. What does this mean? The editor thinks that one question for the Chancery Court to consider is whether the second closing date set by the buyer, February 2, was a reasonable time for the buyers to perform, and that the sellers, who sought to terminate the contract, will have the burden of providing that the date was not reasonable.