Legal Memorandum: Time is of the Essence Clause in Contracts

Issue: Under Colorado law, may an oral statement that ‘time is of the essence’ control when a written purchase agreement or option contract does not also contain the provision?

A party may argue that merely stating “time is of the essence” does not always make it so.  This argument is suggested by Commonwealth Petroleum Co. v. Billings, 759 P.2d 736 (Colo. Ct. App. 1987), a case involving a contract to assign an oil and gas lease.  Certain documents were not delivered by the time specified in the contract, but the other party did not object.  Significantly, the contract did not have a specific time of the essence clause and the court declined to imply one into the contract.  In such a situation, the person complaining about late performance must establish that time was in fact of the essence.

[T]he question is whether all of the circumstances demonstrate that performance by the date set by the agreement is important.  Thus, even though an agreement provides that timely performance is of the essence, such a provision is not conclusive upon the point; it must still be shown that time was, in fact, of the essence.

Id. at 738.  Because the defendant did not present any evidence showing that time was of the essence for delivery of the documents, other than the terms of the contract itself, the fact that the documents were deposited ten days after they were due was not a material breach of the agreement. 

[…]