Many real estate contracts, and other contracts, which are entered into in Tennessee and governed by Tennessee law, contain “time is of the essence” clauses. What difference do such clauses make in Tennessee contracts? A recent decision of the Tennessee Court of Appeals demonstrates how such a clause can make a practical and critical difference in a breach of contract case in Tennessee.
In the case of Seaton v. Wise Properties-TN, LLC, the Tennessee Court of Appeals was confronted with the following facts relating to a breach of contract case:
• Buyer and Seller entered into a real estate contract for the purchase and sale of real estate in Athens, Tennessee
• Pursuant to the parties’ real estate contract, the Buyer agreed to pay $1,000,000.00 for the land and a $50,000.00 earnest money payment
• The real estate contract required the Seller to obtain a title insurance commitment for title insurance for the property within ten days of the signing of the real estate contract
• The real estate contract provided that, if the Buyer defaulted, the Seller could retain the earnest money payment
• The real estate contract provided: “Time is of the essence of this Agreement.”
• The Seller never obtained the title insurance commitment
• The Buyer, realizing that adequate financing was not available to enable it to purchase the property, stopped payment on the earnest money check, and told the Seller that the contract would have to be renegotiated
• The Buyer admitted, during the case, that “there was no need to get a title policy” because the deal did not look like it would happen
• Seller filed a breach of contract case, and also requested that the court order specific performance of the real estate contract by the Buyer
In defense of the breach of contract claim, and specific performance claim, the Buyer argued that the Seller materially breached the real estate contract first by failing to obtain the commitment for title insurance. Under Tennessee law, a plaintiff in a breach of contract case, to recover, has the burden of proving that it performed any conditions precedent to the liability of the other party. (This case involves a condition precedent, but, even in cases where the plaintiff is not required to perform a condition precedent, if the plaintiff materially breaches the contract first, the other party is excused from further performance and may, itself, bring a breach of contract claim).
Both the trial court and the Tennessee Court of Appeals held that the Seller’s failure to obtain a title insurance commitment within ten days, as required by the real estate contract, was a material breach by the Seller which occurred before any breach by the Buyer. If the duty to obtain a title insurance commitment had not been determined to have been a material breach by the Seller, then, the Seller would have prevailed in the case. The Court of Appeals reasoned that, because the real estate contract contained a “time is of the essence” clause, the failure to obtain the title insurance commitment within ten days was a material breach.
Would this case have turned out differently if the real estate contract involved had not contained a “time is of the essence” clause? To put it another way, would a Tennessee court have determined that the failure of the Seller to obtain the title insurance commitment within ten days was not a material breach, but for the “time is of the essence” clause? Considering the facts of the case, including the testimony of the Buyer that there was no reason to obtain title insurance, the answer is: Probably not.