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The North Carolina Court of Appeals has recently considered whether a seller could cancel a sales contract containing language that time was of the essence when a buyer had failed to obtain financing by the time established in the purchase agreement.
Eliot Tod Gaskill ("Buyer") entered into a contract to purchase property from Jennette Enterprises, Inc. ("Seller"). The contract contained a number of provisions, including one that the Buyer was to obtain financing by August 30, 1999 ("Loan Commitment"). Closing was set for September 10, 1999, and the Seller also added the following language to the purchase contract in a section entitled "Other Provisions and Conditions": "[a]ll closing costs to be paid by buyer except for deed preparation to be paid by seller. Time is of the essence!!".
On September 2nd or 3rd, the Buyer informed the Seller that he had not yet obtained financing. At that point, the Seller told the Buyer that the contract was cancelled and the Seller was going to sell the property to another purchaser. The Buyer informed the Seller that he would secure financing by the closing date. On September 10th, the Buyer had allegedly secured financing and informed the Seller that he was ready to proceed with the closing. The Seller took no action regarding the sale of the property. The Buyer then filed a lawsuit, seeking specific performance of the purchase agreement or, alternatively, damages for breach of contract. The trial court ruled in favor of the Seller, and the Buyer appealed.
The North Carolina Court of Appeals reversed the trial court and sent the case back to the trial court for further proceedings. The court first considered the Buyer's argument that the "time is of the essence" clause was an unenforceable provision in the purchase contract. The Buyer based his argument on a couple of North Carolina cases where courts had found that similar language in contracts had no legal effect. The court rejected the Buyer's argument, as the court found that this language was specifically inserted into the agreement by the Seller and the Buyer had signed the agreement following the insertion of this language.
The court next considered whether the "time is of the essence" language applied only to the closing date or to the entire agreement. Looking at other cases that had considered this issue, the court found that, in a footnote, the Supreme Court of North Carolina had stated that if a loan commitment had to be completed by a certain date prior to the closing, the contract should contain both that date as well as specific language in that clause indicating that "time is of the essence." Another North Carolina court had found that a purchaser who had failed to obtain financing from a specific lending institution (as required in the purchase agreement) was entitled to specific performance because the failure to obtain financing from this particular institution prior to closing was not detrimental to the seller. Looking at these two decisions, the court ruled that the trial court should not have ruled in favor of the Seller. The court ruled that a jury needed to decide whether the "time is of the essence" provision applied to the Loan Commitment date. Therefore, the court sent the case back to the trial court for further proceedings.
Gaskill v. Jennette Enter., Inc., 554 S.E.2d 10 (N.C. Ct. App. 2001)
Editor's Note: Legal Affairs would like to thank N. Madison Wall, II, of Holt, Longest, Wall & Blaetz, P.L.L.C., of Burlington, North Carolina, for alerting The Letter of the Law to this decision.