Time is not typically presumed “of the essence” in a basic transaction. This is particularly true in a commercial contract, where a non-breaching party owed money can be made whole by the payment of interest. Setting a closing date does not, by itself, make “time of the essence.” Thus, a deal is not automatically terminated if the closing passes without performance. If that happens, one party may then demand the transaction be completed within a “reasonable time.”
Giving that notice makes “performance within the specified time of the essence of the contract.” Id. If a party does not give that notice, however, it has no right to repudiate the contract. The contract still exists.
All this changes when the parties include a “time is of the essence” clause. “[P]arties will be held to the deadlines they have imposed upon themselves when they agree in writing that time is to be of the essence.” This provision creates a condition subsequent which, if not satisfied or waived, extinguishes the parties’ mutual obligations.
In other words, if an agreement to sell and purchase a business provides that the closing is on January 31 at 3:00 p.m. and “time is of the essence,” the seller’s failure to show up at that date and time, ready to go, allows the buyer to cancel the contract and recover any deposit. Likewise, the buyer’s inability to close frees the seller to cancel the contract and sell the business to someone else. Similarly, the failure to meet a material contractual deadline resulted in a breach, which excuses the other party’s performance.
Returning to the hypo, your clients are likely off the hook for the sale of their business to this buyer. Of course, they may choose to waive the breach of the “time is of the essence” clause. But it is unlikely that a court would hold them to the deal.