Shipsview Corp. v. Beeche Systems Corp.

Brief Fact Summary. A contract between a bridge painter and a corporation that designed an apparatus to make painting bridges environmentally sound was at issue.

Synopsis of Rule of Law. "Courts do not allow a [cancellation] of the contract for mere delay in performance unless the parties have made time of the essence of the contract. The rule would seem to apply as aptly to contracts which when made leave indefinite the time of performance as to contracts from which time as an essential element has been removed by acquiescence [or waiver] of the parties."

Facts. The Plaintiff, Shipsview Corp. (the "Plaintiff"), is in the business of cleaning and painting bridges.  In late 1993, the Plaintiff was the low bidder on a bridge painting contract in Connecticut.  In January of 1994, the Plaintiff entered into a contract to paint six bridges in Connecticut.  After being awarded this contract, the Plaintiff entered into exploratory discussions with the Defendant, Beeche Systems Corp. (the "Defendant"), regarding a bridge containment system, a system to protect the environment from lead based paint residue.  The parties on March 26, 1994 agreed that the Defendant would provide the Plaintiff with a bridge containment system for one bridge.  Delivery was to be made eight to ten weeks from the receipt of the order and initial deposit.  Ten weeks from March 26, 1994 was June 7, 1994.  The cost was $210,435.00.  The parties agreed to modify the deposit terms "to extend payment over four installments: 15% with the order; 10% on April 4, 1994; 10% on April 11, 1994; and 15% on April 18, 1994."  The Plaintiff paid its initial deposit on time, but became "increasingly delinquent in deposit payment."  The parties had to modify the agreement in order to produce the most effective platform, which increased the purchase price to $269,514.00.  The parties agreed to this increase in price.  In a letter dated, April 19, 1994 the Defendant informed the plaintiff that a fifth deposit date, April 15, 1994, would be added to the current agreement to cover the increased cost. 
•    There were many conversations and letters concerning this tardiness of the Plaintiff's deposit payment, and the Defendant threatened that fabrication of the project and delivery would be stalled if the deposit were not paid by May 16, 1994.  The Plaintiff finally paid the remaining deposit on May 19, 1994.  A letter accompanying the check and writing on the back of the check said delivery was still to be made by June 7, 1994.  Although neither side was preparing for a June 7, 1994 delivery, one of Plaintiff's agent testified that he was waiting at the bridge that the containment system was fabricated for, for six to eight hours on June 7, 1994.  However, the agent never called the Defendant after the system was not delivered.  On June 8, 1994, the Plaintiff cancelled their order and demanded a refund of their deposit.  On June 8th or 9th the Plaintiff's agent obtained an alternate containment system from KTA Environmental ("KTA") for $21,200.  This action was initiated on June 28, 1994 and the Plaintiff sought return of their $134,762.50 deposit and $21,200.00 for the cost of the new containment system.  The Defendant argued that time was not of the essence in the parties' contract and they had a reasonable time to deliver the system.  The Defendant also had to sell the system it had designed for the Plaintiff for $135,000.00 on the open market.  The Defendant during trial claimed lost profits of $34,141.92 due to the Plaintiff's alleged breach.

Issue. Was time of the essence in the contract?

Held. No.  The court first observed "[t]ime is never of the essence in an agreement which explicitly or impliedly provides for performance within a reasonable time."  Second, "time [is not] of the essence in an agreement where the parties have waived time as an essential element of the contract."  Third, "[e]ither party, though, may make or restore time as of the essence whenever it desires, simply by giving notice to that effect.  This notice, however, "must be clear, distinct and unequivocal; fix a reasonable time within which to act; and inform the other party that failure to perform by that date will be considered a default."  Fourth, "[i]t does not matter that the date is unilaterally set or that a party does not specifically state that time is of the essence 'as long as the notice specifies a time … and warns that failure to [perform] on that date will result in default.' " In construing the aforementioned rules the court observed "courts do not allow a [cancellation] of the contract for mere delay in performance unless the parties have made time of the essence of the contract. The rule would seem to apply as aptly to contracts which when made leave indefinite the time of performance as to contracts from which time as an essential element has been removed by acquiescence [or waiver] of the parties." 
•    As to the first contract dated, March 26, 1994, time was of the essence because the contract included a definite time of delivery, i.e., eight to ten weeks from the agreement date.  The court found that it was irrelevant that the contract provided a three-week window for delivery instead of a specific date, June 7, 1994.  As such, delivery was to have occurred by the end of the tenth week.  Second, the court found that when the Defendant warned the plaintiff that fabrication and delivery of the project would be delayed if the deposit were not paid, it made payment of the deposit time of the essence.  Due to the Plaintiff's failure to pay the deposit by May 16, 1994, the Plaintiff defaulted on the contract.  The defendant chose, however, to continue negotiations instead of canceling the contract and as such "time was waived as an essential element of this contract.  Time was no longer of the essence to either side. [The Plaintiff] now had a reasonable time in which to pay, and [the Defendant] had a reasonable time in which to deliver."  Third, the court found that the Plaintiff did not successfully "reimpose time as of the essence" by including that delivery must be made by June 7, 1994 in the May 19, 1994 letter and on the back of the check. Although the notice is "clear distinct and unequivocal", the facts and circumstances of the case necessitate a finding that the June 7, 1994 date is unreasonable due to the failure of the Plaintiff to pay the deposit on time.  Specifically, Plaintiff's failure to pay lead to the Defendant not having the funds to "fabricate the system according to the original contract schedule."

Discussion. This case offers a very informative discussion into whether a given contract is "time as of the essence."