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When applying specific performance to a land purchase contract, what happens if a buyer breaches a "time is of the essence" clause with a forfeiture clause?

Bar Exam Prep Remedies Contract - Equitable Remedies When applying specific performance to a land purchase contract, what happens if a buyer breaches a "time is of the essence" clause with a forfeiture clause?
🏥 Remedies • Contract - Equitable Remedies REM#055

Legal Definition

Land sale contracts sometimes expressly state that "time is of the essence" and contain a forfeiture clause. Occasionally, a buyer will have partially performed, but then makes a late payment, and is thus subject to forfeiture.

If the seller wants to keep both the land and the performance rendered to date (i.e., the payments), the buyer may bring an action for specific performance.

Note that because equity abhors forfeiture, to avoid such a result, the court will order specific performance where: (1) the loss to the seller is small, (2) the tardiness is deminimis, (3) due to waiver (i.e., the seller has accepted late payments before), or (4) the buyer would suffer undue hardship.

Plain English Explanation

When someone wants to buy land, they sign a contract. Sometimes, this contract says that the buyer must pay on time, and if they don't, they might lose their rights to the land and any money they've already paid. This is known as a "time is of the essence" clause with a forfeiture clause. But, if the buyer has already made some payments and then pays late, they might still have a chance to get the land. They can ask the court to enforce the contract, which is called "specific performance." The court will usually help the buyer if:

(1) The seller isn't losing much.

(2) The buyer was only a little late.

(3) The seller has accepted late payments before.

(4) It would be really unfair to the buyer if they lost everything.

Hypothetical

Hypo 1: Bob enters into a contract to sell a piece of land to Sam, with a clause stating "time is of the essence." Sam is supposed to make the final payment by June 1st but makes it on June 3rd instead. Bob claims that Sam forfeited the land and the $50,000 already paid because of the late payment. Result: Since Sam’s payment was only two days late, the court might rule that the delay was de minimis and that the loss to Bob was small, so the court could order specific performance, allowing Sam to complete the purchase and get the land.

Hypo 2: Sam contracts to buy a plot of land from Bob, who insists that time is of the essence. Sam makes all the payments on time, except the last one, which is a week late. Bob has never complained about late payments in the past. Now, Bob wants to keep both the land and all the money Sam has paid so far. Result: The court might find that Bob waived strict enforcement of the deadline by accepting late payments before. Therefore, the court could grant Sam specific performance, letting him finalize the purchase despite the late payment.

Hypo 3: Bob sells land to Sam under a contract that states "time is of the essence." Sam makes the final payment a month late. Bob claims the land and the $100,000 Sam already paid. However, Sam would lose his entire life savings if he loses the land and the payments. Result: The court might consider the undue hardship Sam would suffer and could order specific performance to prevent Sam from losing both the land and his money.

Hypo 4: Bob sells a small parcel of land to Sam with a "time is of the essence" clause. Sam is a day late with a payment, and Bob wants to keep the land and all payments made. The amount of money Bob would lose by allowing the sale to go through is insignificant compared to what Sam would lose. Result: Given that the loss to Bob is small and the tardiness is minor, the court may order specific performance, allowing Sam to complete the purchase of the land.

Hypo 5: Bob sells land to Sam, and Sam repeatedly misses payments by weeks. The contract says "time is of the essence," and Bob has clearly stated that no late payments will be accepted. After multiple late payments, Sam is late again, and Bob decides to terminate the contract and keep the payments made so far. Result: Because Sam has consistently breached the "time is of the essence" clause, and Bob has clearly communicated that no late payments would be accepted, the court is likely to uphold the forfeiture, and Sam would lose both the land and the payments made. Specific performance would not be ordered in this case.

Visual Aids

When applying specific performance to a land purchase contract, what happens if a buyer breaches a "time is of the essence" clause with a forfeiture clause?

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