Contract Clauses

Question 1

Time of Essence Clauses “TotE”:

Answer 1

5 Rules

1. If you want time to be of the essence, it MUST be explicitly stated in the K or from the surrounding circumstances, UNLESS the seller can show harm (Court cannot ignore specific language)
2. Based on Strict Language NOT implication
   (Ex. B waiting 30 minutes for C does not mean B impliedly waived the Time of Essence Clause. )
3. Parties can unilaterally change K terms if it is in writing with reasonable notice, BUT the other party is not obligated to accept new terms.
4. Acceptance of late payments can waive the TotE clause.
5. If there is an oral waiver to the payment date, It HAS to be in writing.

Question 2

Subject to Financing Clauses

Answer 2

3 Rules

1. Buyer must exercise due diligence in obtaining the financing
2. Needs to be specific or it will be struck down by the court for vagueness.
   (Can be made more clear and enforceable if it includes
   (1)When, (2)Terms of if the buyer can reject a particular lender, (3) Agreements on what interest rates are too high.)
3. These clauses are considered condition precedents to the buyer’s performance of the contract, who in good faith had attempted to obtain the financing but was unable to do so.
   (They have to be specific about what constitutes a “Good Faith Effort” )

Question 3

Acceleration Clauses

Answer 3

These clauses call for immediate payment of the entire outstanding principal upon default by the borrower; these clauses are usually accompanied by the option to waive this right if the mortgagee so chooses.

Question 4

Liquidated Damages Clause

Answer 4

*3 factors a court uses to determine if this clause should be enforce *

1. The smaller the amount the buyer paid, the more likely the seller will get to keep it (Look at the % paid in comparison to the OVERALL purchase price)
2. Amount in time. (The longer the contract, the more likely the court will try to restore it)
3. Behavior of the buyer (Is he in possession, any improvements made, did he abandon?)