There appears to me much confusion surrounding the consequences for buyers and sellers when a closing date specified in an earnest money contract for real property passes without performance.
The most common contract used for the sale of residential property in Texas is the TREC promulgated One to Four Family Residential Contract (Resale). Paragraph 9 A of the contract recites the following about closing:
The closing of the sale will be on or before ____________________, 20__, or within 7 days after objections made under Paragraph 6D have been cured or waived, whichever date is later (closing Date). If either party fails to close the sale by the closing Date, the non-defaulting party may exercise the remedies contained in Paragraph 15.
A simple reading of the above reveals that per the express terms of the contract, missing the closing date allows the party not in default to enforce remedies in Paragraph 15. These remedies include specific performance, other remedies allowable by law, or terminating the contract and receiving the earnest money as liquidated damages.
While the terms of the contract are clear, there is still much confusion about the consequences of missing a closing date. In fact, the Legal FAQs for Realtors section of the Texas Association of Realtors advises its members that "since time is not of the essence to the closing date, the buyer might argue that a short delay in closing is not a material breach of the contract."
It is instructive to examine some of the case law about closing date default in Texas. In Capcor at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C., the First Court of Appeals examined whether the trial court's failure to include an instruction to the jury on material breach was reversible error. No. 01-13-00068-CV, 2014 WL 982858, at *8 (Tex. App. Mar. 13, 2014). The case involved an earnest money contract that mirrored Paragraph 9 A of the One to Four Family Residential Contract (Resale).
The court relies heavily on publications focusing on real property contracts that state in relevant part: "In other words, the parties' contract may make time essential without including the magic words ‘time is of the essence.’ ” 2 MILTON R. FRIEDMAN & JAMES CHARLES SMITH, FRIEDMAN ON CONTRACTS AND CONVEYANCES OF REAL PROPERTY § 7:3.2 (7th ed. 2005). A finding that time is of the essence “is particularly likely when the provision consists of a right to cancel the contract.” Id. “Contracts often contain language making one party's performance by a specified date a condition of the other party's duty, and courts will usually honor such language if it is clear.” E. ALLAN FARNSWORTH, CONTRACTS § 8.18, at 573–74 (4th ed. 2004).
The court in Capcor at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C. concludes that, "As a matter of contractual terms...Capcor's failure to deliver good funds acceptable to the escrow agent by the last day the contract fixed for closing unequivocally permitted Moody Kirby to terminate the contract and obtain the earnest money. No. 01-13-00068-CV, 2014 WL 982858, at *10 (Tex. App. Mar. 13, 2014)
I would be remiss not to point out that the analysis in Capcor at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C. (an unpublished opinion as of the date of this post) is only applicable to contracts that expressly include language similar to that is included in the One to Four Family Residential Contract (Resale). A completely different analysis that involves examining the facts surrounding the contract will exist for earnest money contracts that do not include time is of the essence language or equivalent language.
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