Seller Chen and buyer Torres execute a purchase and sale agreement for a Salem home. The contract states 'time is of the essence' and sets a closing date of April 30. Torres's lender is ready to fund on April 30, but Torres fails to appear at the closing table. On May 2, Torres contacts the escrow company and says he is ready to close. The seller refuses. Torres claims he has a right to close within a 'reasonable time' after the deadline. Which of the following best describes the legal outcome under Oregon law?
Correct Answer
C) Chen may treat the contract as terminated and retain the earnest money as liquidated damages if the contract so provides, because Torres failed to perform by the time-is-of-the-essence deadline
When a purchase and sale agreement expressly states 'time is of the essence,' the closing date becomes a strict contractual deadline in Oregon. Failure to perform by that date—without an agreed written extension—constitutes a material breach. Torres's failure to appear on April 30 gives Chen the right to treat the contract as terminated. If the contract includes a liquidated damages clause designating the earnest money as the seller's remedy for buyer default (a common provision in Oregon PSAs), Chen may retain the earnest money. The 'reasonable time' doctrine applies only when time is NOT made of the essence; it does not override an express 'time is of the essence' clause.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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