"Famous Last Words"

Time is of the Essence – Part II (December 2007)

Dear Readers:

Six years ago this month, in December 2001, Famous Last Words began to appear on igda.org.

The very first article was a brief discussion about the contract language, “time is of the essence,” as applied to developer' services in dev agreements.

In 2001, we discussed how “time” is hardly ever really and truly of the essence, and how this simple language can work against a developer who, for any reason, is late (even one hour late!) delivering a milestone.

Why are we talking about this again?

Six years later, “time is of the essence” still turns up in game dev contracts.

What is it about this language that should make it scary for developers?

“Time is of the essence” is a “term of art.” That gives it a special legal meaning beyond what may seem apparent when it appears in a contract.

“Time is of the essence” does not mean that both sides recognize it is important to finish on time.

The special meaning of this phrase is that if any obligation of the affected party is late, even a day late, or an hour late, that failure to timely perform is considered a material breach and gives rise to termination of the deal by the other side.

Without that term of art, late delivery still constitutes a default, but may be a default subject only to actual provable damages incurred by the non-defaulting party. And in the case of a milestone delivered a day late, or a week late, or maybe even a month late, given the totality of circumstances, there may be no damages that may be proven.

A simple example (greatly simplified as each deal is different!) of the downside for a developer working under “time is of the essence” is the circumstance of late delivery of a milestone, when the associated publisher materials were not received on time. In the worst case, the publisher may use the late delivery to terminate for cause rather than for convenience (as is truly the case). “Time is of the essence” may elevate the simple late delivery to a material default. In selecting the material breach route, the publisher may avoid payments to developer that may arise in the case of termination “for convenience.”

In the last year, we have begun to see attempts to temper “time is of the essence” language by inserting qualifiers. For example, time may be of the essence and failure of developer to deliver (other than to the extent that such failure is caused by publisher) is material breach - emphasis added. Several other variations attempt to qualify, limit, or otherwise recast events of default in light of “time is of the essence.”

The problem with all of this, from a developer's standpoint, is that despite the qualifications, time remains of the essence. This term of art has the meaning given to it throughout case and contract law. Any attempt to qualify it in a contract, at best, introduces ambiguity. And the purpose of a contract is to give certainty, not ambiguity, to the parties.

Under these circumstances, if the parties intend to qualify when late delivery constitutes material breach, it would be better to include clear language describing the circumstances, and leave “time is of the essence” out of the deal.

After six years, and two columns, it is time to retire game industry use of “time is of the essence!”