Time is of the Essence?

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The Appellate Court gave new meaning to this venerable expression in its recent decision in Asset Recovery Contracting, LLC v. Walsh Construction Co. of Illinois, 2012 Ill. App. (1st) 101226. Timing was the heart of the matter because the plaintiff, a subcontractor, claimed damages resulting from construction delays. The subcontractor raised a superficially simple question: what was the date of the subcontract-the date printed on the first page of contract or the date the parties signed it? This issue became a focal point for the court’s analysis because the parties didn’t bother to sign the subcontract until nine months after the printed date on the contract and nearly a year after the job commenced.

The court held the printed date, as opposed to the actual date of execution, controlled. The decision rests on the parol evidence rule, which the court articulated as follows:

“[A]ll conversations and parol agreements between the parties prior to the written agreement are so merged therein that they cannot be given in evidence for the purpose of changing a contract or showing an intention or understanding different from that expressed in the written agreement.” Id. ¶58 (citations and internal quotes omitted; emphasis added).

Because the subcontract recited a date, the court refused to consider evidence that the parties actually signed it several months later or any other “extrinsic” evidence to determine the effective date of the contract. The excluded evidence comprised, among other things, several months of negotiations and schedule changes transpiring between printed date in the subcontract and the actual date it was signed. According to the court, the parol evidence rule precludes resort to any of this evidence to contradict the date printed in the subcontract.

The court’s analysis is paradoxical in two respects. The first (ironically enough) involves timing. The parol evidence rule precludes evidence of prior or contemporaneous understandings or negotiations-as opposed to proof of facts that occur after the parties’ written contract. Nevertheless, the court barred evidence of negotiations and schedule changes occurring after the date printed in the subcontract. Evidently, the court treated the date of actual execution as the operative date to cut-off parol evidence, even though the parties didn’t sign for several months after the date printed on the subcontract. If the subcontract became effective before it was signed, why should evidence of negotiations or events occurring after the effective date be excluded? Shouldn’t such evidence be received to show a modification of the contract after the effective date?

The second paradox involves the purpose for which extrinsic evidence may be offered. The parol evidence rule does not bar extrinsic evidence offered to resolve ambiguity. Didn’t the ongoing negotiations before the parties signed the subcontract create ambiguity as to whether they truly wanted it to be effective on the earlier, printed date? According to the court, this is merely an “external ambiguity.” Unless the ambiguity appears within the four corners of the contract (i.e., an ambiguity apparent from express contract terms), extrinsic evidence cannot be used to resolve it.

Despite the court’s focus on the contract date, the outcome turned on a different point, i.e., an exculpation clause in the subcontract. The court found that the subcontractor validly waived its claim for delay damages. Nevertheless, the decision teaches two important practical lessons about timing: (1) don’t begin performing a contract until you have an agreement; and (2) pay attention to detail, even if it is as mundane as the contract date. If time really is “of the essence” and the date of execution differs from the intended effective date, make things clear by stating “this contract is effective as of” the intended date.

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