Implied “Time Is of the Essence” and Waiver of Material Breach by Continued Performance in UCC Article 2 Contracts

Introduction

This commentary examines UniWell Laboratories L.L.C. v. Frain Industries, No. 24-10204 (5th Cir. Apr. 14, 2025), where the Fifth Circuit affirmed a district court judgment on breach-of-contract claims. UniWell, a hand-sanitizer bottling company, contracted with Frain to refurbish and lease packaging machinery. After negotiating via an oral purchase order, an invoice and a Project Confirmation Letter (PCL), UniWell paid deposits and testing fees but never signed the formal lease. A delayed Factory Acceptance Test (FAT) prompted UniWell to withhold its lease signature, demand a renegotiation, and ultimately terminate. Frain counterclaimed for breach and the district court awarded nominal damages; UniWell appealed.

Summary of the Judgment

The Fifth Circuit, exercising diversity jurisdiction, held:

• Article 2 of the Uniform Commercial Code (UCC) governed the transaction.
• Although the contract did not expressly state “time is of the essence,” the expedited context and communications implied that milestone dates (notably the June 1 FAT) were binding.
• Frain breached the implied time-is-of-the-essence requirement by missing the June 1 FAT date, but UniWell’s continued performance—accepting a delayed FAT, making payments, and arranging pickup—constituted a waiver of that breach.
• UniWell never signed the lease agreement, so no enforceable lease existed. By terminating the PCL, UniWell itself breached, forfeiting any claim to return of deposits under Tex. Bus. & Com. Code § 2.703.
• The district court’s findings of fact were not clearly erroneous, and its legal conclusions were correct; the judgment was AFFIRMED.

Analysis

Precedents Cited

• UCC Article 2 (Texas Business & Commerce Code): Controls sale of goods, permits implied “time is of the essence.”
• Molzan v. Bellagreen Holdings, L.L.C., 112 F.4th 323 (5th Cir. 2024): Defines breach as failure to perform a contractual duty.
• OneBeacon Ins. Co. v. Crowley Marine Servs., 648 F.3d 258 (5th Cir. 2011): Standard of review in bench trials—legal issues are de novo.
• Flint Hills Resources LP v. Jag Energy, Inc., 559 F.3d 373 (5th Cir. 2009): Clear-error standard for factual findings.
• Ruiz v. Medina, 980 F.2d 1037 (5th Cir. 1993) & Anderson v. City of Bessemer City, 470 U.S. 564 (1985): Bench-trial and “two permissible views” doctrines.

Legal Reasoning

The court’s reasoning unfolded in key steps:

1. Contract Formation: The invoice and PCL constitute an enforceable agreement; the unsigned lease did not become part of the contract because UniWell never executed it.
2. Applicability of UCC Article 2: The transaction involved goods (machinery), so Article 2 governs. Under Tex. Bus. & Com. Code § 2.309–.310, time-essence clauses may be implied when circumstances demand prompt performance.
3. Implied “Time Is of the Essence”: The urgent need for sanitizer-bottling capacity and repeated references to lead times, FAT dates, deposits and testing materials showed the parties intended strict adherence to schedule.
4. Breach & Waiver: Frain’s delay constituted a material breach of the implied time-essence term. UniWell could have rescinded but instead accepted the late FAT, proceeded with pickup arrangements, and made further payments—thus waiving the breach.
5. UniWell’s Breach: By refusing to sign the lease and formally terminating the PCL, UniWell breached the only binding contract. Under § 2.703, a breaching buyer cannot reclaim payments, even if performance is only partial or delayed.

Impact

This decision clarifies critical points for contracting parties and courts:

• An implied time-is-of-the-essence clause can arise from communications and context, not just formal wording.
• Accepting delayed or defective performance and continuing commercial dealings generally constitutes waiver of material breach.
• Parties must execute all required documents to form a complete lease or financing agreement; failure to sign is a fatal defect.
• Under UCC § 2.703, a buyer who breaches may forfeit deposit returns, leading to nominal or no damages awards.

Complex Concepts Simplified

• “Time Is of the Essence” Clause: A contract provision making timely performance so important that any delay is a breach allowing immediate remedies.
• Waiver of Breach: When a non-breaching party continues to accept performance or benefits after a breach, it may lose the right to declare the contract at an end.
• Diversity Jurisdiction: Federal subject-matter jurisdiction based on parties being citizens of different states and an amount in controversy exceeding $75,000.
• Bench-Trial Standard of Review: In a non-jury trial, appellate courts defer to factual findings unless clearly erroneous but review legal conclusions from scratch.

Conclusion

The Fifth Circuit’s decision in UniWell v. Frain underscores that when urgent commercial transactions involve goods, courts will imply strict timing obligations from the parties’ words and conduct. It reinforces that once a party elects to continue performance in the face of a material breach, it cannot later resile and demand refunds. This ruling will guide practitioners and contracting businesses to:

• Document express timing clauses when deadlines are critical.
• Be cautious about continuing performance if contemplating rescission.
• Ensure all necessary documentation is signed to avoid disputes over the existence of a binding lease or financing agreement.

Overall, UniWell Laboratories v. Frain Industries establishes a clear rule: implied “time is of the essence” terms and waiver by continued performance are enforceable and can determine the outcome of UCC Article 2 contract disputes.