TIME IS OF THE ESSENCE
Updated: Mar 7
The concept of ‘time is of the essence’ originates from the law of contracts. A contract is basically a legally enforceable agreement. According to Section 10 of the Indian Contract Act, 1872, all agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
A contract is generally entered into between two parties or more for carrying out of certain actions, which may be of providing any services or of manufacturing and/or delivering any goods. Sometimes, the contract can also be for not doing certain actions, for example, nondisclosure agreements, where the parties agree that they will not disclose the contents of their agreement or their conversations with any other person or entity except for those which are specifically allowed in that non-disclosure agreement. Similarly, there are also non-compete agreements in which, for example, one who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that, such limits appear to the court to be reasonable, regarding had to the nature of the business.
Thus, when there are contracts where the completion of a certain task, whether it is the providing of any services or the delivery or manufacturing of any goods, is to be done within a certain timeframe or by a certain date, it is said that ‘time is of the essence’ because of the very nature of the services or the goods contracted therein. An example can be, in India, the mango fruit is harvested approximately from the month of March till the end of May when it is the best quality available. If it has been contracted that a vendor will deliver a certain quantity of mangoes to the purchaser in the month of May, and that the harvesting should have been done in the month of May itself, time is of the essence in this contract. Another example can be of a contract where the vendor agrees to deliver a shipment of oil to a steel factory on a set schedule each month to ensure that the steel factory continues to maintain its regular production cycle and that there are no interruptions; here, it can be said that time is of the essence in the contract. In the service industry, time can be of the essence when a software developer or a website developer has committed to deliver the end product, which could be the final software or the website to the customer by a particular date to be able to integrate properly with its marketing plan, time is of the essence in this contract. It is not just the product or the service and the quality thereof which will be the measure of the compliance of the terms of the contract but it is also pertinent that the services of the goods are provided on time and as per the agreed-upon schedule. Without the adherence to the agreed-upon schedule, material harm will because to the purchaser and this harm can be in monetary loss or a loss of reputation.
When time is of the essence in any contract, both parties should be realistic in committing to a timeframe. Otherwise, there could be legal repercussions of liquidated damages or other penal damages to the party who breaches the terms of the contract, be it intentional or unintentional. It also happens, that at times, a party agrees to the strict timeline asked for by the other party so as to avoid losing any business. It could even be the case that the other party flatly puts forth its conditions that the contract cannot be reached if the supplier is unable to comply with the timeline. The supplier may feel that he has no choice in agreeing to the timeline if he wants the business. However, if he is unable to comply, he will be liable to the terms of the contract and suffer the consequences thereof. Unfortunately, here, in my opinion, the supplier, then cannot adopt the defence of coercion or undue influence that they agreed to the terms of the contract under the threat of losing the business and that this was coercion or undue influence. The purchaser, however, can allege that fraud has been committed by the supplier, having known right from the start that he would not be able to comply with the terms of the contract. This could lead to civil as well as criminal charges.
In contracts where time is of the essence, the payment terms could also be linked to the delivery or supplier of the services or goods as contracted. This will be a form of a ‘contingent contract’. For example, all insurance policies are contingent contracts, wherein the insurance company contracts with the insured person to pay a certain amount if he dies or if he suffers any medical emergency or needs any medical attention, then the insurance company agrees to pay the medical bills. Even in a construction contract, the payments are linked to the different milestones that are achieved by the builder in a certain timeframe. There are also penalty clauses if the milestones are not achieved by the builder by a certain time.
While drafting the contract, where it is the intention of the parties that time plays an important role, it is necessary to be very careful with the wording. Where, by the contract one party promises to perform a certain action for the other party without being called upon by the other party, and no time for performance has been specified, it has to be construed that the action must be performed within a reasonable time. The question of “what is a reasonable time” is, in each particular case, a question of fact.
As contracts are drafted for different applications and situations, it may even come down to the particular time of the day when the contract is to be performed and not just the actual date. The contract may actually specify the actual date and also the time of the day by which or during when the contract is to be performed. However, when such specification is not made the contract may be performed at any time during the usual hours of business on such day and at the place at which the contract is sought to be performed.
A simple, straightforward contract is one, where the purchaser pays the price to the seller for some service or good. There can be situations where there are reciprocal promises being made in the contract and there may or may not be any monetary transaction. In such cases where there is no monetary transaction involved, time can be of the essence in a slightly more complicated manner than in the aforementioned contract. In the first type, the reciprocal promise is that of one delivering or supplying the good or service and the other paying for it with money.
When a contract consists of reciprocal promises to be simultaneously performed, no promisor needs to perform his promise unless the promisee is ready and willing to perform the reciprocal promise. However, where the order in which reciprocal promises to be performed is expressly fixed by the contract, they shall be performed in that order; and where that order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires. This can be explained by an example where, A hires B’s ship to take and convey, from Mumbai to Chennai, a cargo to be provided by A and B receiving a certain freight for its conveyance. A does not provide any cargo before the ship sets out from Mumbai. A cannot claim for the performance of B’s promise and must make compensation to B for the loss which B sustains by the non-performance of the contract. Here too, time is of the essence, in the sense that certain actions must be performed in the pre-set, agreed-upon manner.
In contracts where time is of the essence, if one party is unable to perform his part of the contract as per the agreed-upon time schedule, the contract becomes voidable at the option of the other party.
If you wish to have a more in-depth understanding or study of this concept and how it applies to various situations, you can take a look at Section 55 of the Indian Contract Act, 1872 and the related judgements.