Time as the essence of the Contract

By Sujal Kesharwani 16 Minutes Read

Introduction

• “Time as the essence” is a term in contract law that indicates that the parties to the agreement must perform by the time to which the parties have agreed.
• “Time as the essence of the contract” is a fundamental concept in contract law that emphasizes how crucial it is to adhere to all time frames and deadlines specified in agreements. This idea has important ramifications for the rights and duties of parties to a contract, especially when fulfilling contractual commitments on time and performing deliveries.
• Legally speaking, punctual performance of contractual obligations is essential when time is deemed to be of the essence of a contract. Deadlines that are missed could have major repercussions; depending on the exact terms stated, these could include contract violation, loss of rights, or even termination of the agreement.
• In actuality, disagreements about whether time is of the essence in a contract sometimes occur when one party misses a deadline or tries to change or prolong the predetermined time frame without the other party’s approval. In certain situations, the courts may closely interpret the provisions of the contract, taking into account whether time was expressly stated as a crucial component of the agreement and whether any delays or extensions were allowed under the terms of the contract. 
• Therefore, this principle highlights the necessity for parties to clearly and mutually agree upon the time frames for various contractual actions or performances.

Legal Provisions

1. Performance of the promise, where no application is to be made and no time is specified

According to Section 46 of the Indian Contract Act, of 1872 where a promisor is to perform without application by the promisee, and no time for performance is specified, then in such a situation, the engagement must be performed within a reasonable time.

The concept of “reasonable time” is subjective and depends on the specific circumstances of each case. It is a question of fact that is determined by considering various factors, such as the nature of the contract, industry standards and practices, conduct and communication between the parties, urgency and necessity for the performance of the agreement, etc.

For Example: Peter promises to pay John Rs 3,000 in cash at his house, within four months, as a repayment of the loan he had taken from John. Peter leaves for work at six in the morning which is when John returns home from his night shift job. As per the circumstances, the only time when Peter and John can meet is at six in the morning. Hence, the time and place for the performance of the contract is 6 a.m. at John’s house.

2. Performance of the promise, where time is specified and no application is to be made

According to Section 47 of the Indian Contract Act, of 1872, where a promise is to be performed on a specific day and the promisor has agreed to perform it without requiring any request from the promisee, then in such a situation, the promisor may carry out the performance at any time during the usual business hours on that day and at the place where the promise is to be performed.

For Example, Raj promises to deliver certain goods to Rahul on payment of an advance of Rs 1,000. Rahul makes the payment and asks Raj to deliver the goods on a Sunday. Since the time is not specified, Raj should deliver it between 9 am and 6 pm, assuming those are the regular business hours in the place they live. If Raj attempts delivery after business hours, then Rahul has the right to not accept the goods and ask Raj to deliver again during business hours.

3. Application for performance of the promise on a certain day at a proper time and place

According to Section 48 of the Indian Contract Act, of 1872, where a promise is to be performed on a specific day and the promisor is required to perform it without any application from the promisee, then in such a situation, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business.

The question of “what constitutes a proper time and place” is, in each particular case, a matter of fact. This determination involves evaluating various factors such as the nature of the contract, customary practices, the conduct and communications between the parties, and any specific requirements or needs related to the performance of the contract.

For Example: Ram and Shyam enter a contract where Ram promises to fix Shyam’s car whenever he asks him to. Ram also takes an advance payment for the same. When Shyam asks Ram to fix his car, he must ensure that he doesn’t ask Ram to go a lot out of his way. Also, he must preferably ask for repairs during business hours.

4. A place for the performance of the promise, where no application is to be made and no place is specified

According to Section 49 of the Indian Contract Act, 1872, where a promise is to be performed without application by the promisee, and no place is fixed for its performance, it is the duty of the promisor to request the promisee to designate a reasonable place for the performance of the promise, and to perform it at that place.

For Example, Raj promises to deliver 4 computer sets to John on a fixed day and time. However, the contract does not mention an address. It is Peter’s responsibility to apply to John and ask him to appoint a reasonable place where he can safely accept the delivery of the goods.

5. Performance in the Manner or at the Time Prescribed or Sanctioned by the Promisee

According to Section 50 of the Indian Contract Act, 1872, the performance of any promise may be made in any manner, or at any time, as prescribed or sanctioned by the promisee.

For Example: Deep’s brother is in the hospital. He needs money for his brother’s operation. Deep owes money to Shiva and agrees to repay him in cash/cheque at any place or time decided by Shiva. In this case, Shiva has the liberty to ask for the performance of the promise in any manner and at any place or time suited to him.

6. Section 55 of the Indian Contract Act, 1872 discusses the effect of failing to perform a contract at a fixed time and can be better understood in the three parts stated below:

• When Time is Essential: Consider a contract in which one party agrees to perform certain tasks by a given date (or specific tasks at specified times). The contract (or the part of it that is not performed) becomes voidable at the choice of the other party (the promisee) if that party does not fulfill their promise within the allotted time. The most important requirement is that time must have been crucial to both parties when they entered into the contract. In other words, if prompt performance is important, the promisee may choose to consider the contract voidable due to the other party’s failure to meet the deadline.

• When Time is Not Essential: Nonetheless, the contract remains enforceable despite the delay, provided the parties did not consider time to be of the essence. Alternatively, the promisee may sue the promisor for losses incurred due to the promisor’s delayed performance.

• Acceptance of Late Performance: If the contract is voidable because of the promisor’s delay, but the promisee accepts performance at a different time, the promisee cannot claim compensation for any losses due to the original delay unless they notify the promisor of their intention to do so when accepting the late performance.

7. All the sections mentioned above explain different types of situations and their respective effects on a contract. It is important to remember that “time is of the essence in contracts.” In the case of Bhudra Chand v. Betts[1], the plaintiff and defendant had an agreement wherein the plaintiff would utilize his elephant for Kheda operations. The defendant was given an extension until October 6th, 1910, but they did not deliver the elephant until the 11th. According to the terms of the contract, the elephant was meant to be delivered on October 1st, 1910. The plaintiff filed a lawsuit for damages after the elephant was refused acceptance.

8. Furthermore, in the case of Chand Rani v. Kamal Rani[2], a Constitution Bench of the Supreme Court of India held that the intention to make time the essence of the contract must be expressed in unequivocal language. Thus, it is necessary for both parties entering into a contract to discuss all essential terms beforehand to avoid disputes and legal liabilities.

What types of contracts must necessarily include time as the essence of the contract?

1. Construction Contracts

A construction contract in law is a legal agreement outlining the terms, duration, responsibilities, and conditions under which construction work is to be carried out. For example, Contracts involving construction projects often include strict timelines for various milestones such as commencement of work, completion of phases, and final project delivery. Time is typically critical in construction contracts due to the interconnected nature of tasks and the potential financial implications of delays.

2. Sale of Goods Contracts

A sale of goods contract is a legal agreement between a buyer and seller detailing the terms of the transfer of ownership of goods for a price. For example, Contracts for the sale and delivery of goods frequently specify deadlines for delivery, especially when there are specific dates or deadlines tied to the buyer’s needs or events. Time-sensitive delivery can be crucial in retail, manufacturing, and distribution industries where timely receipt of goods impacts production schedules or sales events.

3. Service Contracts

Service agreements often include deadlines for the completion of services or the performance of tasks. For example, contracts with consultants, service providers, or freelancers may specify deadlines for deliverables, reports, or project milestones.

4. Lease Agreements

This is the most common type of contract which holds time as the core of it. Lease contracts, whether for residential or commercial properties, often include specific deadlines for rent payments, property inspections, or repairs. Time as the essence in leases helps ensure that both landlords and tenants adhere to their respective obligations within defined timelines.

5. Loan Agreements

A loan agreement is a legal contract specifying the time under which one party lends money to another, including repayment conditions and interest rates. For example, Contracts involving loans often specify deadlines for repayment installments, interest payments, or other financial obligations. Timely repayment is crucial in loan agreements to maintain financial stability and ensure compliance with legal and regulatory requirements.

In Associated Hotels of India Ltd. v. R.N. Kapoor[3]case, the Supreme Court of India upheld the principle that when time is expressly designated as essential in a contract, failure to adhere to specified deadlines constitutes a breach of contract. The case involved the sale of a hotel where the buyer failed to make a payment within the agreed timeframe, leading the court to affirm the seller’s right to terminate the contract. This case underscores the importance of strict compliance with contractual terms regarding timelines in Indian contract law.

Exceptions when time is not an essence of a contract?

There are certain contracts in which time is not essential for both parties, for example:

• In case of supply of regular goods
• When the nature of the contract doesn’t make time an essential requirement

Conclusion

“Time is the wisest counselor of all.” Time is a crucial aspect of every valid contract. The essence of time is an important factor in the completion of a valid contract; thus, the specified time in a contract must be adhered to, as failing to do so could result in losses for either party. Courts have also emphasized the importance of time in contracts to maintain their integrity and enforceability, ensuring clarity in agreements. Therefore, parties should always pay close attention to time-related provisions in contracts to avoid disputes and legal liabilities in the future.

[1] AIR 1916 CALCUTTA 901.

[2] 1993 (1) SCC 519.

[3] AIR 1959 SC 1262.

Sujal Kesharwani