Time as the essence of Contracts

Introduction
"Time is the essence" is a term in contract law which indicates that the parties to the agreement must perform by the time to which the parties have agreed.

A common feature of many contracts is the clause stating "time is of the essence".Sometimes it's inserted without any negotiation as a boilerplate clause, while in some instances it is specifically demanded by the parties to be incorporated into the contract. Either way, very little thought is given to the clause or at times is inserted without a clear understanding.

Usually, Explicit stipulation for delivery time of a product or service is universal in contracts. Some of the simpler examples of this could be Labour contracts within organizations,sub-contracting parts of a larger contract where strict deadlines are to be followed. A deadline may also be determined exogenously in the cases where the input involves a perishable good as failing to meet production deadlines could mean loss of input.

Legal Provision 
Meaning of Time:-Time is a very important fact in the contract. The basic meaning of time is the period or a limit in which the contracts is fulfilled. In the absence of any expressed time by the parties to an agreement or contract, the contract is to be performed within a reasonable time.

The Legal Provisions relating to Time as the essence of contracts given in the Indian Contract Act 1872 are as follows

Section 46 of the Indian Contract Act 1872:-"Time for performance of promise, where no application is to be made and no time is specified.—Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. —Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time." 

Explanation.—The question “what is a reasonable time” is, in each particular case, a question of fact.

Section 47:-"Time and place for performance of promise, where time is specified and no application to be made.—When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. —When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed."

Illustration:- A promises to deliver goods to B’s warehouse on 1st January. On that day A brings the goods to B’s warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.

Section 48:- "Application for performance on certain day to be at proper time and place.—When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business. —When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business."

Explanation:-The question “what is a proper time and place” is in each particular case, a question of fact.

Section 55:- "Effect of failure to perform at a fixed time, in contract in which time is essential.—When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. —When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract." 

Effect of such failure when time is not essential.—If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. —If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure."

Effect of acceptance of performance at time other than that agreed upon.—If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so.1 —If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so.1"¹

The intention of the parties 
The question of whether Time is the essence of the contract can be clarified from the intention of the parties as to if the parties intended to make time as the essence of the contract. An express stipulation in the terms of the contract cannot be concluded as the intention of the parties. If the terms of the contract provide for time as the essence of the contract, but the other terms of the contract show that parties did not intend to make time as the essence of the contract, the court has held in several judgments in such a situation that time is not the essence of the contract. The intention of parties has to ascertained from the following 

• The express words used in the content
• The nature of the contract itself
• The nature of the property which forms the subject matter of the contract
• The surrounding circumstances

The court has observed in the case of China Cotton Exporters v. Behari Lal Ram Charan Cotton Mills Ltd² that in commercial contracts, time is ordinarily of the essence of the contract. The rule is that except in commercial contracts, the ordinary presumption is that time is not of the essence of the contract. This presumption can be rebutted by showing the intention of the parties. Time is presumed not to be of essence in contracts relating to immovable property, but of essence in contracts of renewal of leases.
Under Common Law, stipulations as to time in a contract giving an option for renewal of a lease of land were considered to be of the essence of the contract even if they were not expressed to be so and were construed as conditions precedent. The onus to plead and prove that time is of the essence of the contract is on the person alleging it, thus giving an opportunity to the other party to adduce rebuttal evidence that time was not of the essence. Where both the parties are engaged in business and articles are purchased by one party from the other party for business purposes, the transaction falls within the term ‘mercantile transaction.

Extension Of Time 
The time for performance can be extended only by an agreement arrived at between the parties. A mere extension of time is waiver only to the extent of substituting the extended time for original time and is in no way the destruction of the essential character of time. Where the other party does not communicate any acceptance, the time for performance is not extended.

When Time is not of the Essence 
Time is not of the essence when the contract did not specify a date for the completion but merely provided for completion to take place as soon as reasonably expected. A party’s general right to have the contract performed within a reasonable time is unaffected by the fact of time not being of the essence. Time is not the essence where the contract provides for damages for delay in completion or even for the extension of time in certain cases.³

Important Judgements 
In Startup v. Macdonald⁴ where S had agreed to sell 10 tons of oil to M and to deliver it to him within the last 14 days of March. Delivery was rendered by S at 8:30 pm on 31st March. M refused to accept the delivery. It was held that the tender of the oil was in the circumstances of the case equivalent to performance and that S was entitled to recover damages for non-acceptance of delivery.⁵

It was held in the case of State of Kerala v. M.A Mathai⁶ that if there are any delays in the performance of reciprocal obligations by an employer, the contractor first gets the right to avoid the contract but subsequently, if he does not avoid the contract and accepts the belated performance from the employer, he cannot claim compensation for any loss sustained to him due to delay in the performance by the employer unless he gives notice of the same to the delaying party.

In Trailakyanath Maity v. Provabati Santra⁷, the courts expressed that "Whether or not the time is the essence fo the contract must depend on the facts and circumstances of each case having regard to the provisions of section 25 of the Indian Contract Act. It is well established that the intention of the parties together with the circumstances has got to be looked into to ascertain whether the parties intended that in the agreement for sale in question in a given case the time would be essence of the contract even though the cancellation of the contract is not embodied in the document in so many words, by the terms provided therein for forfeiture of the earnest money the agreement for sale in case of such forfeiture would automatically lapse by necessary implications".

In the case of Bishamber Nath Agarwal v. Kishan Chand⁸ by the court that if any agreement states that a particular act relating to the contracts is to be done within a particular time or manner, it should be done in that manner or time and it is not the right of the parties to perform it in their own manner or time according to them.

In the case of Swarnam Ramchandram v. Aravacode Chakungal Jayapalan⁹, the court observed that the parties may make time of the essence either expressly in terms which unmistakably provide that they intended to do so. Alternatively, making time as the essence of a contract may be inferred from the nature of the contract, the property, or the surrounding circumstances.

In the case of Haryana Telecom Ltd. V. Union of India¹⁰, the court held that one of the clauses of contracts stipulated that deliveries made after the stipulated delivery period will not deprive the party of its right to recover liquidated damage, reading of all clauses showed that time was essence of contract.¹¹

Conclusion
Time is a very important aspect of commercial contracts. Usually, The provisions relating to time are not negotiated properly or are not understood in the right sense before actually incorporating them into commercial contracts. This can lead to huge losses for the parties. When the time is the essence of the contract, it is expected that the promisor would perform the contract within the stipulated time. On his failure to do so, the promisor has a right to avoid the contract. From the Judgements of the courts and the provisions contained in the Indian Contract Act, it can be concluded that the question as to whether time is the essence of the contract or not can only be answered by looking at the intention of the parties to the contract. It can also be concluded that in commercial contracts the general presumption is that time is the essence of contract

References

1)Indian Contract Act,1872

2) 1961 AIR 1295

3) http://www.legalindia.com/time-is-of-the-essence-clause-in-commercial-contracts-in-india/

4) (1843) 6 Mann & G 593

5) https://blog.ipleaders.in/time-essence-contract/

6)LAWS(SC)-2007-4-19

7) AIR 1974 Cal 261

8) AIR 1990 All 65

9) AIR 2000 Bom 410

10) AIR 2006 Del399.

11)http://www.legalservicesindia.com/article/1396/Time-is-the-essance-of-the-Contract.html