TIME IS THE ESSENCE OF A CONTRACT

Time is the essence of a contract is an expression in a contract which means that the performance by one party at or within the period specified in a contract is necessary to enable that party to require performance by the other party.

The meaning of time is essence is that the parties have agreed to perform at a given time agreed in a contract and shall not extend the specified time in a contract. In case a contract does not expressly provide this phrase then in that case time is not the essence of a contract.

Time is the essence is specified in Section 55 of The Indian Contract Act, 1872, “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 time is the essence in construction contracts the standard rule is that the parties have agreed to perform their obligation as per the time specified in a contract and there shall not be any extension of time. Whereas, if time is not the essence of the contract, the court allows the parties to a contract perform at some other time than agreed upon.

In real estate sector, time is the essence of a contract when the parties have expressly intended to include it in the terms of a contract. Thus, it shows the intention of the parties to contract to consider “time is the essence” a significant term of the contract.

Intention of parties to contract is imperative to signify whether time is the essence or not to a contract, therefore, as also held by the Supreme Court of India in M/S Citadel Fine Pharmaceuticals vs M/S Ramaniyam Real Estates Pvt. Ltd. and Ors. (2011) 9 SCC 147, 

“the stipulation as time being of the essence of the contract was specifically mentioned in clause 10 and the consequences of non-completion are mentioned in clause 9. So, from the express terms of the contract and the commercial nature of the transaction and the surrounding circumstances make it clear that the parties intended time in this case was intended to be of the essence of the contract.

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.

A contract becomes voidable if the promisor fails to perform within the specified time in a contract and the promisee is entitled to compensation from the promisor for any loss incurred by such failure.

However, in case a contract becomes 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 suffered 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.

Thus, if the parties do not expressly illustrate any intention to make time is the essence of contract then the promisee is not entitled to claim compensation on loss incurred due to promisor’s failure to perform his obligations as per contract.

Taruna Verma

Senior Associate