“Time is the essence of the contract” Discuss. What would be the effect of the breach of the covenant as to time?

Question: “Time is the essence of the contract” Discuss. What would be the effect of the breach of the covenant as to time? [MPJS 2015]

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Answer

Section 55 of the Indian Contract Act,1872: 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.

According to this section, if the intention of the parties was that time should be the essence of the contract, then a failure to perform at the agreed time renders the contract voidable at the option of the opposite party.

“Time is generally considered to be of the essence of the contract” in the following three cases

1. Where the parties have expressly agreed to treat it as of the essence of the contract;
2. Where delay operates as an injury;

For example, in the case of Bettini v. Gye, [(1876) LR 1 QBD 183], A singer agreed to perform at a theatre for a certain season and to be present at least six days before the commencement of the engagement. But he reported only two days before. The theatre owner sought to put an end to the contract. But he was not allowed to do so. It was only a breach of a warranty and not of a term or condition which touched the substance of the contract. Hence, the plaintiff could only recover compensation for loss, if any, suffered by him.

3. Where the nature and necessity of the contract require it to be so construed, for example, “where a party asks for extension of time for performance.”

In Hindustan Construction Co Ltd v. State of Bihar, [(1999) 8 SCC 436], The Hon’ble Supreme Court clearly stated that in construction contracts also time is generally of the essence. Since construction involves several factors, one of which may operate to cause delay, the contract often contains fenced-round provisions for an extension. This does not diminish the importance of the time of completion. It remains of the essence unless extended.

Effect of breach of the covenant as to time

Where the time of performance is of the essence of the contract, any delay will render the contract voidable at the option of the other party. So, he may reject the performance and immediately sue for the breach. But he may at his option accept the delayed performance. If he does so he cannot afterwards recover compensation for the delay, “unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so”. Delay by itself does not put an end to the contract.

In a case before The Supreme Court, Hind Construction Contractors v. State of Maharashtra, [(1979) 2 SCC 70] for a building contract time was described to be of the essence of the contract. The contractor was given the facility to seek an extension of time in advance on reasonable grounds, failing which a penalty was payable for each day of default. These stipulations were construed by the court as not making time to be of the essence.

The contractor’s application for extension was rejected and, on his failure to complete the works within the specified time, the Department rescinded the contract. The rescission was not approved by the Supreme Court. Some further period should have been allowed to the contractor telling him that the extended time would be of the essence and that it would neither be extended nor excusable on payment of fine. Then only it would have been possible to rescind the contract.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
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