time as an essence of contract

8/2/2019 time as an essence of contract

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INDEXS no. Content Page no. Remarks

1. Time and Place for Performance 2

2. Reasonable Time 2

3. Lapse of time and limitation 4

4. Time for performance of contract 5

5. Factors which make time of essence 7

6. In Business Matters Time generally

of Essence

8

7. Construction Contract 9

8. Sale Transactions 10

9. Land and Property Dealings 11

10. Allotment of Plots 11

11. Non-commercial Matters 12

12. Extension of time 12

13. Conclusion 13


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Time and Place for Performance

Section 46 of the contract act says, where, by the contract, a promisor is to perform. Timefor performance of his promise without application by the promisee, and no time for

performance is specified, the engagement must be performed specified. Within a

reasonable time. The question "what is a reasonable time is, in each particular case, a

question of fact.

Reasonable Time

It is difficult to understand why decisions should be reported on the question of what is

reasonable time, which is declared by the Act itself to be always a question of fact; but,

having been reported, they must be mentioned. In The Boigal Coal Co., Ltd. v. Homee

Wadia $ Co. (1899), where the defendants agreed to supply coal to the plaintiffs from

time to time, as required by the defendants, on reasonable notice given to them, it was

held that a notice given by the plaintiffs on the 22ndJuly, 1898, for the supply of 2,648

tons of coal on or before 31st August, 1898, was not reasonable. Jenkins, C. J., said:

Perhaps it might have been physically possible for the defendants to carry out such an

order, but it would clearly have required an effort which the plaintiffs had no right to

demand. I do not think that a notice involving such an effort from business men with

innumerable other matters to attend to can be held to be such a reasonable notice as was

intended by both parties when this document was given." And where the defendant

agreed to discharge a debt due by the plaintiff to a third party and in default to pay to the

plaintiff such damages as he might sustain, and no time was fixed for the performance of

the obligation, it was held that the failure of the defendant to perform it for a period of

three years amounted to a breach of the contract, as that was a sufficient and reasonable

time for performance.


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"In determining what is a reasonable time for presentment for Acceptance or payment,

for giving notice of dishonor, and for noting, Regard shall be had to the nature of the

instrument and the usual course of dealing with respect to similar instruments; and in

calculating such Time public holidays shall be excluded."

Section 47 states that, When a promise is to be performed on a certain Time and place

day, and the promisor has undertaken to perform it; without application by the promise,

The promisor must perform it at any time but 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 at B.'s warehouse on the 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.

Common Law rule. This section, with the illustration, simplifies the rule. According to

the Common Law as laid down in Doraxiiiyti v. Aninachalam case on the subject, the

illustration would have run thus: B. is not bound to be at the warehouse to receive the

goods after the usual hours of business, and if he is not there, A has not performed his

promise. If B. is there and could receive the goods before midnight, but refuses to do so

A. has performed his promise."

It may be observed, before leaving this subject, which the Courts of British India on

section 16 of the contact act, ought to decide cases under this section according to its

terms, and to resort to English decisions only so far as they illustrate its provisions. This

warning was given by the Judicial Committee in Dhanipal Das v. Maneshar Batchsh

Singh, where their Lordships said: The Subordinate Judge was wrong in deciding the

case in accordance with what he supposed to be English equitable doctrine. He ought to

have considered the terms of the amended section 16 only. He also mistook the English

law. Apart from a recent statute, an English Court of Equity could not give relief from a


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transaction or contract merely on the ground that it was a hard bargain, except perhaps

where the extortion is so great as to be of itself evidence of fraud. ... In other cases there

must be some other equity arising from the position of the parties or the particular

circumstances of the case."

Lapse of time and limitation

Delay and acquiescence do not bar a party's right to equitable relief on the ground of

undue influence; unless he knew that he had the right, or, being a free agent at the time,deliberately determined not to inquire what his rights were or to act upon them. In Roop

Laul and Ors. vs Lakshmi Doss1 (1905) it is noted that lapse of time is not a bar in itself

to such a relief. There must be conduct amounting to confirmation or ratification of the

transaction. If there be no such conduct, it is open to the party, though he may not sue to

set aside the transaction within the period of limitation, to plead undue influence as a

defendant in a suit brought against him to enforce the transaction. As observed by Sir

Lawrence Jenkins, C. J., A defendant in a suit is entitled to resist a claim made against

him by pleading fraud [or undue influence, and he is entitled to urge that plea though he

may not have himself brought a suit to set aside the transaction, and is not, in

circumstances like the present, precluded from urging that plea by the law of limitation.

This statement of the law was adopted in a recent Madras case where it was said: " We do

not think it follows that because a party's remedy as plaintiff to have an instrument

avoided is time-barred, his right to say by way of equitable defense

In another case it was held that plaintiffs should pay the balance of proportionate price on

each installment when ready for delivery. No delivery was made within the stipulated

time, and after the expiration of that period the defendant delivered 3,000 bags to the

plaintiffs. The plaintiffs did not pay the proportionate price on those bags when ready for

1(1906) ILR 29 Mad 1


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delivery, though required by the defendant, and the defendant thereupon rescinded the

contract, and declined to deliver the remaining bags. In a suit for damages by the

plaintiffs for non-delivery, the Court held, following Freeth v. Burr2, and distinguishing

Withers v. Reynolds3, that the contract was an entire one, and that, the payment by the

plaintiffs not being a condition precedent to the preparation of the remainder for delivery,

the defendant was not justified in rescinding the contract.

Time for performance of contract

Sometimes the parties to a contract specify the time for its performance. Ordinarily it is

expected that either party will perform his obligation at the stipulated time. But if one of

them fails to do so, the question arises what is the effect upon the contract. Section 55

contains the answer.

Section 55 states: Effect of failure to perform 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 a specified time and fails to do such thing at or before a

specified time, and fails to do such thing at or before a 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 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.

2LR 9 CP 208

3(1831) 2 B. & Ad. 889; 36 R.R. 782.


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Effect of acceptance of performance at time other than 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 agree,

the promisee cannot claim compensation of any loss occasioned by the non-performance

of the promise at the time agreed, unless, at the time of acceptance, he give notice to the

promisor of his intention to do so.


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Factors which make time of essence:

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 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

contracr;

2. Where delay operates as an injury;

3. Where the nature and necessity of the contract requires it to be so construed, for

example, where a party ask for the extension of time.4

The well known authority is Bhudra Chand vs. Betts5

The plaintiff stipulated with the defendant to engage his elephant for the pupose to

capture wild elephants. The contract provided that the elephant would be delivered on 1st

October,1910; but the defendant obtained an extension of time till the 6th

October and yet

did not deliver the elephant till 11th

October. The plaintiff refused to accept the elephant

and sued for damaged for the breach.

He was held entitled to recover as the parties intended that time should be of the essence

of contract. This conclusion is confirmed by the circumstance that the defendant

obtained an extension of time; if the time were not of the essence of the contract, he need

not have asked for the extension of time.6

4Orrisa Textile Mills Ltd v. Ganesh Das, AIR 1961 Pat 107

5(1915) 22 Cal LJ 566:33 IC 347.

6Colles Cranes of India v. Speedes Spares Corpn, AIR 1970 Cal 321.


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In Business Matters Time generally of Essence

Business attach importance to Time

The matter depends upon the intention of the parties. Even where a specific date ismentioned for the completion of the contract7, one has not to look at the letter but at the

substance of the agreement in order to ascertain the real intention of the parties. 8 In

commercial contracts time is ordinarily of the essence of the contract.9 This is so

because the business world requires certainty10and also because merchants are not in a

habit of placing upon their contracts stipulations to which they do not attach some value

and importance.11

Thus in a contract to supply imported goods in October or November12; in a contract for a

purchase of chassis for a truck to be supplied within two months and in an auction

purchase , where the price was to be paid within 15 days, time was held to be an essence

of contract

7Municipal Corporation of Delhiv. Jagan Nath Ashok Kumar (1987) 4 SCC 497.

8Sachidananda v. G.P. & Co. AIR 1964

9China cotton Exporters v. Beharilal Ramcharan cotton mills ltd.

10AIR 1962 J&K 10

11(1872) 2 AC 455,463

12AIR 1961 SC 1295


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Construction Contract

Time in a construction contract is likely to be of the essence because construction is

commercial service. Where 24 month of time was given to a builder with a stipulationthat if he fails to deliver within the stated time, he would pay 10% per annum of the

purchase price measured by the period of delay, time was held to be an essence entitling

recovery of the stipulated amount13. Similarly, where a builders promise with a bank was

that he would make their building within six months, but could not do so, the bank was

allowed to terminate the contract. The fact that the bank exercised his right after about

two months after the expiry of the stipulated time did not amount to the extension of the

time.14

The termination of a contract was held to be proper where the contractor was held to be

proper where the contractor was not able to do anything to carry out the repair of a flood-

protection dam inspite of the extension of the time. The matter of time was very

important factor in the contract15. The Supreme Court observed that in a contract of

construction, the time of completion would be of the essence only when special features

exist.16

In a joint venture agreement, one of the clauses was that the defendants were to perform

certain formalities within 5 years, and that, on a failure to do so; the agreement was to

become null and void. Neither any approval was obtained within that time, nor sanction

of the building plan. The defendants could not start the work within time. The court said

that the provision in a contract for penalty and extension of time was of no use. The

contract has ended by the efflux of time17. Where the construction of a warehouse could

not be completed within the stipulated time and extensions were granted several times

13(1989) 1 MAL LJ 308 IPOH HC

141989 2 CAL LJ 246

15AIR 2005 Pat 190

162006 11 SCC 181

171999 Del LT 193 (Del)


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and even so the work could not be completed, it was held that the party could put an end

to a contract at the end of the last extension if the work was still not completed.18

Sale Transactions

The courts would have to see the facts of each case involving a sale transaction whether

time factor was essential to performance or not. In a contract of sale of goods, the time of

shipment is of the essence. There is considerable authority in support of this rule and it

has been recognized and accepted in Bowes vs. Shand19. Here in a contract of sale of rice

to be shipped at Madras during March or April, 1874, by a ship, the stipulation to be a

regard in shipment was held to be condition of the contract and contract was held to be

not satisfied by shipment a month earlier, that is, in February20. A contract for sale of

good required fifteen days loading notice.

The court regarded as condition of a contract. The courts required precise compliance

with stipulations as to time whenever the circumstances of the case, indicate that it would

fulfill the intention of the parties and that, in general, time is of the essence in mercantile

contracts.21

18AIR 2004 Ker 137

19(1877) 2 AC 455 HL

20( 1899) 1 QB 436 IA

21(1981) 1 WLR 71


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Land and Property Dealings

In a contract for sale of land or immovable property, the Supreme Court has laid down

that it would normally be presumed that time was not of the essence of contract. Mereincorporation in the written agreement of a clause imposing penalty in case of default

does not by itself evidence an intention to make time of the essence.22 In such cases,

therefore, the time factor would not be of essence for obtaining the relief of specific

performance23. Intention of the parties can be ascertained from factors like nature of the

property agreed to be sold, the possibility of price fluctuation, the need for entering into

the contract, conduct of the parties before, at the time of and subsequent to the contract

and surrounding circumstances. A declaration that the stipulated time shall be of the

essence would have to be taken in the light of other provisions and such other factors may

either exclude or strengthen the inference that time was to be of the essence.

Where the agreement in clear terms provided that it was to be performed within six

months else the earnest money stand forfeited. The time was held to be of the essence.

Allotment of Plots

A Development Authority allotted plots through auction sale. The auction-purchase was

granted time to make a late payment with interest. Even then he could not make it. The

payment made by him after the expiry of time with interested was accepted by the

Authority. The court said that there was deemed extension of time. The cancellation of

whole thing was not proper.24

22(1967) 1 SCR 227,231-32

23(2006) 5 SCC 340

24(2001) 4 SCC 137


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Non-commercial Matters

In cases other than commercial contracts the ordinary presumption is that time is not of

the essence of contract. Accordingly, in a contract for the sale of immovable property,time would not be regarded as of the essence unless it is shown that the parties intended

so.25

Extension of time

The contract was to provide a rig for a certain period which was to be extended in case

of any breakdown in working. The rig broke down for sometime and, without taking this

into account, the owner of the rig wanted to withdraw it on the expiry of the period. The

court said that though there cannot be unilateral extension of time, in this case, there was

an agreement that the period would be extended so as to cover the breakdown period. The

owner of the rig could not say that he should be permitted to withdraw the rig subject to

his liability for damages. The machinery in question was rare and not easily available.

Compensation would have served no purpose.26

25AIR 1963 MP 31

26(2003) 6 Bom CR 347


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Conclusion

Accidental delays in the completion of contracts for the sale of land within the time

named are frequent by reason of unexpected difficulties in verifying the seller's titleunder the very peculiar system of property law. Sharp practice would be unduly favored

by strict enforcement of clauses limiting the time of completion, and accordingly Courts

of Equity have introduced a presumption, chiefly, if not wholly, applied in cases between

vendors , and purchasers of land, that time is not of the essence of the contract but in the

contracts of trade time is of the essence. This is especially so as to shipping contracts. As

to the sale of goods, unless a different intention appears by the contract, stipulations as to

time of payment are not deemed to be of the essence of a contract of sale. Whether any

other stipulation as to time is of the essence of the contract or not depends on the terms of

the contract. Generally it is to be observed that in modern business, men of business are

taken to mean exactly what they say. Traders are not in the habit of placing upon the

contracts of stipulations to which they do not attach some value and importance , parties

to trade contracts, therefore, cannot rely upon the present section to save them from the

consequences of unpunctuality.

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time as an essence of contract