‘Time is the essence of the contract’

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

In some contracts, the parties fix time for performance of contract which is considered to be the basis of the contract. If the obligations are not performed at time, the whole purpose of contract fails and after that fixed time the performance of such contractual obligation will be meaningless. In such circumstances, it is said that time is essence of contract. In this regard section 55 is relevant which is divided into three parts.

Effect of Failure to Perform at 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.

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.

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.

Reading the first paragraph of Section 55, it is apparent that when a party to a contract promises to do a certain thing at or before a specified time and foils to do 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 essence of the contract.

The second paragraph of Section 55 provides that 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 due 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.

The above section deals with the effect of failure to perform at a fixed time, in contracts in which time is essential. The question whether time is the essence of the contract, with reference to the performance of a contract, what generally may arise for consideration either with reference to the contract as a whole or with reference to a particular term or condition of the contract which is breached.

Viscount Haldane delivering the judgment for the Judicial Committee of the Privy Council in Jamshed Khodaram Irani v. Burjorji Dhunjibhai, (1915-16) 43 I.A. held that Section 55 of the Indian Contract Act does not lay down any principle.