Time is the Essence of the Contract
Lets look it from the perspective of a Buyer, There is contract between a Buyer and seller wherein the Seller agrees to deliver the material by 30th June. However, Seller delivers it on
Buyer: As mentioned in the Contract , Time is the essence, you did not deliver in Time , so I terminate the contract.
Seller : Wait you cannot terminate the Contract , just because this clause is mentioned in the contract. I will go the court.
The two go to court.
Buyer: As mentioned in the Contract , Time is the essence, Seller did not deliver in Time , so I terminated the contract.
Court: It all depends on the intention of the parties Learning – Merely mentioning that Time is Essence, does not make it essential, It depends in whether the partied intended to make it essential.
The court looks at other terms The decided what was the intention of the parties
Taking the example forward, going through the contract the court found that there was clause for penalty in case of delay.
Court : On going through the contract the court has found two thungs, firstly there is a clause whish states the penalty in case of delay, this indicates that Time was not “THE” essential factor.
Further , there is provision in contarct for extention of Time on approval of Buyer, this further supports the understanding that Time was not essential .
Let’s take another example.
Seller agrees to deliver material to Buyer by 30th July. Both parties understands that Time is very critical in this case , hence they have added the clause of Time is essential, there is not clause for penalty for delay or time extension.
The seller could not deliver the by 30th July for some reason, he delivered it on 1st July. Buyer accepted the goods . But later on claimed for compensation.
Buyer: In spite of Time being Essence , you delayed. I have accepted the material but is all reduce 20% from teh invoice.
Seller : The contract does not prove for any compensation.
Seller approached the Court.
Court : After having seen the Contract in entirety , it is evident that both partied understood that Time was essential. However, Buyer has accepted the material, and the Buyer can rightly do so as the Buyer has the option of terminating the contract , it may or may not terminate. In this case Buyer accepted the material , meaning buyer let go the option of termination. Now after having accepted the material buyer cannot claim compensation. Buyer could have claimed compensation if both the parties have agreed on compensation before accepting the material
Lets looks t scenarios where Buyer could claim compensation, , exactly like the above case Seller agrees to deliver material to Buyer by 30th July. Both parties understands that Time is very critical in this case , hence they have added the clause of Time is essential, there is not clause for penalty for delay or time extension.
The seller could not deliver the by 30th July for some reason. On 1st Seller calls Buyer that material is ready and he shall dispatch, Buyer says he will accept with 20% deduction price . Seller agrees and accepts the deduction. Seller delivers material. Buyer deducts 20%. Seller pleads to court that deduction was never a part of the contract. However court says that Buyer has right if deduction as it had notified Seller before accepted material and seller had also agreed to this deduction.