Time of the Essence Clause
In most types of contracts, where a time is specified for performance, meeting that time is presumed not to be a critical part of performance of the contract. That deprives the innocent party of the right to terminate for being late performing the contract.
When it is stated that "time is of the essence”, performance to dates and times become conditions of the contract, which means:
- slight breaches are repudiatory breach of contract, which
- entitle the other party to terminate the contract, and
- claim damages caused by the breach.
When time is of the essence, compliance with the specified time is essential to performance.
There's no presumption that the time for payment in commercial contracts is of the essence, unless a contrary intention clearly appears from the terms of the contract or the surrounding circumstances.
When Time is of the Essence
Time will not be considered to be of the essence unless:
- the parties expressly stipulate that conditions as to time must be strictly complied with.
The words “time is of the essence” do not need to be used for this to be the case. The phrase has an established legal meaning, and so makes it clear what the intended legal effect is
- the nature of the contract or the surrounding circumstances show that time should be considered to be of the essence.
This is presumed in commercial contracts when timely compliance to an obligation is considered essential to performance, or
- a party who has been subjected to unreasonable delay gives notice to the party in default, making time of the essence.
However, just because time is not of the essence, doesn’t mean that delay cannot repudiate the contract by prolonged delay. The delay must deprive the other party of substantially the “whole benefit which it was intended that he should obtain from the contract”.
The duration of the contract is likely to be relevant to the the time required for performance, along any specified dates for performance.
Example: Time of the Essence clause
Time shall be of the essence in this agreement.
or
Time shall be of the essence respect of payment obligations, and not further or otherwise.
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