Time Is of the Essence Clause: Everything You Need to Know
A time is of the essence clause is a clause in a contract that states a party has to perform their duty, as spelled out in the contract.3 min read
2. How the Courts View the Clause
3. When the Clause Occurs by Default
4. Reasonable Time
5. How the Clause Works With the Purchase and Sale of Goods
Updated November 19, 2020:
A time is of the essence clause is a clause in a contract that states a party has to perform their duty, as spelled out in the contract, within a definite timeframe before the other party can carry out their contractual duty. A failure to carry out the said duty by the first party within the defined time frame is a contract violation.
Time Is of the Essence Overview
When including a time is of the essence clause in a contract, it's best to clearly state the specific aspects of the agreement that are important and what the due date is for completion. All aspects of a contract aren't equally crucial to its successful, timely conclusion. Therefore, it would be causing unnecessary pain to the other party to apply the time is of the essence clause to every detail of the contract.
In most cases, missing a deadline in carrying out a contractual duty is surprisingly not considered a breach of contract. Including a time is of the essence clause in a contract helps emphasize how important completing a contractual duty on time is. But enforcing contract law isn't about punishing parties for failing to carry out their duties in a timely manner. That's the reason courts don't enforce some clauses of punishment.
How the Courts View the Clause
When dealing with some forms of contracts such as real estate marketing, construction, loans, and other similar contracts, time isn't considered essential by the courts. It is noteworthy that even if a time is of the essence clause is part of a contract, in certain cases, courts may allow the defaulting party to redeem their breach.
Some courts might even bypass the clause if they find any indication that the clause would cause a party unfair pain, or an unintentional cancellation of contract because of a missed deadline. The use of unclear expressions to relate the intentions of the contracting parties will make the courts believe that time isn't really of the essence.
Therefore, a time is of the essence clause is only taken seriously by a court if the party imposing the clause clearly specifies a date and time for the other entity to finish carrying out their duty. The party imposing the clause should also clearly warn that failure to complete the duty within the specified timeframe will result in a breach of contract. When it's legally agreed by parties that time is of the essence, the clause becomes enforceable, and any breach of it will result in a breach of contract.
When the Clause Occurs by Default
In some cases, special conditions surrounding a contract implementation may cause a deadline to become the essence by default, even though the contract doesn't say so. For such cases, if a missed deadline occurs one or both parties may set a new deadline and make it essential by giving a clear, definitive, and unmistakable notice while also allowing the other party reasonable time to close.
For a court to determine whether a party had a reasonable time to close, it will take a close look at the circumstances and facts of the case in view.
Some of the factors the court will consider are:
- The object and nature of the contract.
- The business and transaction history of the parties.
- The absence or presence of good faith.
- The parties' experiences.
- The likelihood of hardship.
- The likelihood of prejudice.
- The definite number of days allowed for a contract to& conclude.
How the Clause Works With the Purchase and Sale of Goods
The time is of the essence clause is critical in contracts pertaining to the purchase and sale of goods. Courts take delivery dates seriously.
When a seller fails to deliver on a target date, their failure is a contract breach, even if the time is of the essence clause isn't explicitly stated in the contract. That, however, isn't the case when a buyer fails to hit a deadline for payment.
Courts are softer on payment deadlines than on delivery deadlines because payment deadline breaches are redeemable by paying interests on the due amount.
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