Time Is Of The Essence

A common feature of construction contracts is a clause stating

that "time is of the essence". In some instances the

clause will be inserted as boilerplate or from a precedent without

discussion, while in other cases one or both of the parties will

expressly request the clause be inserted into the contract. Either

way, in the majority of cases little thought is given to the clause

and it is often inserted without a clear understanding of its

meaning and effect. Contract drafters should take care as

"time is of the essence" clauses may not operate in the

same manner in a construction contract as they do in other

situations, potentially leading to unexpected results during the

project.

Contracts of all sorts specify dates for the performance of

various obligations and even absent an express date, there is

usually an implied term calling for performance within a reasonable

time. When the date is missed, it is a matter of construction as to

whether the obligation is a condition such that there has been a

fundamental breach entitling the innocent party to rescind or

terminate the contract, or whether time is not of the essence

meaning only an action for damages lies.

Whether time is of the essence depends on the intention of the

parties. Consequently, "time is of the essence"

provisions are used not merely to indicate time is important, but

rather so that breach of a time obligation will be treated as a

condition thereby allowing the innocent party to rescind or

terminate the contract and sue for damages.

"Time is of the essence" clauses are used with

regularity in other areas of the law, particularly real estate and

sale of goods where the courts generally apply a strict approach in

enforcing the clause even in the face of potentially harsh results.

For example, in Union Eagle Ltd. v. Golden Achievement

Ltd., [1997] 2 All E.R. 215 (P.C.), the purchaser in a

conveyancing transaction delivered a deposit cheque ten minutes

late. In response, the vendors elected to rescind the contract,

relying on the missed time deadline and the "time is of the

essence" clause in the contract. The court upheld the

vendors' rescission of the contract on the basis the parties

made express provision for the event and commercial certainty

demanded the contract be enforced. Specifically, at para. 9 the

court stated:

... In many forms of transaction it is of great importance that

if something happens for which the contract has made express

provision, the parties should...