Time as the Essence of the Contract

In one line

Missing a deadline sometimes ends the contract and sometimes only costs money, and section 55 decides which by asking what the parties intended the deadline to be for.

In the words a student can write in an exam: section 55 of the Indian Contract Act 1872 provides that where a party fails to do a 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; that if it was not, the contract does not become voidable but the promisee is entitled to compensation for the loss; and that if the promisee accepts performance at another time, he cannot claim compensation unless, at the time of acceptance, he gives notice of his intention to do so.

Why the section is needed

Every contract with a date raises the same question the moment the date is missed: is the contract over, or is it merely late?

The consequences are very far apart. If time was of the essence, the innocent party may walk away, refuse the late performance, and treat himself as discharged. If it was not, he must accept the late performance and is confined to damages for the delay.

The Act could have picked one answer, and it did not, because commercial reality does not. A shipment of Diwali sweets delivered a week after Diwali is worthless; a plot of land conveyed a month late is still the plot. Section 55 therefore makes the answer turn on what the parties intended, and then supplies the consequences for each answer.

The provision itself

"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."