Time is not always of the essence

Time

Written by Sean Hogle

In representing tech suppliers, service providers, and developers, we often come across “time is of the essence” clauses in customer contracts that purport to apply to some or all obligations of the agreement. An example is, “Time is of the essence with respect to Developer’s compliance with all deliverable milestones.”

It’s tempting to ignore such clauses, in favor of “picking your battles” and focusing on clauses of more obvious import like the liability caps. But that could be a mistake. The point of a “time is of the essence” clause is to allow the customer to claim a right of termination, or even rescission, of the agreement if the vendor is merely an hour late in delivery.

When determining whether “time is of the essence” in a contract, a court may look at the intent of the parties at the time they entered the contract. If there is an explicit clause in the contract stating that time is of the essence, the court could take that at face value and enforce the contract.

The exact phrase “time is of the essence” is not necessarily required to be enforceable, so long as there is a clear specification that the contract is void if not performed within a specific period. However, it is also not enough to simply include a time period in which a contractual obligation must be performed.

Time can be made of the essence both explicitly by the parties and by the circumstances surrounding the agreement. If the circumstances show that the parties must have intended for time to be of the essence or if the material part of the value of the contract depends on performance within a particular time frame, courts will likely declare time to be of the essence, even if the parties did not expressly provide so in their agreement.

As a general matter of contract law, failure to meet a deadline is not grounds for discharge of the other party’s duties, although such failure may give rise to claim of damages to compensate for the delay. A time of the essence clause is an attempt to change that dynamic; to enhance leverage in the case of delays, via a rescission threat. Can it work? Possibly.

The team at Rooney Law has experience helping companies draft and negotiate standard categories of agreements. If you need help or have any questions, please call us at +1 212 545 8022 or click here to learn more about our capabilities.

 

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