Contracting Pitfalls Part Five: Time Is of the Essence

            Generally speaking, the time for performance under a contract is a “reasonable” time.  Even if a date is specified, it may be possible to perform past the deadline and still not be in breach of the agreement.  And, even if there is a breach of the agreement by missing a deadline, the entire contract is not generally voidable, although the party who missed the deadline might be liable for damages caused specifically by the delay. 

            An exception to this rule is when time is “of the essence of the agreement”. That is the type of wording you are looking for to determine whether or not deadline observance is a material term of the contract.  If time is of the essence and a deadline is missed, generally speaking, the entire contract is held to be in breach which means the non-breaching party’s performance is excused and they are entitled to damages for breach of the agreement.  A lot of form contracts throw this clause in without fully understanding the implications in including the provision. If time is of the essence of the agreement, all deadlines are material and must be scrupulously observed.  That may not always be possible as a practicable matter, particularly in a long-term agreement for the provision of services or those for delivering goods.  Delays occur. 

            It is possible to pick and choose which deadlines are material (time is of the essence as to those) and which are not (in which case you would be entitled to damages for delay but the contract would not be fully breached).  But the issue obviously needs some thought. Again, the clause is often included in the boilerplate without fully understanding the implications in what is being agreed to.