A Time Is of the Essence Clause (TOE) is language contained in a contract that specifies that a certain time or date is important. In effect, a time is of the essence clause is saying, “the times and dates specified in this agreement are vital and mandatory to the contract”. As a result, any delay might be grounds for canceling the contract.
Therefore, a TOE clause serves to define the period of time wherein the parties must perform their duties, such as delivering goods or paying for services. TOE clauses that are included in a valid contract are enforceable under state contract laws.
A time is of essence clause can be included in any contract where the completion of the duties is dependent on time or the occurrence of some event or condition. Common situations where TOE clauses are used are in the sale of property that is perishable or the sale of property that is subject to rapid fluctuations in value.
For example, a contract for the sale of perishable food might contain a clause stating, “This product should be delivered within 2 days”. Or, a construction contract may state, “The agreed-upon construction must be completed within six months from the date of signing”.
Other types of contracts where a time is of the essence clause may be necessary include:
- Construction contracts
- Contracts involving music or other entertainment-related performances
- Rush or express service contracts (such as overnight delivery)
- Real estate contracts (especially if market values are fluctuating)
- Contracts involving an important release date or publishing date
Thus, TOE clauses are employed in situations where performing a duty after a certain date would render the performance useless or less valuable.
If a contract does not contain a time is of the essence clause, it is generally assumed that time is not an important factor for the agreement. In other words, the parties must specifically agree that time is of the essence if they deem it necessary. Unless explicitly stated, time is not of the essence in contracts.
In determining whether a contract contains a TOE clause, a court will usually analyze several factors, such as the existence of any dates or times mentioned in the contract. The court will check to see if performance of contract duties hinges on an important date. They may also review the parties’ previous interactions to determine whether time was of the essence in their previous dealings.
Thus, it is always best if a TOE clause is clearly labeled in a contract, so as to avoid any confusion. The clause may be entitled “Time is of the Essence Clause”. Or, the clause can state clear language such as, “Time is of the essence in this agreement”. Unambiguous language will help prevent unnecessary delays or misunderstandings in the future.
Also, if a contract contains a time is of the essence contract, but in reality the contract does not depend on time, courts will not hold the parties liable for reasonable delays.
If a contract contains a valid time is of the essence clause, it must be followed strictly. If a party fails to abide by provisions regarding the essence of time, it could result in several legal consequences, such as:
- Being held liable for losses caused by the delay
- If the party has refused to continue or render performance, they could face an injunction, which is a court order instructing them to fulfill their remaining contractual duties
- If the delay was intentional or involved tortious actions, they may be held liable for punitive damages
On the other hand, a good faith effort to comply with a time is of the essence clause is usually enough to avoid liability. If the party has made reasonable efforts to perform their contract duties to the best of their capabilities, they will usually not be held liable for losses due to a delay that was beyond their control.
Contractual matters can often be somewhat complex, especially if the contract contains a time is of the essence clause. You may wish to contact a lawyer for advice if you need help drafting or reviewing a contract. Also, if you wish to file a lawsuit in connection with a TOE clause, an experienced business lawyer can help you recover losses in court.