section 55 of the Indian contract act...
A PROJECT ANALYSIS ON “CRITICAL ANALYSIS ANALYSIS OF RULE SEC 55 OF INDIAN CONTRACT ACT”
Submitted by, Rishabh singh, Roll no-201290 Sec-B Sem-3rd 1
I, Mr…RISHABH… with Reg.No…201290… Of …IIIrd … Semester has prepared the project on… “Analysis of sec sec 55 of the Indian contract act”……………………… In partial fulfilment of his/her semester course in the subject … “contracts 2”……… during the academic year 2013-14 under my supervision and guidance.
Signature of faculty
I, Rishabh would like to take this opportunity to thank MR R. V Vishnu kumar (Contracts faculty) for helping and guiding me in completing my project.
I would also like to thank our Vice-Chancellor, Prof .R.G.B. Bhagvath Kumar and our Registrar, Prof.P.Sudhakar, for giving me this opportunity to do a detailed study on the urban social problems. Lastly I would like to thank my friends for their efficient help and co-operation in helping me complete my project work
LIST OF ABREVIATIONS
DISCHARGE OF CONTRACT
SCOPE OF TIME AND ITS IMPORANCE IN EACH VALID CONTRACT
MEANING OF TIME:
TIME FOR PERFORMANCE
EFFECT OF FAILURE TO PERFORM AT FIXED TIME, IN CONTRACT IN WHICH TIME IS ESSENTIAL
EFFECT OF SUCH FAILURE WHEN TIME IS NOT ESSENTIAL
EFFECT OF ACCEPTANCE OF PERFORMANCE AT TIME OTHER THAN THAT AGRRED UPON
FACTORS WHICH MAKE TIME OF ESSENCE
IN BUSINESS MATTERS TIME GENERALLY OF ESSENCE
LAND AND PROPERTY DEALING
ALLOTEMENT OF PLOTS
AGREEMENT FOR RECONVEYANCE
COMPLETION OF TERM
SALE OF SHARES
NON-COMMERCIAL MATTERS MATTERS EXTENSION OF TIME
CONSEQUENCE OF FAILURE
LIST OF ABREVIATION AIR- ALL INDIA REPORT SC- SUPREME COURT SEC – SECTION SECTION CORP – CORPORATE CORPORATE SCC – SUPREME SUPREME COURT CASE VOID - VOIDABLE
INTRODUCTION DISCHARGE OF CONTRACT After the formation of a contract, the next stage is reached, namely, the fulfilment of the object the parties had in mind. When the object is fulfilled, the liability of either party under the contract comes to an end. The contract is then said to be discharged. But performance is not only the way in which a contract is discharged. A contract may be discharged by 1.
Impossibility of performance
SCOPE OF TIME AND ITS IMPORANCE IN EACH VALID CONTRACT A common features of construction a valid contract stating that “Time is the essence of Contracts” Time is very essential and importance aspects related to the each valid contract. It is the basic and importance ingredients of valid contracts. But in the present scenario the time of valid contracts is depend on the each cases and situation. In some cases the time is prescribe in the terms and condition of a contract but in some cases the reasonable time is also play a very important role. The reasonable time is depending on the nature of the contracts. If a contracts does not specify the time for performance the law will imply that the parties intended that the obligations under the contract should be performed within a reasonable time and the question what is a reasonable time is in each particular case, a question fact. If in any case when party to a contracts promise to do certain things at any time or before specified period of time and fails to do the promise before the period of time or at a specified time , the contracts become voidable if the intention of the party that the time is the essence of the contracts.1 Contracts of all sorts specify date for performance various obligation and even if there is absence of some specific date there is some usually an implied term calling for performance within a reasonable time. “Time is of the essence” clauses are used with regularity with regularity in other 1
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areas of the law, particularly real estate and sale of goods where the courts generally apply a strict approach in enforcing this clause. If any agreement states that a particular act relating to the furtherance of a contracts is to be done in a particular manner or time , it should be done in that manner or time and it is not open to the parties to chalk out his own manner or time performing the his part of contracts. MEANING OF TIME:
Time is the very important fact in the contract. The basic meaning of time is the period or a limit in which the contracts is fulfil. In the absence of the any expressed time by the parties to an agreement or contracts, the contract is perform within a reasonable time LEGAL PROVISIONS:
Time and place for performance (Ss.46-50) Sec.46 . Time for performance of promise, where no application is to be made and no time is
specified. – Where, Where, by the contract, a promisor is to perform without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. Sec.47 . Time and place for performance of promise, where time is specified and no
application to be made- When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promise, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. Sec.48 – Application for performance on certain day to be at proper time and place-
When a promise to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promise, it is the duty dut y of the t he promisee, it is the duty of the promise to apply for performance at a proper place pla ce and within the usual hours of business. Explanation - The question “What is a proper time and place” is in each e ach particular case, a question of fact.
Sec.50 – Performance Performance in manner or at time prescribed prescri bed or sanctioned by promisee.-The
performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions Indian Contract Act, 1872. 2
This section is says about that whole question as to the time and manner of performance upon the choice of the promisee. It says that the performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions. This illustration appended to the section deserves to be noted. If a person owes another a sum of money and the creditor tells him to pay the amount into his account in a bank, which is done; and afterwards, before the creditor comes to know of the fact of payment, the bank fails, so that the creditors does not get the benefit of the payment; even so the debtor is discharged from his liability. Where two persons are mutually indebted and they agree to set off their debts discharged from their respective liability .Where the creditor accepts goods form the debtor in payment, the debtor stands discharged to the extent of the value of the goods. Where the creditor desires the debtor to send the money by the post, the debtor will be discharged as soon as he posts a properly addressed and stamped letter containing the money.
Sec.55 - 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 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
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. After study the some of the cases this is the some point which makes the time is the essence of a contracts.1.
Where the parties have expressly agreed to treat it as of the essence of the contract;
Where delay operates as an injury;
Mulla The Indian Contract Act by Sir Dinshaw Fardunji Mulla, 13th edition reprint (2 012), Lexis Nexis Butterworths Wadhwa, Nagpur. Page no. 207 8
Where the nature and necessity of the contracts requires it to be so construed, for example, where a party asks for extension of time for performance;
He was held entitled to recover as the parties intended that time should be of the essence of the contract. This conclusion is confirmed by the circumstance that the defendant obtained an extension of the time; if the time were not of the essence of the contract, he need not have asked for extension of time. TIME FOR PERFORMANCE
Sometimes the parties to a contract specified the time for its performance. Ordinarily it is expected that either parties will perform his his obligation at the stipulated time. But if one of of them fails to do so, the question arises what is the effect upon the contract. Section 55 contains the answer. 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 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 AGRRED 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 hidden intention to do so.
FACTORS WHICH MAKE TIME OF ESSENCE
According to this section, if the intention of the parties was that time should be the essence of the contract, then a failure to perform at the agreed time renders the contract voidable at the option of the opposite party. “Time is generally considered to be of the essence of the contract in the following three cases 1.
Where the parties have expressly agreed to treat it as of the contract;
Where delay operates as an injury;
Where the nature and necessity of the contract requires it to be so construed, for example, where a party asks for extension of time for performance.” 3
The well-known authority is “ Bhudra Chand v Betts Betts””.4 In this case the plaintiff stipulated with the defendant to engage his elephant for the purpose of Kheda operations (to capture wild elephants). The contract provided that the elephant would be delivered on the 1 st October, 1910; but the defendant obtained an extension of time till the 6th October and yet did not deliver the elephant till the 11 th. The plaintiff refused to accept the elephant and sued for damages for breach. He was held entitled to recover as the parties intended that time should be of the essence of the contract. “This conclusion is confirmed by the circumstance that the defendant obtained an extension of the time; if the time were not of the essence of the contract, he need not have asked for extension of time.” time. ” IN BUSINESS MATTERS TIME GENERALLY OF ESSENCE
The matter depends upon the intention of the parties. Even where “a specific date is mentioned for the completion of the contract, one has not to look at the letter but at the substance of the agreement in order to ascertain the real intention of the parties” parties”5.
Orissa textile mills ltd v Ganesh Das, AIR 1961 Pat 107. (1915)22 Cal LJ 566: 33 I C 347 10
In commercial contracts time is ordinarily of the essence of the contract. This is so because the business world requires certainly and also because “merchants “merchants are not in the habit of placing upon their contracts stipulations to which they do not attach some value and importance. Thus, in a contract to supply imported goods in October or November; 6 in a contract for the purchase of chassis for a diesel truck to be supplied within two months and in auction purchase, where the price was to be paid within 15 days, time was held to be the essence of contract. Similarly, in a contract for the sale and purchase of goods the prices of which fluctuated rapidly in the market, the time of delivery and of payment are considered to be of the essence. Thus, in Mahabir Prasad Rungta v Durga Datt the Supreme Court held on the facts of the case that time of payment was of the essence of the contract. The facts of the case were that a transporter, Durga Datt, contracted with Rungta, a colliery owner, to transport coal from a colliery to the railway station. The colliery- owner had to keep the road in repair and to arrange for petrol. He had also to pay for the transportation on the tenth of the next month. It was alleged that these things were not done in time and, therefore, the transporter could not go on with his work. The transporter rescinded the contract and brought an action for damages. It was held that in commercial transaction time is ordinarily of the essence of the contract. In this contract the time of the payment and of arranging other things was, particularly, such an important condition of the contract that section se ction 55 could be invoked by the aggrieved party and the transporter was entitl ed to rescind the contract. CONSTRUCTION CONSTRUCTION CONTRACTS
Time schedule in a construction contract is likely to be of the essence because construction is a commercial service. Where 24 months’ time was given to the builder with a stipulation t hat if he fails to deliver within the stated time, he would pay 10 % per annum of the purchase price measured m easured by b y the period of delay, time ti me was held to be of the essence entitling recover y of the stipulated amount. 7 Similarly, where a builder commitment with a bank was that he would make their building ready within 6 months, but could not do so, the bank was allowed to terminate the contract. The fact that the bank exercised this right after 2 months after the expiry of the stipulated time did not amount to an extension of time.
Sachidananda v G.P. & co, AIR 1964 China Cotton Exportes v B.R.C. mills,AIR 1961 SC 1295. 7 Chye Fook vs. the teng seng realty,(1989)1 mal LJ 308 IOH HC. 6
The termination of a contract was held to be proper where the contractor was not able to do anything to carry out the repair of a flood protection dam in spite of the extension of the time. The matter of time was a very important factor in the contract. The supreme court observed that in a construction contract, the time of the completion would be of the essence only when the special features exist. 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 or 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 the same manner in a construction contract as they do in other situations, potentially leading to unexpected results during the project. SALE TRANSACTION TRANSACTION
The court would have to see on the facts of each case involving a sale transaction whether time factor was essential to performance or not. In a contract of sale of goods, the time of shipment is of the essence. A leading Supreme Court authority is china cotton exporter vs behari lal ramcharan cotton mills limited. The appellants who carried on an import business at Bombay contracted to supply to the respondent mill a quantity of the Italian staple fibre cotton. The shipment was to take place in October or November. The contract concludes by the remark “this contract is subject to import license and therefore the shipment date is not guaranteed”. guara nteed”. Apart of the goods were supplied and accepted, but the rest were not supplied in the time mentioned. The buyer wanted to avoid the contract on this ground. It was held that inspite of the remark the th e shipment date was not guaranteed, time was of the essence and the buyer was entitled to avoid the contract.
LAND AND PROPERTY DEALING
In a contract for the sale of land or immovable property, the Supreme Court has laid down that “it “it would normally be presumed the time was not of the essence of the contract. Mere 12
incorporation in the written agreement of a clause imposing penalty in case of default does not by itself evidence and intention to make time of the essence”. In such cases , therefore, the time factor would not be essence for obtaining the relief of specific performance. 8
1. Explicit stipulation of delivery times is practically universal in contracts. Examples include labour contracts within firms, sub-contracting of parts of a larger project to other firms and procurement contracts for large-scale projects such as weapons systems and infrastructure. infrastr ucture. In some of these cases, a deadline is determined exogenously. For example, if a production process involves the use of a perishable input, failing to meet a production deadline might mean the loss of the input in question. Another example is a situation in which one of the parties is bound by a contract with a third party. But in many situations, a deadline is imposed endogenously.
. “Time is the essence” essence” is a term in contract law which indicates that the parties to the agreement must perform by the time to which the parties have agreed. In the business matter generally time is essence. The business matters depend upon the intention of the parties. Even where “a “a specific date is mentioned of the completion for the contract” contract” time schedule also very essential in the construction contracts because construction is a commercial service .In a joint venture agreement, one of the clauses was that the defendants were to perform certain formalities within 5 years, and that, on failure to do so, the agreement was to become null and void. In the sale transactions time factor is essential to performance. In the sale transaction there is importance of time factor. Time is also an essential part of any contract related to the land and Property. The parties may make time of the essence either expressly in terms which unmistakably provide that they intended to do. Alternately, making of time as the essence of a contract may be inferred. It is designed to protect buyers and sellers alike, since if one party fails to meet a deadline the whole contract can be void. When the promise is to be performed on a certain day, the promisee’s the promisee’s duty duty in such a case is to perform the contract during the usual business hours on such day. da y. If the goods to be delivered de livered are ar e supplied after af ter the usual closing time, the buyer may reject them. When time is essence of the contract, non-performance of the contract in time would frustrate the purpose which the parties have in mind, and, therefore, if in such a case, there is delay in the performance by one party, the other party has a right to avoid the contract.
Panchanan dhara vs monmata nath maity, (2006)5 SCC 340 13
ALLOTEMENT OF PLOTS
A developmental authority allotted plots through auction sale. The auction purchaser was granted time to make a late payment with interest. Even then he could not make it. The payment made by him after the expiry of the time with interest was ac cepted by the authority. The court said that there was a deemed extension of time. The cancellation of the whole thing was not proper. AGREEMENT FOR RECONVEYANCE
Similarly a stipulation in a contract of sale of property that the buyer would re convey the property to the seller, s eller, if the latter la tter refunded r efunded the consideration within a stipulated st ipulated time, time , would constitute the time schedule to be of the essence and the right of re conveyance would be lost if the time is missed. COMPLETION OF TERM
A license was granted to run a telephone booth in a central bus terminus. The grant was for a limited period. At the time of the limited period allotment, the allottee all ottee made no grievance. On the expiry of the term the corporation invited fresh bids. The existing licencee’s challenge to this procedure was held to be not tenable SALE OF SHARES
A transaction for sale of shares is of commercial nature. The time of the completion of the transaction is likely to be an important factor. However the agreement was for the sale of shares of unquoted private companies trading in a volatile sector, it was held that if a completion date had been named in the agreement that would have been of the essence. Therefore, as soon as the scheme was prepared and so completion could take place, it was open to the party to give notice to other to complete the transaction specifying a reasonable time for completion. Thus, where time would have been of the essence if specified, there one parties can make time of the essence by serving a reasonable notice upon the other to complete.
“In cases other than commercial contracts the ordinary presumption is that time is not of the essence of the contracts”. Accordingly, “In contracts for the sale of immovable property, time would not be regarded as of the essence unless it is shown that the parties intended so. The importance of essence of time in the transaction of immovable property depends on the intention of the parties.
EXTENSION OF TIME
The contract was to provide a rig for a certain period which was to be extended in case of any breakdown in working. The rig broke down for some time and, without taking this into account the owner of the rig wanted to withdraw it on the expiry of the period. The court said that though there cannot be unilateral extension of time, in this case, there was the agreement that the period could be extended so as to cover the breakdown period. The owner of the rig could not say that he should be permitted to withdraw the rig subject to his liability for damages. The machinery in question was rare and not easily available. Compensation would have served no purpose. CONSEQUENCE OF FAILURE
Section 55 further declares that “if it was not the intention of the parties that t hat time should be the essence of the contract, the contract does not become voidable by the failure to do such things at or before the specified time” time ”. It means that the innocent party will have to accept performance even if it delayed. He does not have t he right to reject. But he may sue the other party for any loss caused by the delay. Where on the other hand, the time of performance is of the essence of the contract, any delay will render the contract voidable at the option of the other party. He may reject the performance and immediately sue for the breach. But he ma y at his option accept the delayed performance.If performance.If he does so he cannot afterword’s recover compensation for the delay, “unless, at the time of such acceptance he gives give s notice to the promisor of his intention to do so”.
Delay by itself does not put an end to the contract. In a case before the Supreme Court 9, in a building contract time t ime was described to be of the essence of the contract. The contractor was given the facility to seek extension of time in advance on reasonable grounds, failing which a penalty was payable for each day of default. These stipulations were construed by the court as not making time to be of the essence. The contractor’s application for extension was rejected and, on his failure to complete the works within the specified time, the department rescinded the contract. The rescission was not approved by the Supreme Court. Some further period should have been allowed to the contractor telling him that the extended time would be of the essence and that it would neither be extended, nor excusable on payment of fine. Then only it would have been possible to rescind the contract. In a contract for sale of land the vendor wanted payment to be made within a week, but on the insistence of the vendee, 10 days period was agreed upon the vendee offered money after 10 days. The vendor refused. The court allowed no remedy to the vendee.
Hind construction contractors vs. state of Maharashtra, (1979) 2 SCC 70
In this research project the research is found that hypothesis is correct. In all the cases discussed above it was found that time is very important aspect in each and every valid contract. The essence of time is depending on the nature of the transaction and the situation and circumstance in each case. The importance of the time in the contracts is depending on the intention of the parties. The parties either expressly or by their conduct can make time as essence of the contract. If the parties have not expressed their intention, then it depends on the nature of the contract. If the parties have intention related to the time, the parties of the contracts cannot delay in the transaction. But if the parties knowingly commit mistake the other parties have a right to claim compensate to the others. If in the contracts it is not possible to perform the contracts within the prescribed time, the other party must perform it’s in a reasonable time. But the reasonable time is depend on the each cases and circumstance and surrounding of the contracts. If in the terms and condition of the contracts the parties have no intention 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 promise is entitled to compensation from the promisor for any loss occasioned to him by such failure .when the time is the essence of the contract, non-performance of the contract in time would frustrate the purpose which the parties have in mind and therefore if in such a case , there is delay in the performance by one party, the other party has a right to avoid the contract.
When the time is the essence of the contract, it is expected that the promisor would perform the contract within the stipulated time. On his failure to do so, the promisor has a right to avoid the contract. The time is the very essential in each contract it is found after the analysis of several case laws.
1) Singhal and Subramanyan’s Indian Contract Act, 4 th edition (1999), volume 2, The Law Book Company (P) Ltd., Allahabad. 2) Law of Contract and Specific Relief, Avtar Singh, 5 th edition, (2006), Eastern Book Company, Lucknow. 3) Mulla The Indian Contract Act by Sir Dinshaw Fardunji Mulla, 13 th edition reprint (2012), Lexis Nexis Butterworths Wadhwa, Nagpur. 4) The Indian Contract Act, 1872. Bare act. 5) Prabhat K. Gupta Contract-1 with Specific Relief, 1 st edition (2007), Central Law Publications. 6) Contracts and their Management, by B S Ramaswamy, 4 th edition,(2009) Lexis Nexis. 7) Anson’s Law of Contract, 28 th edition, published by Oxford University Press.
1) The effect of the Commercial Agents Regulations on termination of agency agreement, Cobbetts agreement, Cobbetts LLP , Andrew Leach, United Leach, United Kingdom , November 29 2010.
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