47.62 The expression ‘time of the essence’ is typically associated with common law legal systems; however, its basic content can be applied generally. Broadly speaking, it concerns the question of whether late performance, of itself, can trigger the right to avoid the contract.
47.63 For common law legal systems following the English model this means that timely performance needs to amount to a condition.171 The sale of goods Acts in these jurisdictions expressly state that unless otherwise agreed in the contract, time is presumed not to be of the essence.172 In the USA—as briefly alluded to earlier—timely performance is part of the perfection of the tender to be made by the seller and the buyer respectively.173
47.64 For civil law systems this means that otherwise obligatory additional periods of time do not have to be fixed and—in those systems where avoidance is decreed by courts which are authorized to also grant a period of grace—that there is no room for protecting the obligor against avoidance.
(p. 725) 47.65 It should be noted that in the present context the focus is on situations where the obligor performs late and thus the obligee seeks to avoid the contract. General questions relating to the time for performance especially premature performance have been addressed in previous chapters for the seller and the buyer respectively.174 It is noteworthy, however, that in common law jurisdictions some situations in which the obligor performs too early are also discussed under the heading of ‘time is of the essence’.175
(ii) Express Contract Terms
47.66 In line with the principle of party autonomy, it is in the first instance up to the parties to make clear the importance of timely performance. Hence, where this is indeed crucial for the parties they should expressly state that time is of the essence. Where this has occurred, the situation does not pose particular difficulties.176 Avoidance of the contract is possible if the time for performance is not met. Matters are naturally different where a potential waiver is at issue or where the parties in any other way may have indicated a contrary intention.
47.67 Another way of making timely performance essential is the choice of a trade term which deems time to be of the essence. This is the case for ICC INCOTERMS® CIF and FOB in the 2000 version.177 The fact that time is of the essence under the FOB term has particular implications for the buyer. Under the FOB term the essential nature of timely performance not only pertains to the buyer’s primary obligation to take delivery but also to its pre-delivery duty to nominate a ship and notify the seller of the readiness to load.178
47.68 Whether ICC INCOTERMS® CIF and FOB will continue to be interpreted as making time of the essence also in their 2010 version is yet to be seen. However, there is no apparent reason why there would be any changes. Certainly, the long-established understanding of such crucial terms in international trade would militate against a change in opinion.
47.69 Similar considerations apply to so-called just-in-time contracts. In essence, where a company operates with just-in-time contracts, the aim is to reduce inventory and thus save storage costs by obliging the co-contractant to deliver precisely at the time the goods are needed for production.
47.70 Where the parties have not made time essential by an express contract term, the issue is to be determined by contract interpretation.179 Factors to be considered in particular include the type of goods, the identity of the parties, and the economic environment in which the transaction takes place.180
47.71 The likelihood that time will be of the essence is naturally higher in commercial contracts than in usual C2C or B2C sales. Commercial buyers often intend immediate resale or use of the goods. The way this likelihood is recognized in legal systems differs, however, and depending on whether the respective jurisdiction belongs to the common law or civil law family.
(p. 726) 47.72 In some civil law legal systems there are express provisions which for commercial sales presume that, where the parties have agreed on a delivery date and the seller is late, the buyer is no longer interested in performance but rather intends to avoid the contract and claim damages for non-performance loss.181 The rationale underlying this is thus the identity of the parties as merchants. In other systems the presumption that the buyer is no longer interested in performance applies to all sales contracts.182 However presumption does not go so far as to presume that time was of the essence.183 Rather, it must be established that time was of the essence. A similar position follows from the USA UCC where the perfect tender rule essentially leads to the same result.184 However, the presumption established in civil law systems has the further legal effect of relieving the seller from specific performance as the buyer must immediately notify the seller of its interest in obtaining performance despite the delay. Given the USA UCC does not envisage specific performance as a standard remedy,185 this issue does not arise there.
47.73 Common law jurisdictions following the English model appear to focus less on the identity of the parties but rather on the type of goods and the individual market. For the sale of commodities it is generally presumed that time is of the essence, unless a contrary intention is revealed by the contract, for example where the parties have not fixed a delivery date.186
47.74 One reason for this may be that statutory sales law does not distinguish C2C and B2B sales, instead only establishing specific rules for B2C transactions. The main reason, however, appears to be that the broad presumption approach of a number of civil law systems is considered inappropriate, particularly in situations where, for example, the seller has to source raw materials, and manufacture a customized machine over an extended period of time.187
47.75 At first glance, the presumption established in a number of traditional civil law legal systems, that time is of the essence where the parties are merchants, appears to be a stricter position than that of common law. However, under traditionally structured civil law legal systems the sphere of application of the sale of goods provisions is considerably more restricted than that of the sale of goods Acts following the English model. Indeed, in the above given example188 the contract for the customized machine in these civil law legal systems would typically not fall within the sale of goods regime. Hence, the presumption that time is of the essence between merchants will in practice apply predominantly to the sale of generic goods and commodities.
47.76 Where no presumption applies, it is necessary to determine whether, in the individual circumstances of the case, timely performance was of an essential nature. The decisive issue is whether the contract stands or falls with timely performance—that is, whether the purpose of the contract can still be fulfilled or whether it is frustrated. Classic textbook examples include the delivery of Christmas trees after the festive season or the delivery of a wedding cake after the celebrations.189 To some extent, these examples can be broadened to seasonal goods in general. In another example, the contract provides that machinery must be delivered to the High Arctic during the arctic summer which lasts only for a very few weeks. After this time period the ground is simply too hard to install the machinery ordered.190