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Introduction:

In many jurisdictions across the world, the essential elements of each valid contract are the intention to constitute legal relations. An intention to constitute legal relations is described as an intention to make a legally binding contract or agreement. One of the contract’s elements is to have the intention to establish legal relations. Because the willingness of a party to accept the legal implications of having agreed is the desire to form legal relations. Every contracting party must have the requisite intent to engage in a legally binding contract in order to form legal relations. There are certain contracts where time is the essence of the agreement but the parties in the agreement through their conduct leave no meaning to time being the essence of the agreement and want their rights and obligations to be fulfilled from the contract. This article will attempt to resolve the question that why it is important to ascertain the true intention of parties to a contract where time is said to be the essence of the agreement. This article will also analyze the ruling given in the case of M.P. Housing Board v. Progressive Writers and Publishers[1] (hereinafter referred to as ‘M.P. Housing Board’).

Laws Related to the Topic

Every contract in India is governed by the India Contract Act, 1862. But there is no direct law under the Indian Contract Act which talks about the intention of parties to a contract. But the Act talks about the essentials of a valid contract under section 10 in which a lawful consideration and a lawful object are essentials for the valid contract and the presence of these essentials in an agreement also imply that there is the intention of parties to enter into a legal relation through contract.

Case of M.P. Housing Board

Facts of the Case

The M.P. Housing Board (hereinafter referred to as ‘the Board’) and Progressive Writers and Publishers, New Delhi (hereinafter referred to as the ‘depositor’) signed an agreement on 18th February 1975, under which the Board agreed to construct the ‘Hitavada Press Complex’ on land measuring 33932 square feet in T.T. Nagar, Bhopal. The conditions of the agreement, among other things, stated that the Board would oversee the building of the Hitavada Press Complex and levy a supervision fee of 5% of the project’s total cost. The depositor was responsible for the building costs.

Following that, the parties signed a second building agreement on 4th May 1977, under which both parties expressly agreed that the whole area of the building and land, which was 33932 square feet, would be transferred by the depositor and after which the Board would re-transfer 7437 square feet of land and also a hall with a Press area constructed thereon and for the same depositor had to pay Rs. 3.50 lakh in 15 installments to the board.

Thereafter for some reason parties signed a third building agreement on 31st May 1980. According to the agreement, the depositor expressly agrees to pay a certain amount of money to the board and in exchange, the board will transfer the complex building to the depositor. This agreement also contains clause 4 which is “That the depositor agrees to pay the entire aforesaid amount of cost, loan and interest on the execution of this agreement not later than 31st October 1980, failing which this agreement shall be deemed to be cancelled.” The dispute revolves around this clause as the depositor did not comply with clause 4 and did not deposit the amount of money with the board. The talks between both the parties go on till 1986. Subsequently, the board filed a suit and a sole arbitrator was appointed by the trial court. In the award of the arbitrator, the depositor was directed to pay almost half the amount to the board against the amount asked by the board. Aggrieved by which board appealed before the Madhya Pradesh High Court under section 39 of the Arbitration Act, 1940. The High court reaffirmed the arbitral award and dismissed the appeal. Aggrieved by which the board appealed before Supreme Court. Among all the issues the major issue to be determined by the court is that whether the time is the essence of the agreement dated 31st May 1980?

Judgment

The court finds the findings of the arbitrator right that time is not the essence in the agreement dated 31st May 1980. The reason given by the arbitrator behind this finding is mentioned in paragraph 16 of the judgment which read as that the Board had itself waived the time clause and was willing to accept money from the depositor even after 31st October 1980 as is evident from the negotiations which continued between the parties till the year 1985-86. The arbitrator relied on documentary evidence made available by the parties in arriving at the conclusion that in the present case the time is not essence of the agreement.” The court refrain from interfering with the reasoning of the arbitrator and opined that the arbitrator was right in considering the overall agreement and the surrounding facts concerned to it.

Topic’s Relation with the Case Mentioned

In the M.P. Housing Board, one of the cases referred was of the Swarnam Ramachandran and Anr. v. Aravacode Chakungal Jayapalan[2] (hereinafter referred to as ‘Swarnam Ramachandran) in which the court held that contracts concerning the immovable properties time are not deemed to be of importance but are of the essence in transactions involving lease renewal or reconveyance. It was also observed that whether the time is of the essence in the agreement is a question of fact, with the true test being the parties’ intent. Each case has its own set of facts and circumstances. When time is of the essence and notice is provided, it is the court’s responsibility to analyze the true intention of the party issuing the notice by looking at the facts and circumstances of each instance. The four parameters are given by the court to ascertain the intention of the parties to a contract are –

  1. “the express words used in the contract;
  2. the nature of the property which forms the subject matter of the contract;
  3. The nature of the contract itself; and
  4. The surrounding circumstances”.

Therefore in the cases related to a contract, it is pointed out that time is the essence of the contract, the intention of the parties needs to be determined by using the test given in the case of Swarnam Ramachandran because like in the case of the M.P. Housing Board where the contract is supposed to be ended on 31st October 1980 after the non-payment by the depositor but the board is willing to accept the amount after 31st October 1980 also and for that, the board and the depositor keep on communicating till 1986. The true intention of the board is to get the money from the depositor even though the timeline mentioned in the agreement is already expired. From the act of the parties, it can be said that the date mentioned in the agreement has never existed as they never abide by that. Therefore it is necessary to always ascertain the intention of the parties when time is the essence of the contract is to be determined.  

Conclusion

The author has tried to provide a case analysis of the M.P. Housing Board and thereby analyze the significance of the concept of intention to create legal relations where time is the essence of the agreement. This was one of the first cases to highlight the significance of this concept. Time is not generally an essential of any arrangement concerning immovable properties, and even if there it was expressly mentioned that the time was the essence in the agreement then also the total agreement must be examined to see whether time was the essence of the agreement or the act of the parties or other facts of the case had left no meaning to the presence of time in the agreement like what happened in the case of M.P. Housing Board. As a result, determining whether the time is the essence of the contract is a matter of fact that must be established in each situation, and just stating the agreed-upon time does not make time an essential of the contract.


References:

[1] AIR 2009 SC 1585

[2] (2004) 8 SCC 689


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