The phrase time is of the essence is a phrase sometimes used in a contract. This phrase in effect means, “the specified time and dates in this agreement are vital and thus, mandatory.” Therefore, any delay, reasonable or not, slight or not, will be grounds for cancelling the agreement. An example of this would be in the case of the sale or purchase of perishable property or property that fluctuates rapidly in value. If a contract states that time is of the essence, but it obviously is not, courts will ignore this clause. When time is not of the essence, courts generally permit parties to perform their obligations within a reasonable time.
If a party acts in good faith, and substantially performs a contract, he will be allowed to recover to the extent he has performed. He may have to pay any damages the other party has suffered. Good faith is important. For example, if a contractor does not follow building specs on purpose (e.g., trying to cut costs), he will not recover anything.
Greg contracted to build a house and garage for Bill for $50,000.00. The job was completed according to the specifications in all respects except that Greg forgot to put a tool shed next to the garage as was required by the contract specifications. Bill refused to pay Greg. Greg sued Bill. Bill raised the defense that Greg was not entitled to any money until the contract was completely performed and that the performance was incomplete because the tool shed had not been constructed. Was Bill correct? No. Under the doctrine of substantial performance, Greg can recover $50,000.00 less such amount as would be required to complete the performance, that is to build the tool shed. The court reached this conclusion to avoid the hardship that would be imposed on Greg if he should lose everything because of a relatively minor breach of the contract.