Time of the essence: If time is not of the essence, what damages may the breaching party owe?

• A. Incidental losses such as taxes and interest
• B. Punitive damages
• C. The contract becomes void
• D. The non-breaching party can rescind automatically

Answer: (A)

When time is not of the essence, a delay in performance is a breach, but it does not automatically void the contract or grant punitive remedies. The nonbreaching party is entitled to compensation for actual losses that flow from the breach, including incidental damages—those costs incurred in dealing with the breach and protecting the party’s position. Taxes and interest fall into this category because they are additional costs that arise because performance was delayed or not completed as agreed. Punitive damages aren’t recoverable for a contract breach, the contract isn’t void simply because time wasn’t essential, and rescission isn’t automatic merely due to a non-essential time clause. So the breaching party may owe incidental losses such as taxes and interest.