Consequential Damages

Consequential Damages Definition

Legal Definition of Consequential Damages

Consequential damages, also known as special damages, are a form of compensation awarded in civil litigation for losses that are a foreseeable result of a party’s breach of contract or negligence, but are not the direct result of the breach itself. These damages are intended to cover losses or injuries that arise not from the breach directly, but as a consequence of the breach. They are distinct from direct damages, which are losses that flow directly and immediately from the breach, such as the cost to repair or replace defective goods.

The primary characteristic of consequential damages is that they must be foreseeable at the time the contract was made or the tortious act occurred. This means that the party responsible for the breach should have known that such damages would result from their failure to meet their contractual obligations or from their negligent actions. The classic example of consequential damages in contract law is lost profits from a business interruption caused by the breach of contract.

To recover consequential damages in a lawsuit, the plaintiff must prove that the damages were a foreseeable result of the breach and that the actual amount of the damages can be established with reasonable certainty. This often involves demonstrating how the breach specifically caused the subsequent financial losses. Documentation, such as financial records and expert testimony, is typically required to substantiate the claim for consequential damages.

Consequential damages can arise in various contexts, including business contracts, construction contracts, and commercial transactions. In the business context, for example, if a supplier fails to deliver goods on time, the purchaser may sue for lost profits resulting from the inability to fulfill their own customer orders. In construction, if a contractor’s delay causes the project owner to lose rental income, those lost rents could be considered consequential damages.

It’s important to note that many contracts include clauses that limit or exclude consequential damages, particularly in commercial agreements. Parties often negotiate these clauses to control their potential liability and to make the risks of the contract more predictable. Whether such clauses are enforceable can depend on the specific language of the clause and the laws of the jurisdiction governing the contract.

Consequential damages are often a subject of contention in legal disputes, given their potentially significant financial impact and the challenges in proving them. Courts typically apply a high standard of proof for these damages, requiring clear and convincing evidence that the losses were a foreseeable result of the breach and that the amount of the damages can be quantified with reasonable certainty.

In summary, consequential damages are a type of compensation awarded for losses that result indirectly from a breach of contract or a tortious act. They are based on the principle that a party responsible for a breach should compensate the injured party for all foreseeable losses caused by the breach, not just the direct costs.