What Does Consequential Damages Mean?

Consequential damages are a type of damages that are typically considered when parties enter into a legal agreement. This type of damages are those that are caused as a result of the wrongdoings of one of the parties, often referred to as “foreseeable damages.” These types of damages occur when a specific action by one of the parties causes a result that was not explicitly mentioned in the contract.

For example, if one party enters into a contract with a second party to deliver supplies and the failure to do so causes the second party to lose money in the form of lost business, the first party may be obligated to pay these consequential damages. These damages are in addition to any originally agreed upon and they are designed to make the injured party whole after the failure of the contract.

Considerations of Consequential Damages

When entering into a legal contract, parties should consider what types of risks and damages are possible and agree upon whether or not they should be eligible for compensation. In most cases, contracts should specifically state that consequential damages will not be allowed in order to protect both parties from potential financial burdens that may not have been originally considered.

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In addition, parties should be aware of the type of defenses that could be used to dispute or disprove the claims of consequential damages. Proving the connection between the original breach of contract and the subsequent damages can be a difficult process, and complex legal arguments can play an important role in determining whether a claim of consequential damages is successful.

Related Legal Concepts

Understanding consequential damages requires familiarity with the broader landscape of contract remedies and damage calculations. These damages work alongside compensatory damages to restore injured parties, though they differ from general damages which cover direct losses from breach. Courts often distinguish consequential damages from special damages and may consider whether parties attempted mitigation of damages to reduce their losses.

The Bottom Line

Consequential damages represent the indirect losses that flow from a contract breach, extending beyond the immediate harm to encompass foreseeable secondary effects like lost profits or business opportunities. While these damages can provide important protection for injured parties, they’re often excluded through contractual provisions due to their potentially significant financial impact. For guidance specific to your situation, always consult a qualified, licensed attorney.