Consequential damages, also known as special damages, refer to losses that do not directly arise from the breach of a contract but are a consequence of the breach. These damages are recoverable if they were foreseeable at the time the contract was made and can be proven with reasonable certainty.
Consequential damages cover losses that result from a party's failure to fulfill their contractual obligations, extending beyond the immediate impact to include additional financial harm caused by the breach.
For example, if a supplier fails to deliver goods on time, consequential damages could include the profits a business lost due to not having those goods available for sale.
The key to recovering consequential damages is demonstrating that the losses were a foreseeable result of the breach and that the extent of those losses can be quantified.
Although consequential damages are most commonly discussed in contract law, the concept also appears in tort law, where damages resulting from wrongful acts may include both direct and consequential losses.
The principle underpinning consequential damages is to place the injured party in the position they would have been in had the contract been fulfilled, ensuring full compensation for all foreseeable losses.
One common misconception is that consequential damages can include any loss related to a breach of contract, no matter how indirect or unforeseeable. In reality, for damages to be classified as consequential and thus recoverable, they must have been foreseeable to both parties at the time the contract was formed.
Another misunderstanding is that consequential damages are always awarded in breach of contract cases. However, the recovery of these damages often depends on the specific terms of the contract and the ability to prove the extent of the loss.
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Wayne State University School of Law
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