Legal Definitions - consequential damages

Consequential damages, also known as special damages, are financial losses that are not a direct or immediate result of a wrongful act or breach of contract, but rather are a foreseeable consequence that naturally flows from it. These damages compensate for indirect harm that arises because of the initial action, even if they weren't the most obvious or immediate outcome. To be recoverable, these losses must have been reasonably foreseeable to the party who caused the harm at the time the action occurred.

Here are some examples to illustrate consequential damages:

• Example 1: Business Contract Breach

  A small bakery contracts with a specialized oven manufacturer for a custom-built, high-capacity oven, essential for their holiday season production. The manufacturer breaches the contract by delivering the oven two months late. As a result, the bakery cannot fulfill its large holiday orders and loses significant revenue from those missed sales. Additionally, several long-standing wholesale clients, disappointed by the bakery's inability to deliver, take their business to a competitor.

  In this scenario, the direct damage might be the cost of the delayed oven or any immediate expenses incurred due to the delay. However, the lost revenue from unfulfilled holiday orders and the loss of long-standing wholesale clients are consequential damages. These are not the direct cost of the oven itself, but rather the foreseeable financial harm that naturally resulted from the manufacturer's late delivery, impacting the bakery's broader business operations and future income.

• Example 2: Defective Product Causing Further Damage

  A homeowner purchases a new washing machine. Due to a manufacturing defect, the machine leaks extensively during its first use, causing significant water damage to the hardwood floors in the laundry room and the ceiling of the room below. The homeowner also has to pay for a hotel stay for several nights while the repairs are underway, as the house is uninhabitable due to the water damage and drying equipment.

  Here, the direct damage would be the cost of repairing or replacing the defective washing machine itself. However, the cost of repairing the damaged hardwood floors and ceiling, along with the expense of the hotel stay, are consequential damages. These losses are not the inherent defect of the washing machine, but rather the natural and foreseeable financial harm that occurred to the homeowner's property and living situation *because* the washing machine failed.

• Example 3: Professional Negligence Leading to Lost Opportunity

  A freelance photographer hires an accountant to manage their business finances and file taxes. Due to the accountant's negligence, a critical tax document is filed incorrectly and late, causing the photographer to miss out on a government grant specifically for small creative businesses, for which they would have otherwise qualified. The grant would have allowed the photographer to invest in new equipment and expand their services.

  The direct impact of the accountant's error might be a penalty for late filing. However, the lost opportunity to receive the government grant, and the subsequent inability to invest in new equipment and expand the business, represent consequential damages. These are not the direct cost of the accountant's services, but rather the foreseeable financial losses and missed business growth that the photographer suffered *as a consequence* of the accountant's negligent actions.