What Does “Consequential Damages” Mean in a Contract?
Indirect losses that result from a breach, such as lost profits, business interruption, or damage to reputation.
Detailed Explanation
Consequential damages are the downstream effects of a breach - not the direct loss, but what that loss caused. If a supplier delivers late, your direct damage is the cost of the delay; consequential damages might include lost sales, penalty fees from your customers, or damaged business relationships.
Most commercial contracts exclude consequential damages because they can be unpredictable and enormous. A small breach could theoretically lead to millions in consequential losses.
Example in a Contract
“Neither party shall be liable for any consequential, incidental, indirect, special, or punitive damages, including but not limited to loss of profits, revenue, data, or business opportunities.”
Why It Matters
Consequential damage exclusions protect both parties from catastrophic liability. But they also limit your recovery - if a breach causes huge downstream losses, you may only recover direct costs.
Related Terms
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