Consequential Damages in the United States

Consequential Damages Definition

Those damages or those losses which arise not from the immediate act of the party, but in consequence of such act. Those produced naturally, but not directly. Damages that flow as a foreseeable but indirect result of the breach of contract.

The following definition of Consequential Damages is offered by The Cyclopedic Law Dictionary: Those damages which do not arise immadiately out of the plaintiff’s tort but which nevertheless are caused by the tort.

Practical Information

Damages (see entry) resulting not from taking any part of physical property, but as a consequence of some act in connection with the property. For example, a city may raise the grade of a street without taking any additional land but in such a way that adjoining property is left an objectionable distance below the new street grade. The property owner may be entitled to consequential damages. This is different from severance damage (in U.S. law), where a part of an original lot may be taken with damage to the remaining portion. (Revised by Ann De Vries)

For a meaning of it, read Consequential Damages in the Legal Dictionary here.

Consequential damages meaning

Damages which arise not immediately after the initial injury but thereafter yet as a result of the tort. E.g. as a result of a libel the plaintiff cannot marry and so will not be an heir of their spouses parents. The lost inheritance could be seen as a consequential damage.

See: Richmond Redevelopment and Housing Authority v. Richmond Redevelopment and Housing Authority v. Laburnum Const. 195 Va. 827, 80 S.E.2d 574, 580.

In Contracts

Note: For more information on Compensatory Damages, click here.

A basic principle of contract law is that a person injured by breach of contract is not entitled to compensation unless the breaching party, at the time the contract was made, had reason to foresee the loss as a probable result of the breach. The leading case, perhaps the most studied case in all the common law, is Hadley v. Baxendale, decided in England in 1854. Joseph and Jonah Hadley were proprietors of a flour mill in Gloucester. In May 1853, the shaft of the milling engine broke, stopping all milling.

An employee went to Pickford and Company, a common carrier, and asked that the shaft be sent as quickly as possible to a Greenwich foundry that would use the shaft as a model to construct a new one. The carrier’s agent promised delivery within two days. But through an error the shaft was shipped by canal rather than by rail and did not arrive in Greenwich for seven days. The Hadleys sued Joseph Baxendale, managing director of Pickford, for the profits they lost because of the delay. In ordering a new trial, the Court of Exchequer ruled that Baxendale was not liable because he had had no notice that the mill was stopped:

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.Hadley v. Baxendale (1854), 9 Ex. 341, 354, 156 Eng.Rep. 145, 151.

This rule, it has been argued, was a subtle change from the earlier rule that permitted damages for any consequences as long as the breach caused the injury and the plaintiff did not exacerbate it. But the change was evidently rationalized, at least in part, by the observation that in the “usual course of things,” a mill would have on hand a spare shaft, so that its operations would not cease. (R. J. Danzig, “Hadley v. Baxendale: A Study in the Industrialization of the Law,” Journal of Legal Studies 4, no. 249 (1975): 249).

This sub-set of compensatory damages is called consequential damages—damages that flow as a foreseeable consequence of the breach. For example, if you hire a roofer to fix a leak in your roof, and he does a bad job so that the interior of your house suffers water damage, the roofer is liable not only for the poor roofing job, but also for the ruined drapes, damaged flooring and walls, and so on. (1)

Resources

Notes

“Business and the Legal Environment”, by Don Mayer, Daniel M. Warner and George J. Siedel.

Consequential Damages