CIDSAC Law Practice Test

Consequence damages are about losses that flow from the breach due to the unique situation of the injured party, not the immediate failure itself. The essential test is foreseeability at the time the contract was formed: the parties must have known or could have foreseen that such losses would likely result if the contract were breached. Direct damages cover the immediate, natural results of the breach, while incidental damages are costs incurred in dealing with the breach, and liquidated damages are pre-agreed sums set in the contract. So, when losses depend on the specific business context and were reasonably foreseeable as a probable consequence of the breach, they fall under consequential damages. For example, if a supplier’s late delivery causes a manufacturer to miss a key sale, the lost profits from that missed sale would be recoverable as consequential damages if the delay and resulting losses were foreseeable to both parties when they contracted.