What does the term "consequential damages" typically refer to?

The term "consequential damages" refers specifically to losses that arise as a consequence of a primary loss. These damages are not directly caused by a breach of contract but are a secondary effect that results from the initial failure to meet contractual obligations. For example, if a seller fails to deliver goods on time, the buyer may experience lost profits due to the delay; these profits would qualify as consequential damages.

This concept is important in determining liability in legal disputes, as it distinguishes between direct damages that are immediately linked to a breach and those that are more remote but still relevant. While consequential damages are often recognized as recoverable in legal proceedings, their exact nature and recovery can depend on the specifics of the contract and the circumstances surrounding the breach.

In contrast, damages that directly result from a breach are referred to as direct damages. Recognizing the difference between these types of damages is essential for understanding how losses are calculated in real estate transactions and contract law.