792 The Business Lawyer; Vol. 63, May 2008
act.”
69
Thus the idea that “consequential” simply means “indirect” is potentially
misleading. As articulated by one court:
The distinction between general [or direct] and special [or consequential] damages
is not that one is and the other is not the direct and proximate consequence of the
breach complained of, but that general [or direct] damages are such as naturally and
ordinarily follow the breach, whereas special [or consequential] damages are those
that ensue, not necessarily or ordinarily, but because of special circumstances.
70
In other words, consequential damages are not unbounded and unlimited losses
loosely traceable to a contract breach. Rather, consequential damages are losses
directly attributable to and caused by a contract breach as a result of the special
circumstances of the non-breaching party that would not have occurred in the
ordinary case of a breach of a similar contract not involving such special circum-
stances.
CONSEQUENTIAL DAMAGES ARE NOT LIMITED TO “LOST PROFITS”
AND NOT ALL “LOST PROFITS” ARE CONSEQUENTIAL DAMAGES
Lost profi ts are clearly the most common form of consequential damages
sought in a breach of contract case.
71
Lost profi ts, however, are not the only form
of consequential damages and not all lost profi ts constitute consequential dam-
ages. Certain lost profi ts can in fact be “direct” damages.
72
A good example is a
construction contract. If a property owner wrongfully terminates a construction
contract with the contractor, the direct damages that naturally arise from that
wrongful termination are the “profi ts necessarily inherent in the contract,” i.e., the
“net profi t to which the contractor would have been entitled had full performance
of the contract been permitted.”
73
Similarly, if a breach foreseeably and naturally
deprives the non-breaching party of profi ts that would have been earned in the or-
dinary course of business and not under special circumstances, those lost profi ts
may also constitute direct damages rather than consequential damages.
74
69. Wade & Sons, Inc. v. Am. Standard, Inc., 127 S.W.3d 814, 823 (Tex. App. 2003).
70. Applied Data Processing, Inc. v. Burroughs Corp., 394 F. Supp. 504, 509 (D. Conn. 1975) (citing
5 A. CORBIN, CORBIN ON CONTRACTS § 1011 (1974)).
71. See Eisenberg, supra note 16, at 565.
72. See, e.g., Penncro Assocs., Inc. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1156 (10th Cir. 2007);
Computrol, Inc. v. Newtrend, L.P., 203 F.3d 1064, 1071 n.5 (8th Cir. 2000); ViaStar Energy, LLC v.
Motorola, Inc., No. 1:05-cv-1095-DFH-WTL, 2006 WL 3075864, at *5 (S.D. Ind. Oct. 26, 2006); DP
Serv., Inc. v. AM Int’l, 508 F. Supp. 162, 167 (N.D. Ill. 1981); Cont’l Holdings, Ltd. v. Leahy, 132 S.W.3d
471, 475 (Tex. App. 2003); Iino Shipbuilding & Eng’g Co. v. Hellenic Lines, Ltd., 175 N.Y.S.2d 750,
754 (N.Y. App. Div. 1958), aff’d, 157 N.E.2d 726 (N.Y. 1959). See also Sha-shana N.L. Crichton, Dis-
tinguishing Between Direct and Consequential Damages Under New York Law in Breach of Service Contract
Cases, 45 HOW. L.J. 597, 601 (2002) (“Lost profi ts and lost future earnings are categorized as direct
damages in some instances, and consequential damages in others.”).
73. Imaging Sys. Int’l, Inc. v. Magnetic Resonance Plus, Inc., 490 S.E.2d 124, 126 (Ga. Ct. App. 1997)
(quoting Franklin v. Demico, Inc., 347 S.E.2d 718, 721 (Ga. Ct. App. 1986), and Williams v. Kerns,
265 S.E.2d 605, 609 (Ga. Ct. App. 1980)), aff’d, 543 S.E.2d 32 (Ga. 2001).
74. See, e.g., supra note 72. In the classic English case of Victoria Laundry (Windsor) Ltd. v. New-
man Industries Ltd., [1949] 2 K.B. 528, the court apparently deemed ordinary lost profi ts natural and
foreseeable under the fi rst branch of Hadley and did not require special notice, but the extraordinary