Consequential Damages
Consequential damages compensate losses that flow from a breach but do not follow necessarily from it, so they are recoverable only if they were within the parties' contemplation when the contract was made. Texas requires foreseeability at contracting and proof of amount with reasonable certainty. They are the damages commercial contracts most often disclaim.
Break a contract to deliver a machine and the buyer's direct loss is the difference between the contract price and what an equivalent machine cost. The buyer's plant also sat idle for six weeks. That second loss is consequential, and whether the seller pays for it depends on what the seller knew when the deal was signed.
Foreseeability and certainty
The rule descends from Hadley v. Baxendale and Texas applies it in that form. Consequential damages are recoverable only if they were foreseeable at the time of contracting, meaning the loss was contemplated by the parties as a probable result of a breach, and only if the amount is proved with reasonable certainty. Stuart v. Bayless, 964 S.W.2d 920 (Tex. 1998) (per curiam), states the foreseeability requirement, and the Texas Supreme Court restated both requirements in Signature, discussed below.
Certainty is where the fight usually is. Lost profits are the standard consequential claim, and Texas will not award them on a projection unsupported by objective facts and figures from which the amount can be ascertained. A start-up with no operating history has a hard road. An established business with three years of margins on the same product line does not.
The Texas Supreme Court took a hard look at an ambitious model in Signature Industrial Services, LLC v. International Paper Co., 638 S.W.3d 179 (Tex. 2022), where the plaintiff sought the lost value of the business itself rather than conventional lost profits. The court held that a collapse in the company's market value was not a foreseeable consequence of a failure to pay $2.4 million, and that a decline in book value was not a reasonably certain measure of the loss.
The disclaimer
Commercial agreements commonly exclude consequential damages. For sales of goods, Tex. Bus. & Com. Code § 2.719(c) permits the exclusion unless it is unconscionable, and limiting damages for commercial loss is not prima facie unconscionable. Two drafting problems recur. The first is scope. A clause excluding consequential, incidental, special and indirect damages, without saying anything about lost profits, leaves an argument about whether particular lost profits were direct rather than consequential, and lost profits can be either depending on what the contract was for. The second is the interaction with a liability cap and with indemnity obligations, since an indemnity for third-party claims can swallow a consequential damages waiver if the two provisions are not reconciled.
Pleading them
Consequential damages are special damages, and Rule 56 requires items of special damage to be specifically stated (Tex. R. Civ. P. 56). Because recovery turns on what the defendant knew at contracting, a petition that recites lost profits without alleging that knowledge leaves the foreseeability element exposed. The contract's stated purpose and the parties' negotiations are the usual evidence of it.
Keeping direct and consequential damages separate in the charge matters for a related reason. A verdict question that lumps them together is vulnerable, because a disclaimer that knocks out the consequential portion may take the whole award with it if the jury's answer cannot be apportioned.