Chapter 10-5 Distinguishing Between Direct and Consequential Damages

• Jurisdiction: United States

10-5 Distinguishing Between Direct and Consequential Damages

Courts in contract disputes and business litigation often refer to and distinguish between direct and consequential damages,²³ utilizing essentially the same definitions for general and direct damages, and essentially the same definitions for special and consequential damages. Direct (or general) damages compensate for the loss that necessarily and usually results from the wrongful act²⁴ and encompasses the loss that is conclusively presumed to have been foreseen by the defendant from his wrongful act.²⁵ Consequential (special) damages are "those damages which result naturally, but not necessarily" from the defendant's wrongful act²⁶ but must be both foreseeable and directly caused by the wrongful act.²⁷

Direct damages may include either recovery of out-of-pocket losses (to obtain recovery of expenses incurred in reliance upon the defendant's promise or misrepresentation)²⁸ or benefit-of-the-bargain losses (to obtain the direct contractual expectancy that was lost due to the defendant's conduct),²⁹ to the extent these kinds of damages are directly and routinely foreseeable from the defendant's conduct.³⁰

Consequential damages must be specifically pleaded³¹ and require specific proof of foreseeability as a prerequisite to recovery.³² For example, consequential damage could include foreseeable lost profits from other business opportunities (separate from the transaction in question) which were lost as a result of the defendant's misrepresentation.³³

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Notes:

^[23] See, e.g., Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997).

^[24] Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007).

^[25] Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997).

^[26] Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007).

^[27] Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997).

^[28] The out-of-pocket measure computes the difference between the value paid and the value received. (Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998)).

^[29] The benefit-of-the-bargain measure computes the difference between the value as represented and the value received. (Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998)).

^[30] Compare Formosa Plastics Corp. U.S.A. v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998) (referring to...