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 most contracts disclaim, and the disclaimer usually holds.
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 both requirements.
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 opinion is required reading before building a damages case on anything other than a standard calculation, because it shows how carefully the court examines the causal chain between the breach and the claimed loss.
The disclaimer
Most commercial agreements exclude consequential damages, and Texas gives effect to those clauses between sophisticated parties. 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. Say so expressly. 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.
Where a contract both disclaims consequential damages and fixes a liquidated sum, expect an argument that the liquidated amount is the exclusive remedy. Where it disclaims consequential damages and provides for specific performance, expect the opposite argument, that the disclaimer shows the parties intended equitable relief to carry the weight.
Pleading them
Plead the knowledge, not just the loss. A petition that recites lost profits without alleging what the defendant knew about the plaintiff's business at contracting has skipped the element the defendant will attack first. Where the contract itself shows the purpose, quote it. Where the knowledge came from negotiations, plead the communications.
And separate the categories in the pleading and at trial. A verdict question that lumps direct and consequential damages 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.