Consequential Damages In Construction Contracts and Architects Agreements Part 2 - Why The Difference Between Consequential and Direct Makes A Difference
In the last consequential damages post we talked about how to tell the difference between consequential damages and direct damages. In this post we'll talk about why that difference makes a difference.
Workflow
After reading what by now must be hundreds of cases about consequential damages, I developed a 5 step workflow that helps me remember why the difference between direct and consequential damages is important.
Workflow Step 1 - Damages Categorized
Start this step assuming that you've already categorized damages as direct and consequential as we talked about in the last consequential damages post.
Workflow Step 2 - Contemplation
Assume that when seeking damages against the side who breached the contract (the "breacher"), the other side (the "victim") must prove that at the time they both entered into the contract, the breacher contemplated all of the damages that the victim would suffer.
Workflow Step 3- Presumption For Direct Damages
Now assume that judges will presume that when the breacher and the victim entered into the contract, the breacher contemplated the direct damages the victim would suffer. The victim gets excused proving the breacher's contemplation because the judges already presume the they've proved it.
The judges make this presumption regardless of whether the breacher actually contemplated the victim's direct damages. It doesn't matter if the breacher:
Workflow Step 4 - No Presumption For Consequential Damages
Consequential damages don't enjoy the presumption that direct damages get. Instead, if the victim wants to get consequential damages, they must first prove that the breacher contemplated those damages when they both entered into the contract. If the victim can't prove that, they don't get those consequential damages, the don't pass go, and they don't collect $200, $200,000, $20,000,000.
Usually the victim will find proving what the breacher contemplated in the past very difficult. If the victim cannot offer this proof from either the contract itself, or from other pre-contract documents, odds are the victim will not succeed. Don't expect the breacher to help the victim prove that after things go south.
Workflow Step 5 - Final Product
Here you reach the following conclusions:
Going after direct
damages is like driving a car off a rental lot. You drive off the
rental lot with a full tank of gas, regardless of how the last driver
left the tank. If they didn't fill-up before returning the car, the
rental company stepped-up and filled the tank It's like the judges'
presumption stepping-up and filling in the proof of the breacher
contemplating direct damages.
Going after consequential damages is like driving your own car after your teenage son drove it last. The "Fuel Low" light's already blinking, you're running late to an important meeting, and the nearest gas station is two miles out of your way through town's worst traffic. Going after consequential damages is like that.
Off-topic here, but proving the breacher's contemplation is only the victim's first step to getting damages, direct or consequential. In the next step they must prove the amount of their damages "with reasonable certainty." That's often a tall order.
Waivers of Consequential Damages
Recall that in this post about liquidated damages I mentioned that these days waivers of consequential damages are a frequent feature in construction contracts and architects agreements? Well if they're waived, expect a tooth and nail fight over which category damages get placed in - victims for direct and breachers for consequential. More on waiving consequential damages later.
In the Next Post
Now that you understand how damages being treated as consequential or direct makes a difference, in the next consequential damages post we'll talk about why judges have decided to treat consequential and direct damages differently for at least the past 155 years.
Workflow
After reading what by now must be hundreds of cases about consequential damages, I developed a 5 step workflow that helps me remember why the difference between direct and consequential damages is important.
Workflow Step 1 - Damages Categorized
Start this step assuming that you've already categorized damages as direct and consequential as we talked about in the last consequential damages post.
Workflow Step 2 - Contemplation
Assume that when seeking damages against the side who breached the contract (the "breacher"), the other side (the "victim") must prove that at the time they both entered into the contract, the breacher contemplated all of the damages that the victim would suffer.
Workflow Step 3- Presumption For Direct Damages
Now assume that judges will presume that when the breacher and the victim entered into the contract, the breacher contemplated the direct damages the victim would suffer. The victim gets excused proving the breacher's contemplation because the judges already presume the they've proved it.
The judges make this presumption regardless of whether the breacher actually contemplated the victim's direct damages. It doesn't matter if the breacher:
- Says in their deposition that they never contemplated those damages....
- Delivers an affidavit from the clergy of every faith swearing that they never contemplated those damages...
- Or even presents a note from their mother saying they never contemplated those damages.
The judges treat the breacher as if they had contemplated those damages, because, if you recall from the the last consequential damages post, everyone is supposed to know that the victim will suffer them. So, the reasoning goes, because the breacher should have contemplated those damages, they've treated as if they did contemplate those damages.And because the judges already presume that the breacher contemplated the victim's direct damages, the victim doesn't need prove the breacher's contemplation. That's easy!
Workflow Step 4 - No Presumption For Consequential Damages
Consequential damages don't enjoy the presumption that direct damages get. Instead, if the victim wants to get consequential damages, they must first prove that the breacher contemplated those damages when they both entered into the contract. If the victim can't prove that, they don't get those consequential damages, the don't pass go, and they don't collect $200, $200,000, $20,000,000.
Usually the victim will find proving what the breacher contemplated in the past very difficult. If the victim cannot offer this proof from either the contract itself, or from other pre-contract documents, odds are the victim will not succeed. Don't expect the breacher to help the victim prove that after things go south.
Workflow Step 5 - Final ProductHere you reach the following conclusions:
- Direct damages are easier for the victim to get because they don't
have to prove what the breacher contemplated when they entered into the
contract. They can use the judges' presumption as a substitute.
- Consequential damages are harder for the victim to get because they must prove what the breacher contemplated at the time they entered into the contract.
Going after direct
damages is like driving a car off a rental lot. You drive off the
rental lot with a full tank of gas, regardless of how the last driver
left the tank. If they didn't fill-up before returning the car, the
rental company stepped-up and filled the tank It's like the judges'
presumption stepping-up and filling in the proof of the breacher
contemplating direct damages.
Going after consequential damages is like driving your own car after your teenage son drove it last. The "Fuel Low" light's already blinking, you're running late to an important meeting, and the nearest gas station is two miles out of your way through town's worst traffic. Going after consequential damages is like that. Off-topic here, but proving the breacher's contemplation is only the victim's first step to getting damages, direct or consequential. In the next step they must prove the amount of their damages "with reasonable certainty." That's often a tall order.
Waivers of Consequential Damages
Recall that in this post about liquidated damages I mentioned that these days waivers of consequential damages are a frequent feature in construction contracts and architects agreements? Well if they're waived, expect a tooth and nail fight over which category damages get placed in - victims for direct and breachers for consequential. More on waiving consequential damages later.
In the Next Post
Now that you understand how damages being treated as consequential or direct makes a difference, in the next consequential damages post we'll talk about why judges have decided to treat consequential and direct damages differently for at least the past 155 years.
Construction Law Today is a legal blog about construction contracts, disputes, finance, and the people whose job it is to deal with them.
