Consequential damages arise from what type of losses?

Consequential damages refer to losses that arise not directly from a breach of contract, but as a secondary result of that breach. These damages are typically unusual and can be reasonably foreseeable at the time the contract was made. This means that the parties involved could have anticipated that such losses could occur as a result of a failure to meet contractual obligations.

For example, if a manufacturer fails to deliver a critical component on time, and as a result, the buyer suffers lost profits because they cannot fulfill orders to their customers, those lost profits would be considered consequential damages. The key factor is the foreseeability of these losses; they must be predictable based on the specific circumstances of the agreement and the nature of the business relationship.

In summary, the reason this choice is correct is that consequential damages stem from unusual losses that both parties could foresee occurring as a result of the breach, which is central to understanding how and when these damages can be claimed in a legal context.