I got the following question on Exam 1:
Q. Consequential damages are the indirect costs resulting from a breach of contractual undertaking.
Which are examples of consequential damages? Select the four that apply.
a. The answers I selected are the following:
Rents, lost income, reimbursable (which I understand why it’s not correct), and lost productivity. when I saw the answer’s I was hesitant to select reimbursable, but the other two answers didn’t seem to apply such as profits and vacation time. I understand why reimbursable is not correct, but I do not understand how profit is a consequential damage. Consequential damages are damages that can be proven to have occurred because of the failure of one party to meet a contractual obligation, but how is profit a consiquential damage? Profit is one of the answers, but isn’t profit a positive thing for the company?
Thanks for posting on the Community! This is definitely a tricky question.
I think the question would have been a lot easier to answer if they had reworded “profits” to read, “Loss of profits” and “rents” to read, “loss of rents”. But perhaps it would have been too easy then.
If you encounter another question like this try to work backwards through it and eliminate options you know are incorrect. For example, we can cross off reimbursable and vacation times because we know those are not impacted by damages. While it’s confusing that “rents” and “profits” weren’t prefaced by the words “loss of”, we do know that these are examples of items which may be impacted by damages, so we we can guess the question is leading us to select these options.