A supplier entered into a contract to provide 500 custom-made gears to a factory by August 1st. The supplier was aware that the factory needed the gears to fulfill a large, profitable order with a third-party client. The supplier breached the contract by failing to deliver the gears. As a result, the factory lost the profitable client order. If the factory sues the supplier for the profits it would have made on the client order, what type of damages is it seeking?
The factory is seeking consequential damages. These are foreseeable losses that do not flow directly from the breach itself but are instead a result of the breach's consequences on other transactions. In this case, the lost profits from the separate client order were a foreseeable consequence of the supplier's failure to deliver. Direct damages would measure the difference between the contract price and the market price of substitute gears. Liquidated damages are specific amounts pre-agreed in the contract for a breach, which are not mentioned in the fact pattern. Reliance damages aim to restore a party to the position they were in before the contract was made, typically covering out-of-pocket expenses, not lost profits.
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