Lost profits are categorized as which type of contract damages?

Lost profits are categorized as consequential damages because they arise as a result of a breach of contract and are not direct losses. Consequential damages go beyond the immediate effects of the breach and include losses that were foreseeable at the time the contract was formed. In the context of lost profits, these damages reflect the income a party could reasonably expect to earn from the contract had it been performed, and they depend on circumstances that were known to both parties when they entered into the agreement.

Compensatory damages, while related, primarily cover the actual loss sustained due to a breach, focusing on restoring the injured party to the position they would have been in if the contract had been fully performed, without necessarily considering the indirect impacts. Punitive damages serve as a punishment for wrongdoing and are not typically awarded in contract disputes unless fraud or malicious conduct is involved. Liquidated damages are specific amounts predetermined by the parties as compensation for potential damages in the event of a breach, which would not typically cover the variable of lost profits unless explicitly stated in the contract.

Thus, lost profits are categorized as consequential damages due to their nature of being indirect and dependent on specific circumstances related to the breach.