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What are Breach of Contract Damages in California?

I.     INTRODUCTION

Breach of Contract damages in California are primarily either General Damages or Special Damages.  General Damages are direct result of a breach of the contact since they arise directly and necessarily from the breach of contract. On the other hand, Special Damages are damages that are not directly and necessarily result from the breach. In this blog, we explore general principles of breach of contract damages in California in the context set forth above.

II.  CONTRACT LAW GENERALLY

Breach of Contract is generally governed by California Civil Code Sections 3300-3302 and 3353-3360.  There is also extensive case law elaborating upon these Sections and discussing the nuances of the governing law.

The objective of the law of damages for breach of contract is to put the aggrieved party in the same position had the contract not been breached. The general measure of damages for breach of contract in California is set forth in Civil Code Section 3300: “For breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result from.”

In fact, the general principle governing measure of damages for a breach of contract was addressed by the California Supreme Court in Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal 4th 960.  The Court held “[d]amages awarded to an injured party for breach of contract “seek to approximate the agreed-upon performance.” The goal is to put the plaintiff “in as good a position as [s/he] would have occupied” had the defendant had not breached the contract. In other words, the plaintiff is entitled to damages that are equivalent to the benefit of the plaintiff’s contractual bargain. Id.

The injured party’s damages cannot, however, exceed what it would have received if the contract had been fully performed on both sides. Civil Code § 3358. This limitation of damages for breach of a contract “serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.” Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503.

Exemplary or punitive damages are not recoverable in a breach of contract action, even if the defendant’s act was malicious, willful or fraudulent, unless an independent tort (a wrongful act outside of the contract context) is involved.  Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal 4th 28.

III.      REASONABLENESS OF DAMAGES

Civil Code Section 3359 provides: “Damages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered.”

  1. Reasonable Certainty

Civil Code Section 3301 provides: “No damages could be recovered in a breach of contract which are not clearly ascertainable in both their nature and origin,” which would constitute speculative damages. Speculative damages are those that are highly improbable and based on conjecture.  Conversely, damages must be “clearly ascertainable” meaning there must be based on some reasonable basis and computation used in conjunction with the analysis.

IV.      GENERAL AND SPECIAL DAMAGES

  1. General Damages

General damages flow directly and necessarily from breach of contract. In other words,  general damages are deemed to have been contemplated by the parties at the time of entering into the contract since their occurrence is deemed predicable if contract is breached.

  1. Special Damages

Special damages, on the other hand, do not necessarily flow from breach of contract. Special damages arise from particular circumstances of the parties or of the particular contract. To recover special damages, the special circumstances must have been communicated to or known by the defendant, or the defendant should have become aware of such special circumstances when the contract was entered into.

The premise of defaulting party’s knowledge of any special circumstances for plaintiff to be able to recover special damages is predicated upon the principle that the defaulting party should be able to evaluate the risks inherent in entering into the contract, if it breaches the contract.

V.     LOST PROFITS RECOVERABLE IN BREACH OF CONTRACT

Lost profits of are recoverable, if and only if the extent of the lost profits and occurrence can  be proven. Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes (2010) 191 CA4th 435.  To prove this, plaintiff must prove such profits are the direct and natural consequence of a specific breach of contract. Postal Instant Press, Inc. v. Sealy (1996) 43 CA4th 1704.

If the fact of damages is certain, then the trial court has discretion to determine the measure of damages. Greenwhich S.F. v. Wong (2010) 190 CA4th 739. Lost profits could be measured by “the past volume of business and other provable data relevant to the probable future sales.” Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 CA4th 847.

VI.     CONCLUSION

Breach of contract cases involve various nuances that must be explored by a legal professional to determine the extent of any breaches and extent of any damages.  Sometimes the breaching party may be entitled to offsets to the extent the opposing party did not perform as agreed.

Please contact us or seek the advice of competent counsel to advise you of your rights. PLEASE BE ADVISED: Views expressed are not intended to be legal advice and does not create an attorney-client relationship.