What are the Available Damages in a California Breach of Contract Case?
July 15, 2021
A contract is an agreement between two parties for mutually enforceable obligations. For example, a contract is created when one person agrees to sell a good to another person, who agrees in turn to pay for that good. A contract could obligate a party to perform an action or service, to provide a good, to lease or convey title to real property, or to refrain from taking certain actions.
When one party to a contract fails to fulfill their contractual obligations, they may be liable for damages for breach of contract. California law provides multiple methods for calculating damages. This remedy involves a monetary award to the aggrieved party, although in some cases a party might seek a court order—often called an injunction—directing a defendant to fulfill the terms of the contract. Breach of contract is a very common claim in business litigation, since most business activities rely on contractual relationships.
Measuring Damages for Breach of Contract
The goal of a breach of contract lawsuit, according to both the California Legislature and the California Supreme Court, is to put a plaintiff in the position in which they would have been had the breach not occurred. Section 3300 of the California Civil Code states that damages should consist of "the amount which will compensate the [plaintiff] for all the detriment proximately caused" by the defendant's breach, or the amount that, "in the ordinary course of things, would be likely to result therefrom."
In Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, the Supreme Court had to answer the question of whether a contractor suing for breach of a construction contract may recover damages representing profits the contractor claimed it would have earned on future contracts but for the contractor’s impaired bonding capacity attributable to the defendant’s breach.
The District Court awarded Lewis Jorge $3,148,197 in lost profit damages and the Court of Appeal affirmed, holding that even if not actually foreseen by the contracting parties, such lost profits “are recoverable as general damages because they follow from the breach in the ordinary course of events and as the natural and probable consequence of the breach.”
But the California Supreme Court reversed, concluding that the lost profits a contractor may have earned on future projects as a result of the breach of contract by a school district were not recoverable as general damages because they were “not the natural and necessary result of the breach of every construction contract involving bonding.”
Likewise, the California Supreme Court also held that those same lost profits were not recoverable as special or consequential damages either because they were not “actually foreseen or foreseeable as reasonably probable to result from [PUSD’s] breach.
The contractor tried to prove the extent of its lost future profits on potential construction projects by: (i) showing its profitability during the four years preceding the breach, and (ii) the testimony of its expert financial analyst. But the California Supreme Court held that "the lost profits Lewis Jorge claimed it would have made on future construction projects were uncertain and speculative." The court went even further and stated that in a case where a lost profits claim is for a sum certain––flowing from a particular project that the contractor might have won––such claim would be still rejected where the evidence is insufficient to enable the jury to conclude it was reasonably probable that the contractor would have earned a profit in the claimed amount.
Understanding the Differences Between General and Special Damages
California recognizes two main types of damages for breach of contract. These are general damages and special damages.
General damages, (sometimes called Direct Damages) are direct result of the breach i.e. general damages flow directly and necessarily from the breach of contract. Special damages, (sometimes called "incidental damages") are also caused by the breach, but rather than being the natural consequences of any breach of that type, they are dependent on specific circumstances. Special damages might include expenses incurred by a plaintiff in anticipation of a defendant's performance, as well as additional losses that occur after a breach. A plaintiff can only recover special damages if they can establish that the defendant was aware of the special circumstances at the time that the contract was created.
Some contracts include provisions for liquidated damages, a monetary amount that a party owes to the other in the event of a breach. Courts will enforce liquidated damages clauses in contracts unless a party can show that they are somehow unconscionable.
In situations in which monetary damages will not make a plaintiff whole, a court may order specific performance. This requires the defendant to perform their obligations under the contract. Specific performance is a common remedy in contracts for the sale of real estate, since each piece of real property is considered unique.
California courts do not recognize a right to punitive or exemplary damages for breach of contract, unless the breach occurs in connection with an intentional tort.
Treble damages are available for federal antitrust violations, for example, but not breaches of contract.
Please contact Bona Law at +1 858-964-4589 or firstname.lastname@example.org if you need assistance with a contractual dispute. We represent both plaintiffs and defendants and are also available to negotiate before litigation.