When a contracting party breaches an agreement, the injured party can sue in court for a sum of money to make up for the breach. In some situations, a party can seek specific performance, meaning a court order to force the other party to perform. However, this is rare. Instead, the court will award money damages to the injured party.
But how much can you receive? California’s law on damages for breach of contract is very complicated, and the amount of money you receive will depend on various factors. Below, our Southern California business litigation attorney takes a closer look.
Damages: General and Special
As our state’s Supreme Court has stated, the overarching goal of awarding damages for a breach of contract is to put the plaintiff in as good a position as he or she would have been in had the contract been performed. This makes sense. The party that did not breach the contract should not suffer financial loss because the other party to the agreement decides to break its promise.
California recognizes two types of damages, general and special. General damages are also called “consequential damages” and measure the natural and direct losses caused by the breach. For example, a business might agree to pay a consultant $3,000 a month for a year but then breaches the agreement after one month. The consultant has lost 11 months of payment, totaling $33,000. This is a type of general damages that are easy to understand and calculate. The consultant should receive the full benefit of the bargain and be paid.
Special damages are different, though they can be critical in certain cases. Special damages are also called “incidental damages.” They can include any expenses that the plaintiff incurred in expectation that the contract will be fulfilled. For example, if a consultant purchased specific equipment or software to service a client, then these costs could qualify as special damages.
Special damages can also include additional losses that a plaintiff suffers because of the breach. For example, a business might need to shut down for a week if it is not supplied a necessary product or service.
The key with special damages is showing that the breaching party knew of them at the time of contract formation. If not, they can be hard to recover.
In a liquidated damages provision, the contracting parties agree ahead of time how much the breaching party will pay in the event of default. In the typical breach of contract case, the injured party must prove how much it lost in money. However, a liquidated damages provision can decide that amount ahead of time.
Liquidated damages are allowed under Civil Code § 1671(b) so long as they were not unreasonable at the time of contract formation. Basically, this means the amount must bear a reasonable relationship to the amount of actual damages the parties could have foreseen using reasonable efforts.
Punitive damages are designed to punish defendant’s for reprehensible conduct. However, our state does not allow punitive damages in breach of contract cases unless the breach occurs along with an intentional tort,such as fraud in the inducement of a contract..
Limitation on Damages
According to Civil Code § 3358, a party cannot receive more in damages than it would have received had the contract been performed. That also makes sense. The purpose of a lawsuit is not a windfall but to compensate the party for its losses.
Maximizing Your Damages
It is central in contract litigation to prove the full extent of our client’s financial losses as a result of the breach. This requires ample records that are accurate and composed in a timely manner. A business that maintains thorough books is in a better position to request maximum compensation than one that cobbles together business records after the fact.
Our lawyers will review your situation and help you gauge how much you might seek in compensation. Please contact Wagner Zemming Christensen LLP today to schedule your initial consultation.