Most California businessmen understand that a breach of contract may entitle them to recover damages or may expose them to a lawsuit aimed at recovering damages caused by the breach. However, very few business owners understand how much or how little money may actually be recovered if a contract dispute results in a lawsuit.
The general rule is that a party to a contract is entitled to recover damages equal to the reasonably foreseeable losses caused by the breach. To put it a bit differently, damages are intended to restore the harmed party to the same position he or she would have occupied if the other party had performed as promised. Breach of contract damages are not – except in very rare situations – intended to punish the breaching party.
If the contract involves improvements to real property, the damages may be measured by the difference in the value of the property if the work had been completed less its current value. If the owner of the property elects to finish the improvements, damages are usually measured by the difference between the contract price of the work and the amount paid to complete the work. A party can recover lost profits caused by the breach if it can prove that such profits were reasonable certain to be earned if the breach had not occurred.
A single blog post cannot hope to cover the entire subject of determining damages for breach of contract, but the foregoing general principles apply to almost every such case. Anyone considering bringing a suit for breach of contract, or anyone who is defending such a suit, will want to consult a lawyer who specializes in business and contract litigation. An experienced attorney can provide an analysis of the case and an enumeration of legal strategies intended to maximize the chances of a favorable outcome.
Source: California Civil Jury Instructions §§350-361, accessed on March 29, 2016