Damages in Breach of Contract Actions

Damages and Remedies in Breach of Contract Actions

In California breach of contract, the plaintiff may be entitled to general and special damages, and in some particularly egregious cases, even punitive damages, and these categories can be further broken down into additional categories such as actual, reliance, restitution, and liquidated damages. In certain breach of contract cases, the defendant may not be able to get away with paying out a monetary damages award, and will instead have to specifically perform their obligations under the contract.

As a general rule, plaintiffs in breach of contract to be awarded damages - or otherwise are entitled to a remedy at-law - such that, to the degree possible, the plaintiff is given the benefit of their contractual bargain. In other words, the courts must provide a successful plaintiff with a remedy that best approximates the position of the plaintiff had the defendant not breached the contract.

What sort of remedies are available to the plaintiff in breach of contract depends primarily on the circumstances.

For an introduction to the fundamentals of breach of contract, please read our article here.

Let's proceed through the various types of damage awards and remedies available in breach of contract actions, and their applicability.

The Various Types of Damages and Remedies

In many breach of contract cases, the best way forward is to settle the claim with the defendant so as to minimize the costs of litigation (both from a financial and time perspective), especially if the defendant is willing to redress the plaintiff's grievances and is open to settlement. The lower the potential damages award, the less efficient a drawn-out litigation will be, and in those circumstances wherein the damages are projected to be quite low, settlement negotiations may largely determine the outcome of the case. It is therefore always helpful to accurately assess the potential remedies of a case so that settlement negotiations can be favorably argued, and so that - in the event of a breakdown of negotiations - the eventual court litigation will lead to a satisfactory result.

What type of remedies are available to plaintiff in breach of contract?

Actual Damages

Actual or consequential damages are a meant to help put the plaintiff in a position that approximates a situation in which breach had not occurred. Consequential damages are available only if the damages for breach are foreseeable.

For example, suppose that there is a basic construction contract wherein the construction team builds a wall for the plaintiff. The defendant construction team negligently uses the incorrect material for the wall, resulting in a wall that requires additional yearly maintenance. The plaintiff may be entitled to actual, consequential damages as a result of the defendant's breach. The damages would likely be projected based on the additional maintenance costs. By recovering these damages, the plaintiff is put in the monetary position that he would have been in had the defendant simply used the correct material in the first place.

Reliance Damages

Reliance damages are meant to help put the plaintiff in a position that approximates a situation in which the contract had not been made in the first place (and thus, also, as if breach had not occurred). Generally, plaintiffs tend to be entitled to reliance damages when they have made an investment into a contractual relationship, but said relationship has not advanced to a marked degree.

Suppose that there is another basic construction contract. The defendant construction team agreed to build a wall for the plaintiff within a month, and the timeline of construction was a relevant and critical component of the contract. Unfortunately, the defendant gave notice a week in that the construction of the wall would be delayed by an extra month due to various internal employment issues. This would likely be considered a breach of the agreement. The plaintiff already purchased various expensive materials for the construction of the wall, however. In such circumstances, the court might find that the plaintiff is entitled to reliance damages - here, damages for the materials investment - to put the plaintiff in a position that approximates the contract never having been made.

Restitution Damages

Restitution damages do not put the plaintiff in a position as though breach had not occurred. Instead, the plaintiff is empowered to end the contract prematurely and is entitled to damages that place the plaintiff in the position they were in prior to breach. Consider the following example.

Suppose that the plaintiff and defendant are engaged in a contract for the provision of goods. The defendant agrees to sell his used car to the plaintiff. The plaintiff pays the money to defendant in advance. Unfortunately, after the defendant received the payment, he took the car on a joyride and crashed it, destroying the car. The plaintiff no longer has thus already paid the defendant but has not received something of value in exchange. To recover, the plaintiff may be entitled to restitution damages equivalent in value to the payment given for the car.

Liquidated Damages

Liquidated damages are a very specific form of damages available in certain breach of contract cases where the contract itself contains a liquidated damages provision entitling the plaintiff to said damages. Liquidated damages provisions in contracts guarantee an explicit damages award to the plaintiff in the event of breach, but it is worth noting that not all liquidated damages provisions are enforceable.

Specific Performance Remedy

Monetary damages are not always the best remedy for a breach of contract. In some cases, forcing the defendant to perform their obligations under contract is the only means by which to provide the plaintiff a reasonable recovery for breach. Some contracts contain specific performance provisions explicitly setting out that only a specific performance remedy would be satisfactory. Generally, but not always, specific performance remedies are enforceable in situations involving the provision of unique services.

Suppose that a music club has paid a pianist to play at their location for customers. The pianist is known for their unique style of playing. The club is new in town and is building a reputation for being able to secure unique and well-known musical acts, such as this pianist. The pianist breaches the contract in advance, claiming that he will not play at the club. The club sues, and is interested in a specific performance remedy - they argue that monetary damages will not be a satisfactory remedy as it does not account for reputational damage, damage to the momentum of the club's marketing, and more. In such circumstances, the court might enforce a specific performance remedy against the pianist to play at the club. It is not an easy result, however, as the courts do prefer to avoid situations in which two or more conflicting parties will be forced to work closely with one another.

Reasonable and Certain Damages

In California, damages for breach of contract must be both reasonable and non-speculative.

Reasonable Damages

Damages must be reasonable in relation to the given breach. They should not be out of comport with principles of justice. To a degree, plaintiffs should not gain a financial windfall out of the breach of contract (though punitive damages are a rare exception).

Non-Speculative

Damages must be non-speculative. In other words, they must be reasonably ascertainable. This can vary case-by-case, and an effective plaintiff's attorney will know how to properly argue that certain projected damages are not speculative, but are in-fact reasonably ascertainable given the evidence.

For example, some might find that emotional damages in a breach of contract case are too speculative as to be ascertainable, while others might find that - if given evidence of said emotional suffering - such damages are not overly speculative.

Lost profits are seen by some as overly speculative, but in California they are recoverable given enough evidence. Further, the lost profits must be a direct result of the breach. They cannot be indirect. For example, if a defendant-artist fails to paint a mural on time (they are a day or two late), it might be considered too speculative and indirect to assert that the plaintiff can recover for lost profits due to lost business on those few days (the lack of a mural resulted in fewer customers for those few days). An effective plaintiff's attorney may be able to argue it, however, given the proper evidence.

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For a free consultation with an experienced contract attorney, call the Law Offices of Brian O' Grady at (650) 318-6131 to set up your appointment today.