When one party fails to fulfill their obligations under a contract, California law provides remedies designed to place the non-breaching party in the position they would have been in had the contract been fully performed. Enforcing contractual damages requires a careful analysis of the agreement’s terms, applicable statutes, and the evidence needed to prove both the breach and the resulting harm.
California recognizes various types of damages in breach of contract cases, including general damages, special damages, and, in some cases, liquidated damages. Each has specific requirements for enforcement, and failure to meet those requirements can limit or bar recovery.
The Legal Basis for Contractual Damages
The general rule for contract damages in California is set forth in Cal. Civ. Code § 3300, which provides that the measure of damages 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 therefrom.” This means that the plaintiff must prove both that damages were caused by the breach and that those damages were foreseeable at the time of contracting.
In Lewis Jorge Construction Management, Inc. v. Pomona Unified School District, 34 Cal. 4th 960 (2004), the California Supreme Court clarified that damages must be proven with reasonable certainty and that speculative or remote losses are not recoverable.
General and Special Damages
General damages (also called “direct damages”) are those that naturally arise from the breach itself. For example, if a seller fails to deliver goods, the buyer may recover the difference between the contract price and the market price at the time of breach.
Special damages (also called “consequential damages”) cover losses that do not flow directly from the breach but are foreseeable consequences of it. These damages are recoverable under Cal. Civ. Code § 3301 only if they were actually contemplated by the parties at the time of contracting.
The principle originates from Hadley v. Baxendale (1854) 156 Eng. Rep. 145, which California courts continue to apply when determining whether consequential damages are recoverable.
Liquidated Damages Clauses
California permits the use of liquidated damages clauses—predetermined sums agreed upon in the contract as compensation in the event of a breach—under certain conditions. Under Cal. Civ. Code § 1671, such clauses are valid unless they are deemed to be an unlawful penalty.
In real estate purchase agreements for residential property, liquidated damages are further regulated by Cal. Civ. Code §§ 1675–1677, which generally cap enforceable liquidated damages at 3% of the purchase price and require that the provision be separately initialed by both parties. Failure to comply with these statutory requirements may render the clause unenforceable.
In Ridgley v. Topa Thrift & Loan Assn., 17 Cal. 4th 970 (1998), the California Supreme Court struck down a “liquidated damages” clause that functioned as a penalty, reinforcing that enforceable provisions must reasonably approximate anticipated losses from the breach.
Duty to Mitigate Damages
The non-breaching party has a statutory duty to take reasonable steps to mitigate damages under Cal. Civ. Code § 3359. This means they cannot recover losses that could have been avoided with reasonable effort and without undue risk, expense, or humiliation. Courts will reduce recoverable damages if the plaintiff failed to mitigate.
In Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686 (1994), the court reduced a damages award because the plaintiff failed to act reasonably to prevent further losses after the breach.
Attorney’s Fees and Enforcement Costs
Whether attorney’s fees are recoverable in a breach of contract action depends on the contract itself. Under Cal. Civ. Code § 1717, a contract provision awarding attorney’s fees to one party is construed to award fees to whichever party prevails. This reciprocal right encourages fair litigation and settlement practices.
Conclusion and Call to Action
Enforcing contractual damages is more than a matter of citing the agreement; it requires proving causation, foreseeability, reasonableness, and statutory compliance. Missteps—such as relying on an unenforceable liquidated damages clause, overreaching in claimed losses, or failing to mitigate—can significantly reduce or eliminate recovery. At Guiding Legal Counsel, APC, we provide strategic, statute-based representation in breach of contract matters, ensuring that clients recover the compensation they are legally entitled to—or defend against overreaching claims. Contact us today to schedule a confidential consultation and protect your rights in any contractual dispute.