When a contract is broken, the first question every client asks is the same: what is this case worth? California answers with a framework, not a number. Civil Code § 3300 sets the measure, and a series of limiting doctrines — foreseeability, certainty, mitigation — decide how much of your real-world loss the law will actually compensate. Understanding the framework before you sue, or before you decide a claim is not worth pursuing, is often the most valuable hour you can spend on a dispute.
The baseline: expectation damages
Civil Code § 3300 gives the measure of damages for breach of contract: the amount which will compensate the injured party for all the detriment proximately caused by the breach, or which, in the ordinary course of things, would be likely to result from it. Courts translate that into the expectation principle — put the injured party in the position it would have occupied had the contract been performed. Not a better position: Civil Code § 3358 caps recovery at what full performance would have delivered. Contract damages compensate; they do not punish. Punitive damages are generally unavailable for pure breach of contract, no matter how deliberate the breach.
In practice, expectation damages usually mean some combination of: the benefit of the bargain you lost (contract price versus market or cover price), costs you incurred relying on the deal, and profits the contract would have generated.
General versus special damages — and the Hadley rule
California divides contract damages into two categories with different tests:
- General damages flow directly and naturally from the breach itself — the kind of loss any party in the injured party's position would suffer. The unpaid contract price, or the cost of replacement goods above the contract price, are classic examples.
- Special (consequential) damages arise from the injured party's particular circumstances — lost profits on a downstream deal, penalties owed to a third party, a lost customer. These are recoverable only if they were reasonably foreseeable to the breaching party at the time the contract was made.
The foreseeability rule traces to the 1854 English case Hadley v. Baxendale, which California law follows through § 3300's "ordinary course of things" language. The practical lesson cuts both ways. If your losses from a breach would be unusual — a supply delay that would shut down a production line, say — telling the other side in writing before signing can convert unrecoverable special damages into recoverable ones. Conversely, information you never shared is difficult to collect on later.
The certainty requirement: proving lost profits
Civil Code § 3301 bars damages that are not clearly ascertainable in both their nature and origin. This is the battleground for lost-profits claims. Established businesses can usually prove lost profits from historical financials, comparable periods, and expert analysis. Newer ventures face the "new business rule" headwind: profits that never existed are harder to establish with reasonable certainty, though California courts allow recovery where a credible track record, industry data, or comparable operations supply a foundation. The key point: certainty goes to the fact and reasonable measurement of loss, not to an exact figure. Well-kept records — pipelines, margins, customer histories — are frequently the difference between a compensable loss and a speculative one.
Mitigation, offset, and interest
Three adjustments then reshape the number:
- Mitigation. The injured party cannot recover losses it could have avoided with reasonable effort. A supplier walks; you must make reasonable attempts to cover elsewhere. A tenant defaults; the landlord must make reasonable efforts to relet. Failure to mitigate does not defeat the claim, but it trims the recovery — and reasonable mitigation expenses are themselves recoverable.
- Offset for savings. Costs you avoided by not having to perform are subtracted. If the breach spared you $40,000 in materials and labor, that comes off the top.
- Prejudgment interest. Under Civil Code § 3287, damages that are certain or calculable carry interest from the day the right to recover vests — 10% per year for most contract claims unless the contract sets a different lawful rate. On a slow-moving case, interest can become a substantial part of the judgment.
What the contract itself can change
Parties can, within limits, write their own damages rules. Liquidated damages clauses fixing an amount in advance are presumptively valid in commercial contracts under Civil Code § 1671, provided the amount was a reasonable estimate rather than a penalty. Limitation-of-liability clauses can exclude consequential damages or cap exposure, and courts generally enforce them in arm's-length business deals. Attorney fee clauses matter enormously: California follows the American rule — each side pays its own fees — unless a statute or the contract says otherwise, and Civil Code § 1717 makes contractual fee clauses reciprocal. Before filing or responding to a claim, read these clauses first; they often drive the economics more than the merits do. Our business contracts practice drafts these provisions with the endgame in mind, and our business litigation practice builds damages cases — and defenses — around this framework every day.
Talk to a California business attorney
Before you spend money litigating a broken contract — or write off a loss you might recover — get a realistic read on what the claim is worth. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. The law changes, and this article reflects the law as of its publication date. Every situation is different — contact us to discuss how the law applies to your exact circumstances. See our full disclaimer.
