What Are Contract Damages?
Contract damages are the default monetary remedy for breach of contract. Expectation damages — the default and preferred measure — put the non-breaching party in the position it would have occupied had the contract been fully performed. Reliance damages reimburse costs incurred in reliance on the promise, and restitution damages measure the benefit conferred on the breaching party, regardless of the promisee’s own loss.
Every California damages essay should start by naming the default measure before shifting to an alternative.
Expectation, Reliance, and Restitution
| Measure | Goal | When used |
|---|---|---|
| Expectation | Position the party would have occupied if the contract were performed | Default measure for breach of contract |
| Reliance | Restore the party to its pre-contract position | When expectation is too speculative (e.g., a new business’s lost profits); default for promissory estoppel |
| Restitution | Recover the benefit conferred on the other party | Alternative to expectation; also available to a breaching party who conferred a benefit without reaching substantial performance |
The expectation formula is: loss in value + other loss (incidental + consequential) − cost avoided − loss avoided. Incidental damages — reasonable costs of dealing with the breach itself, like cover or resale costs — are always recoverable if reasonable and are not reduced by the duty to mitigate.
California’s Civil Code Damages Statutes
California doesn’t leave the expectation measure to case law alone — it’s written directly into the Civil Code. Civil Code § 3300 provides that the measure of damages for breach of contract is the amount that will compensate the injured party for all the detriment proximately caused by the breach, or that would be likely to result from it in the ordinary course of things. That’s the statutory home for expectation damages in California.
Civil Code § 3301 adds the certainty and foreseeability filter, providing that no damages can be recovered for a breach of contract that are not clearly ascertainable in both their nature and origin — the California statutory counterpart to the foreseeability rule from Hadley v. Baxendale.
Consequential Damages and Foreseeability
Consequential damages — losses flowing indirectly from a breach, like lost profits or business interruption — are recoverable only if foreseeable at the time of contracting. Under Hadley v. Baxendale (1854), ordinary losses are presumed foreseeable, but unusual losses require that the special circumstances were communicated to the breaching party before contracting.
The duty to mitigate (avoidable consequences) bars consequential damages the plaintiff could have avoided with reasonable effort — but it does not reduce basic expectation or incidental damages. Students frequently apply mitigation too broadly and shave down damages it was never meant to touch.
UCC Damages Formulas for Goods
Goods sales under the California Commercial Code use six distinct formulas, depending on who breached and how the non-breaching party responded.
| Scenario | Code section | Formula |
|---|---|---|
| Buyer keeps nonconforming goods | Cal. Com. Code § 2714 | FMV as warranted − FMV as delivered + incidental/consequential |
| Buyer covers | Cal. Com. Code § 2712 | Cover price − contract price + incidental/consequential |
| Buyer doesn’t cover | Cal. Com. Code § 2713 | Market price at time/place of discovery − contract price + incidental/consequential |
| Seller resells | Cal. Com. Code § 2706 | Contract price − resale price + incidental |
| Seller doesn’t resell | Cal. Com. Code § 2708(1) | Contract price − market price + incidental |
| Lost-volume seller | Cal. Com. Code § 2708(2) | Lost profits only; resale price is irrelevant |
The lost-volume seller trap is the single highest-yield UCC damages issue: when a seller has unlimited or surplus inventory and would have made the substitute sale anyway, the seller recovers lost profits under § 2708(2), not the smaller resale-price differential under § 2706. Misidentifying a lost-volume seller is the most common scoring error in this area.
Punitive Damages and Liquidated Damages in California
Punitive damages are not available for breach of contract. California’s punitive damages statute, Civil Code § 3294, applies only to actions for breach of an obligation “not arising from contract” — courts won’t allow an end-run through an inflated liquidated damages clause either. The narrow exception is when the same conduct also constitutes an independent tort, like fraud or bad-faith insurance denial.
Liquidated damages clauses are governed by Civil Code § 1671, which generally presumes such clauses valid in commercial contracts unless the party challenging the clause proves it was unreasonable under the circumstances at the time of contracting — with additional consumer and residential-lease protections layered on top.
Emotional distress damages are generally unavailable in a pure contract action, with narrow exceptions for things like mishandled funeral-contract remains or common-carrier abuse.
Worked Example
A Los Angeles retailer contracts to buy 1,000 designer handbags from a manufacturer at $50 each ($50,000 total) for resale. The manufacturer, a large-scale producer with ample inventory and unlimited production capacity, breaches and never delivers. The retailer never covers, and the market price for the same handbags at the time of breach is $55 each. Separately, assume the manufacturer instead resold those same earmarked handbags to another buyer at $52 each after the retailer breached first, and the manufacturer had unlimited supply and would have made both sales regardless.
Analysis: In the first scenario, the retailer’s damages under Cal. Com. Code § 2713 are the market-contract differential: $55 − $50 = $5 per bag × 1,000 = $5,000, plus any incidental or consequential damages. In the second scenario, because the manufacturer had unlimited supply and would have made both sales anyway, it’s a lost-volume seller under § 2708(2): the resale price to the substitute buyer is irrelevant, and the manufacturer recovers its full lost profit on the retailer sale — not the smaller $2-per-bag differential a naive § 2706 resale-damages analysis would suggest.
Common Mistakes
- Misidentifying a lost-volume seller and applying the resale-damages formula instead of the lost-profits formula.
- Assuming consequential damages are automatically foreseeable without checking whether special circumstances were actually communicated before contracting.
- Applying the duty to mitigate to incidental or basic expectation damages, which it does not reduce.
- Overlooking that punitive damages are unavailable for pure breach of contract under California law, absent an independent tort.
FAQ
What is the default measure of contract damages in California?
Expectation damages, codified at Civil Code § 3300, which puts the non-breaching party in the position it would have occupied had the contract been fully performed.
Are punitive damages available for breach of contract in California?
No. Civil Code § 3294 limits punitive damages to obligations not arising from contract, unless the breaching conduct also constitutes an independent tort like fraud.
What is a lost-volume seller under California’s Commercial Code?
A seller with unlimited or surplus inventory who would have made a substitute sale regardless of the buyer’s breach. Under Cal. Com. Code § 2708(2), that seller recovers lost profits rather than the smaller resale-price differential.
Key Takeaways
- Expectation damages are the default measure, codified at Civil Code § 3300, with foreseeability and certainty filters from § 3301 and Hadley v. Baxendale.
- Reliance and restitution are alternatives when expectation is too speculative or unavailable.
- California Commercial Code goods disputes use six distinct formulas depending on who breached and how the buyer or seller responded.
- The lost-volume seller trap under § 2708(2) is the most commonly missed UCC damages issue.
- Punitive damages are unavailable for pure breach of contract in California absent an independent tort.
Related guides
Sources and further reading
This article is educational and is not legal advice. Consult a licensed California attorney about your situation.