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§5.11 Contract Law—Breach and Damages

 
Lesson 5: Tort & Contract Law

Breach is the unjustified or unexcused failure to perform any promise that forms a whole or part of a contract. [See Rest. 2d, Contracts §235(2).] A breach, even if material, does not automatically discharge the contract; it excuses the injured party’s performance and gives him or her the election of certain remedies. These remedies include (a) damages, (b) specific performance, and (c) rescission and restitution.

Any person who suffers detriment (loss or harm) from the unlawful act or omission of another may recover monetary compensation for the detriment. [CC §§3281, 3282.] It is essential to establish a causal connection between the breach and the damages sought. The measure of damages is the amount that will compensate the aggrieved party for all the detriment proximately caused by the breach, or which in the ordinary course of things would be likely to result from the breach. [CC §3300.]

Consider the following principles when awarding damages:

  • Damages must be foreseeable. Recovery of general, special, and consequential damages may be awarded only if they were foreseeable to the breaching party when the contract was made. [CC §3300.]
  • Damages must be clearly ascertainable, i.e., not speculative. [CC §3301.]
  • Damages must be proximately caused by the breach. [CC §3300.] The aggrieved party may recover damages only for those injuries that are the direct, natural, and proximate result of the breach.
  • Damages must be reasonable in amount. When an obligation creates a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages may be awarded. [CC §3359.]
  • Damages may not exceed value of performance. Except as expressly provided by statute, no person may recover a greater amount in damages for the breach of an obligation than he or she could have gained by the full performance of the obligation by both parties. [CC §3358.] E.g., contract clauses may not obligate one party to pay a large penalty exceeding the amount of loss caused by the breach if he or she fails to perform.
  • Duty to mitigate damages. A plaintiff may not recover for harm that he or she could have foreseen and avoided by reasonable effort and without undue expense. [See 1 Witkin, Sum Cal Law (10th ed 2005) Contracts, §915.]
  • Collateral sources not considered. When a person suffers personal injury or property damage through the wrongful act of another, an action against the wrongdoer for the damages suffered is not barred, nor is the amount of the damages reduced, by reason of the plaintiff’s receipt of compensation for his or her loss from a source wholly independent of the wrongdoer (e.g., plaintiff’s health insurance or homeowner’s policy).
  • Exemplary (punitive) damages are not recoverable for breach of contract, except when the wrongful act is also a tort. [See CC §3294(a).] E.g., an injured party has the election of alternative contract or tort actions in the case of a rescission for fraud or a breach of contract accompanied by bad faith.
  • Nominal damages can be recovered for a breach causing no substantial damage, or when the damages were not foreseeable or not clearly ascertainable. [CC §3360.]
 
 
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