Breach of contract damages in California are measured by one idea: the money it takes to put the injured party where it would have been if the contract had been performed. Not where it was before the deal. Not where it wishes it were. Where performance would have left it. Every rule in this area, from lost profits to mitigation to the ban on punitive damages, follows from that measure. Business owners who understand it price their cases correctly. Business owners who do not tend to sue for the wrong number, or settle for less than the right one.

The question I get most often after a client describes a broken contract is "what is this worth?" The honest answer takes some work, because California draws lines that are not obvious. A contractor whose job is cancelled can recover the profit on that job but not on the next five it would have bid. A business can recover lost profits if it can prove them with reasonable certainty, and a new business usually cannot. A party that sits on its hands after a breach forfeits the losses it could have avoided. And a defendant that breached deliberately, even maliciously, owes nothing beyond the contract measure unless it also committed a tort. This guide covers each of those rules with the statutes and cases, including decisions from 2024 through 2026.

In short:

• The measure of damages is the amount that compensates for all the detriment proximately caused by the breach, or likely to result from it in the ordinary course of things. (Civ. Code, § 3300.)
• Damages cannot exceed what the plaintiff would have gained from full performance. (Civ. Code, § 3358.)
• General damages flow directly from the breach. Special or consequential damages, including most lost profits, are recoverable only if the breaching party knew or should have known at contracting that they would follow.
• Lost profits must be proven with reasonable certainty. Speculative projections are excluded, and an unestablished business rarely recovers them.
• The injured party must mitigate. No punitive damages and no emotional distress damages for an ordinary commercial contract. Prejudgment interest runs at 10 percent on sums that are certain.

The measure: expectation damages under Civil Code section 3300

The statute is short. For breach of a contract obligation, Civil Code section 3300 sets the measure as the amount that will compensate the injured party "for all the detriment proximately caused thereby," or likely to result from the breach in the ordinary course of things. Courts call this expectation damages or benefit-of-the-bargain damages. The Supreme Court describes the goal as putting the plaintiff in as good a position as it would have occupied had the defendant performed. (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 967-968.)

Two statutory limits sit on top of that measure. Under Civil Code section 3358, damages can never exceed what the plaintiff could have gained from full performance on both sides. Under Civil Code section 3301, no damages are recoverable unless they are clearly ascertainable in nature and origin. The first rule means a plaintiff cannot do better by suing than it would have done by performing. The second is the root of the reasonable certainty requirement for lost profits.

In a simple case the math is simple. A supplier that delivers nothing owes the buyer the difference between the contract price and what the buyer had to pay elsewhere. A customer that refuses to pay an invoice owes the invoice, plus interest. The contested cases are the ones where the plaintiff claims losses beyond the contract itself.

General damages versus consequential damages

California divides contract damages into two categories, and the category determines what the plaintiff has to prove.

General damages are the losses that flow directly and necessarily from the breach. They are based on the value of the performance itself. A plaintiff recovers them without showing the defendant foresaw anything in particular, because every party is presumed to foresee the direct consequences of not performing. (Lewis Jorge, supra, 34 Cal.4th at pp. 968-969.)

Special damages, also called consequential damages, are losses that arise from the plaintiff's particular circumstances rather than from the performance itself. California follows the rule of Hadley v. Baxendale, the 1854 English case about a mill shut down while a broken crankshaft was delivered late. The carrier did not know the mill was idle, so it did not owe the mill's lost profits. Under section 3300, special damages are recoverable only if the defendant was told of the special circumstances when the contract was made. They are also recoverable if the nature of the contract made the loss reasonably foreseeable as a probable result of breach. (Lewis Jorge, supra, 34 Cal.4th at pp. 969-970.)

Lewis Jorge shows how the line is drawn in practice. A school district terminated a construction contract. The contractor's surety responded by cutting its bonding capacity, and the contractor lost the ability to bid on other public jobs. A jury awarded $3.1 million in profits on those future projects. The Supreme Court reversed. The district's promised performance was payment of the contract price, so the contractor's general damages were capped at the profit built into its bid. The lost future profits were special damages, and nothing showed the district knew, when it signed, that a termination would probably destroy the contractor's bonding. (Id. at pp. 971-977.)

For a business owner, the drafting lesson is direct. If a breach would cause you a loss the other side would not expect, put it in the contract or in a writing before signing. The email that says "if this shipment is late we lose the holiday season" is what makes the holiday season recoverable.

Lost profits: reasonable certainty, and the problem with new businesses

Lost profits are the largest item in most business contract cases and the most frequently cut. The rule is that they are recoverable "where the evidence makes reasonably certain their occurrence and extent." Mathematical precision is not required. Once the fact of loss is established, the amount may be an approximation so long as there is a reasonable basis for computing it. (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 774-775.)

The same case explains where the limit falls. The plaintiff, a small dental implant company, claimed that a university's breach of a clinical study contract cost it between $200 million and $1.2 billion in profits. The number rested on an expert's projection that the company would have grown into one of the six largest in the industry. The trial court excluded the expert, and the Supreme Court agreed. Courts act as gatekeepers under the Evidence Code and may exclude expert testimony that is speculative or rests on reasoning the underlying data does not support. (Id. at pp. 771-772.) The expert had projected market share the company had never come close to achieving and had compared it to multinationals it did not resemble by any objective measure.

Two practical rules follow. First, an established business proves lost profits from its own track record: past revenue, margins, growth, and the specific customers or contracts the breach cost it. An expert who starts from those numbers and adjusts them survives a Sargon challenge. An expert who starts from an industry average and works backward usually does not. Second, an unestablished business is in a much harder position. Prospective profits from a business that has not yet operated are generally not recoverable because their occurrence is "uncertain, contingent and speculative," unless the plaintiff can show them with evidence of reasonable reliability. (Id. at p. 774.) Comparable businesses, signed customer commitments, and pre-breach performance data are what that evidence looks like.

A 2024 decision shows what a well-proven claim looks like. In Epochal Enterprises, Inc. v. LF Encinitas Properties, LLC (2024) 99 Cal.App.5th 44, 64-65, an orchid grower leased a greenhouse that turned out to contain undisclosed asbestos. Its expert calculated lost profits three different ways, from a floor of $240,000. The jury awarded $222,000. The Court of Appeal held the evidence gave the jury a reasonable basis for the number and rejected the landlord's attack on the verdict form. The same opinion held that the lease's waiver of consequential damages and lost profits could not shield the landlord from liability for its statutory disclosure violations. Civil Code section 1668 voids contract terms that exempt a party from responsibility for a violation of law. (Id. at p. 60.) Limitation of liability clauses are enforceable in commercial contracts. They are not enforceable against fraud, willful injury, or illegality.

The duty to mitigate

A party injured by a breach must do what is reasonable to reduce its loss, and it cannot recover losses it could have avoided through reasonable effort without undue expense. The breaching party carries the burden of proving that losses could have been avoided. And the costs of a reasonable mitigation effort are themselves recoverable, even when the effort fails. (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 460-461.)

The doctrine cuts both ways in practice. A tenant whose landlord breaches must look for replacement space. A supplier whose buyer repudiates must try to resell the goods. A business that loses a key vendor must source elsewhere. Each of those efforts generates a paper trail, and the paper trail is what proves the claim. The plaintiff that does nothing for eighteen months and then sues for eighteen months of losses will face a mitigation defense it cannot answer. The plaintiff that documents three failed attempts to cover recovers the losses and the cost of trying.

If the mitigation effort turns a profit, that profit is offset against the damages. The point of the doctrine is to avoid a double recovery, not to punish the plaintiff for succeeding.

What is not recoverable: punitive damages, emotional distress, and the tort line

Punitive damages are not available for breach of contract. Civil Code section 3294 limits them to actions for breach of an obligation not arising from contract. The Supreme Court has held that they may not be awarded for a breach "even where the defendant's conduct in breaching the contract was wilful, fraudulent, or malicious," in the court's words. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 516.) The motive for a breach is irrelevant to the damages. A party that walked away from a deal to take a better one owes the same contract measure as a party that could not perform.

Emotional distress damages are likewise unavailable for an ordinary commercial contract. The Supreme Court refused them even to homeowners whose contractor negligently built a house with structural defects. (Erlich v. Menezes (1999) 21 Cal.4th 543, 558-560.) The narrow exception is a contract whose very object is the plaintiff's emotional well-being, such as a funeral or wedding contract. A supply agreement does not qualify.

The way to tort damages is an independent tort. A breach becomes tortious only when it also violates a duty that exists apart from the contract. (Erlich, supra, 21 Cal.4th at pp. 551-552.) Fraud in the inducement, fraudulent concealment, conversion of property, and interference with other contracts are the usual candidates in business cases. If the facts support one, the plaintiff can reach punitive damages and tort measures of loss. If they do not, dressing a contract claim in tort language does not change the recovery. Our guide to fraud claims in business disputes covers where that line sits.

Interest, attorney's fees, and liquidated damages

Three items can add materially to a contract judgment.

Prejudgment interest. When damages are "certain, or capable of being made certain by calculation," the plaintiff is entitled to interest from the day the right to recover vested. (Civ. Code, § 3287, subd. (a).) The award is mandatory, not discretionary, and the rate for a contract that does not state one is 10 percent per year from the date of breach. (Civ. Code, § 3289, subd. (b).) An unpaid invoice is the paradigm: the amount is fixed, the due date is fixed, and interest runs from that date whether or not the defendant disputes liability. A disputed liability does not defeat certainty. A dispute over the amount that requires a trial to resolve does. (Glassman v. Safeco Insurance Co. of America (2023) 90 Cal.App.5th 1281.) Where damages are unliquidated, the court may still award interest in its discretion from a date no earlier than the filing of the action. (Civ. Code, § 3287, subd. (b).) On a six-figure invoice that sits unpaid for two years of litigation, the interest is real money. Our judgment calculator runs the numbers.

Attorney's fees. Each side pays its own lawyer unless the contract has a fee clause or a statute shifts fees. With a clause, the prevailing party on the contract recovers reasonable fees, and the clause works in both directions whether or not it was written that way. Our attorney's fees article covers the rules, including the dismissal and settlement trap.

Liquidated damages. The parties can agree in advance on the number, and in a contract between businesses the clause is presumed valid. The clause fails if the number bears no reasonable relationship to the harm the parties could have anticipated. The Court of Appeal applied that rule in August 2026 to a settlement agreement that called for a $1.5 million stipulated judgment if the defendant missed an installment on a $450,000 settlement. The court held the number was a penalty, reversed the judgment, and sent the case back for the creditor to prove its actual damages from the missed payment. It described those damages as interest for the period the money was withheld plus reasonable collection costs. (Lakeshore Investment LLC v. Now Solutions, Inc. (Cal. Ct. App., Aug. 24, 2026, No. B343435).) Our liquidated damages guide covers the drafting side.

How I value a contract case before filing

I start with the contract measure and nothing else. What would the client have received if the other side had performed, less what the client saved by not having to perform itself? That number is the floor and, in a case without consequential damages, the ceiling.

Then I ask whether any larger loss was foreseeable to the defendant at signing. If the client told the defendant in writing why timing or performance mattered, the consequential damages are in play. If not, they probably are not, and I say so before the client spends money on a damages expert.

Then I ask what the client did after the breach. Mitigation evidence decides a large share of these cases at the margin, and it is the one part of the damages picture the client still controls.

Then I run the add-ons: interest at 10 percent from the breach date on any sum certain, fees if there is a clause, and the statutory offer to compromise that can shift post-offer costs and fees. On a collection matter the add-ons often exceed the principal. Our guide to collecting unpaid invoices walks through that math.

Finally, I ask whether there is an independent tort. If the defendant lied to get the contract signed, concealed a known defect, or took the client's property, the case has a tort track with different damages and a different settlement dynamic. If the defendant simply did not perform, it is a contract case, and the number is the contract number.

Frequently asked questions

What damages can you get for breach of contract in California?

The amount that compensates for all detriment proximately caused by the breach or likely to result from it in the ordinary course, under Civil Code section 3300. That includes general damages that flow directly from the breach and, where foreseeable at contracting, consequential damages such as lost profits. Damages cannot exceed what full performance would have provided.

Can I recover lost profits for breach of contract?

Yes, if you prove their occurrence and amount with reasonable certainty. An established business proves them from its own financial history. An unestablished business usually cannot recover prospective profits because they are considered speculative, unless it has evidence of reasonable reliability such as comparable businesses or signed commitments.

Are punitive damages available for breach of contract in California?

No. Civil Code section 3294 limits punitive damages to obligations not arising from contract. A breach, however deliberate, supports only contract damages unless the defendant also committed an independent tort such as fraud.

Do I have to mitigate my damages?

Yes. The injured party must make reasonable efforts to reduce its loss and cannot recover losses it could have avoided. The breaching party must prove the failure to mitigate. Reasonable mitigation costs are recoverable even if the effort fails.

What interest rate applies to breach of contract damages in California?

Ten percent per year from the date of breach when the contract does not state a rate, under Civil Code section 3289. Prejudgment interest is mandatory on damages that are certain or calculable under section 3287(a), and discretionary from the filing date on unliquidated damages under section 3287(b).

Can a contract limit the damages I can recover?

Generally yes. Limitation of liability and consequential damages waivers are enforceable in commercial contracts. They are not enforceable to exempt a party from its own fraud, willful injury, or violation of law under Civil Code section 1668.

Can I recover emotional distress damages for breach of contract?

Not for an ordinary commercial contract. The exception is a contract whose object is the plaintiff's emotional well-being. Business agreements do not qualify.

This article is provided for general informational purposes and is not legal advice. Statutes and case law current as of October 2026.

Need help? Contact Kolmogorov Law, P.C. at (909) 235-6116 or visit kolmogorovlaw.com to schedule a consultation with our breach of contract team in Irvine, California.