Breach of Contract Remedies FAQ

California recognizes several primary categories of remedies for breach of contract: compensatory damages (designed to place the non-breaching party in the position they would have been in had the contract been performed), consequential damages (for losses that were reasonably foreseeable), specific performance (court order requiring actual performance of contractual obligations), rescission (cancellation of the contract), and restitution (return of benefits conferred).

The appropriate remedy depends on factors including the nature of the breach, the type of contract involved, and whether monetary damages would adequately compensate the injured party. Courts have broad discretion in fashioning remedies to achieve justice, guided by the overarching principle that contract remedies should make the injured party whole without punishing the breaching party or providing a windfall to the non-breaching party.

Under California Civil Code Section 3300, compensatory damages are measured by the amount which will compensate for all the detriment proximately caused by the breach. This typically includes the benefit of the bargain—the difference between the value of performance as promised and the value of what was actually received. Courts apply the expectation interest principle, seeking to place the non-breaching party in as good a position as they would have been in had the contract been performed.

The calculation must be supported by competent evidence and cannot be speculative, though mathematical precision is not required when the fact of damages is certain. For example, in a contract for the sale of goods, damages might include the difference between the contract price and the market price of obtaining substitute goods, plus any incidental damages such as storage costs or additional shipping expenses. In service contracts, damages often include the cost of obtaining substitute performance plus any additional expenses incurred.

Civil Code Section 3358 further provides that damages for breach of an obligation to pay money are limited to the amount due plus interest, unless other damages were within the contemplation of the parties at the time of contracting.

Specific performance is an equitable remedy available under California Civil Code Section 3384 when monetary damages would be inadequate to compensate for the breach. This remedy is commonly granted in real estate transactions because each parcel of land is considered unique, making it impossible to obtain exact substitute performance in the marketplace. Courts may also order specific performance for contracts involving unique personal property, rare goods, family heirlooms, or situations where market substitutes are not readily available.

To obtain specific performance, the party seeking this remedy must demonstrate several elements: (1) they have clean hands—meaning they have acted in good faith and complied with their contractual obligations; (2) the contract terms are certain, clear, and explicit enough that the court can determine exactly what performance to order; (3) consideration was adequate at the time of contract formation; (4) enforcing specific performance would not create undue hardship on the defendant disproportionate to the benefit to the plaintiff; and (5) the remedy can be enforced without excessive court supervision.

California Civil Code Section 3390 specifically lists situations where specific performance will not be granted, including contracts for personal services, contracts where the terms are not sufficiently certain, and contracts where specific performance would be inequitable.

Consequential damages, also known as special damages, are losses that do not flow directly from the breach itself but are a foreseeable consequence of the breach. Under California Civil Code Section 3300 and the common law rule established in Hadley v. Baxendale (an English case adopted by California courts), consequential damages are recoverable only if they were reasonably foreseeable to both parties at the time of contract formation or arise naturally from the breach.

Examples of consequential damages include lost profits from business interruption caused by the breach, costs of obtaining substitute performance exceeding the contract price, damages to business reputation, and losses to other contracts or business relationships that were known to both parties. For instance, if a manufacturer knows that a buyer needs specialized components by a specific date to fulfill contracts with third parties, failure to deliver on time might result in consequential damages including the buyer's liability to those third parties.

To recover consequential damages, the plaintiff must prove: (1) the damages were within the contemplation of both parties at contract formation; (2) they were proximately caused by the breach; and (3) they can be proven with reasonable certainty (not mere speculation). Many commercial contracts include clauses limiting or excluding consequential damages, and such provisions are generally enforceable in California unless unconscionable or contrary to public policy.

Rescission is an equitable remedy that effectively unwinds a contract, restoring both parties to their pre-contractual positions as if the contract had never been made. California Civil Code Sections 1688-1693 comprehensively govern rescission. A party may rescind a contract for several reasons: material breach by the other party, mutual mistake of fact, fraud, duress, undue influence, failure of consideration, or illegality of the contract's purpose.

Rescission can be accomplished either through mutual consent of both parties (bilateral rescission) or by one party unilaterally communicating their intent to rescind based on valid grounds, followed by restoring or offering to restore everything of value received under the contract. Under Civil Code Section 1691, a party seeking rescission must act promptly upon discovering grounds for rescission—unreasonable delay may waive the right to rescind. They must also restore or offer to restore all benefits received under the contract, though this requirement may be excused if restoration is impossible due to the other party's conduct.

Importantly, rescission is generally incompatible with seeking damages for breach of the same contract—a party must elect between affirming the contract and seeking damages or rescinding it entirely. However, Civil Code Section 1692 allows recovery of damages for fraud or other wrongful conduct that induced the contract, even when seeking rescission.

Generally, punitive damages are not available for simple breach of contract in California. The fundamental principle is that contract law seeks to compensate the injured party for their losses, not to punish the breaching party. California Civil Code Section 3294 permits punitive damages only in tort actions where the defendant is guilty of oppression, fraud, or malice—conduct beyond mere breach of contractual obligations.

However, punitive damages may be recoverable when a breach of contract also constitutes an independent tort. This most commonly occurs in insurance contract disputes where the tort of bad faith is recognized. When an insurance company unreasonably refuses to pay a valid claim, fails to conduct a proper investigation, or unreasonably delays payment, the insured may recover punitive damages under a bad faith tort theory, separate from the breach of the insurance contract itself. Other scenarios where punitive damages might be available include when a breach involves fraud, intentional misrepresentation, conversion of property, or intentional interference with contractual relations.

In purely contractual disputes without accompanying tortious conduct, courts strictly limit recovery to compensatory damages, consequential damages (if foreseeable), and in rare cases, nominal damages when a breach occurred but no actual damages can be proven.

California Civil Code Section 3300 imposes a duty on the non-breaching party to take reasonable steps to mitigate or minimize their damages following a breach. This means the injured party cannot simply sit idle and allow damages to accumulate when reasonable action could reduce the loss. The doctrine is rooted in the principle that the law should not enable waste or encourage parties to allow preventable losses to mount.

For example, if a tenant breaches a residential or commercial lease, California Civil Code Section 1951.2 requires the landlord to make reasonable efforts to re-rent the property to mitigate damages. If an employee is wrongfully terminated in breach of an employment contract, they must make reasonable efforts to find comparable employment—they cannot simply refuse available equivalent work and claim full salary for the contract term. In construction contracts, an owner who terminates a contractor may need to obtain competitive bids for completion to demonstrate they mitigated costs.

Importantly, the breaching party bears the burden of proving that the non-breaching party failed to mitigate damages. Damages that could have been avoided through reasonable mitigation efforts are not recoverable. However, the duty to mitigate does not require the non-breaching party to take extraordinary measures, incur unreasonable expense, accept materially different or inferior substitute performance, or take actions that would compromise their dignity or reputation.

Restitution is a remedy designed to prevent unjust enrichment by requiring a party to return benefits they received under a contract or otherwise. Unlike compensatory damages, which look forward to the expected benefits of full contract performance, restitution looks backward to benefits already conferred. The goal is not to enforce the contract or provide the benefit of the bargain, but rather to restore the status quo and prevent one party from unfairly retaining value at another's expense.

Under California Civil Code Section 1689, when a contract is rescinded, each party must restore to the other everything of value received under the contract or its equivalent in money. Restitution can be measured by the reasonable value of services rendered (quantum meruit) or goods delivered (quantum valebant), which may sometimes exceed the contract price. For example, if a contractor performs work under a contract that is later found to be void or unenforceable, they may still recover the reasonable value of their work in restitution, even though they cannot recover the contract price.

Restitution is particularly important when a contract is void, voidable, or unenforceable, situations where traditional contract damages would be unavailable. It may be pursued through various legal theories including quasi-contract (implied-in-law contract), unjust enrichment, money had and received, or constructive trust. California courts recognize restitution as both a standalone cause of action and as a remedy available when other claims fail.

Liquidated damages are predetermined amounts that parties agree will be paid in the event of breach, specified within the contract itself. These provisions serve to establish damages in advance when actual damages would be difficult to calculate or prove. California Civil Code Section 1671 comprehensively governs their enforceability and reflects a balance between freedom of contract and protection against penalties.

For contracts entered into after January 1, 1978, the general rule under Civil Code Section 1671(b) is that a liquidated damages provision is valid unless the party seeking to invalidate it proves that the provision was unreasonable under the circumstances existing at the time the contract was made. Courts apply a two-part test: (1) whether actual damages would be extremely difficult or impractical to determine at the time of contracting, and (2) whether the stipulated amount represents a reasonable forecast of just compensation for the harm caused by breach. If the liquidated damages amount is grossly disproportionate to any reasonable estimate of actual damages, courts will strike it down as an unenforceable penalty.

Special rules apply to certain contract types. Under Civil Code Section 1671(c), liquidated damages in consumer contracts are presumed invalid and the party seeking to enforce them bears the burden of proof. Section 1671(d) governs residential leases, while Section 1677 addresses commercial and residential real estate purchase agreements. In construction contracts, Civil Code Section 1671(e) provides that liquidated damages for delay are valid if they meet specific requirements.

The distinction between material and minor (or partial) breach is crucial because it significantly affects both the non-breaching party's obligations and available remedies. A material breach is one that goes to the essence of the contract and substantially defeats its purpose, depriving the non-breaching party of the benefit they reasonably expected to receive. A minor breach, by contrast, involves a failure in some incidental or technical aspect of the contract that does not destroy its fundamental purpose.

Under California law, when a material breach occurs, the non-breaching party is excused from further performance under the contract and may pursue all available remedies including rescission, restitution, and full expectation damages. For example, if a seller delivers goods that are completely different from what was ordered, or a contractor abandons a construction project halfway through, these would constitute material breaches. The non-breaching party can treat the contract as terminated and seek compensation for the entire loss of bargain.

When a breach is only minor, the non-breaching party must continue performing their contractual obligations but may recover damages for the partial breach. For instance, if a contractor completes a project on time but with minor cosmetic defects that can be easily repaired, the owner must still pay the contract price but can recover the cost of repairs as damages. California courts consider several factors in determining materiality: the extent to which the injured party will be deprived of expected benefits, the extent to which the injured party can be adequately compensated in damages, the extent to which the breaching party has already performed, the likelihood that the breaching party will cure the failure, and whether the breaching party's behavior comports with standards of good faith and fair dealing under California Civil Code Section 1-203.