What follows is our general observations and opinions. It is not legal advice, and it is not a definitive statement of California law. Every situation depends on its own facts.
When a California business contract is breached, the remedy the law offers is narrower than most people expect. Our reading of the general principle is that damages for breach of contract are meant to put the injured party in the position it would have occupied had the contract been performed — no better. That is why contract damages so often disappoint: the measure is the value of the bargain, not the cost of the disruption, and punitive damages are generally unavailable for a simple breach.
The practical consequence is that two businesses can suffer the same commercial harm and end up in very different positions, depending on how the contract was drafted and what the injured party did after the breach. In our experience the drafting matters more than the breach.
The main categories
General or expectation damages. The core measure: the value of what was promised, less what was received. For a supply contract, typically the cost of covering elsewhere against the contract price. For a services agreement, often the cost of completing or correcting the work.
Consequential damages. Downstream losses — lost profits, a lost customer, a lost financing round. These are recoverable in principle but hedged in practice. Our reading of the California framework is that consequential losses must have been reasonably foreseeable to the parties at the time of contracting, and must be proved with reasonable certainty rather than estimated loosely. This is where most claims narrow sharply.
Incidental damages. Reasonable costs incurred dealing with the breach — expediting a replacement, storage, inspection. Usually modest, usually recoverable, frequently forgotten in the demand.
Interest. Prejudgment interest can be significant on a long-running dispute, and whether it runs from breach or from judgment depends on how certain the sum was.
Restitution. Where the claim is framed around unwinding rather than enforcing, the aim is returning what was conferred rather than delivering the benefit of the bargain.
Specific performance. An order compelling performance, available where damages are inadequate. In commercial matters this is uncommon outside real property and genuinely unique goods.
Injunctive relief. Often the real objective where confidential information or a distribution channel is at stake, and usually needing to be sought quickly.
Why lost profits are the hardest part of any claim
Lost profits are what clients most want and what courts scrutinize most closely. Our reading of the California position is that they must be proved with reasonable certainty, and that lost profits of an unestablished business are treated with particular caution because there is no track record from which to project.
What we look for when assessing whether a lost profits claim is worth pursuing: a documented history of comparable revenue; a pipeline or backlog evidenced by something better than optimism; a defensible margin analysis rather than gross revenue presented as profit; a causal chain that does not depend on several intervening third-party decisions; and contemporaneous documents — board materials, budgets, forecasts prepared before the dispute — that support the figure. A model built after the fact by the claimant’s own expert, unsupported by anything contemporaneous, tends not to carry the day.
The duty to mitigate reduces more claims than any defense
Our reading of California law is that an injured party generally cannot recover losses it could have avoided through reasonable effort. This is not a technicality; it is often the largest single reduction applied to a claim.
It also creates an immediate practical obligation. A business that has been let down needs to go find a substitute, document the search, and keep the quotes — including the ones it did not accept, because those evidence what the market actually offered. Sitting on a claim while losses accumulate is a way of transferring those losses back onto yourself.
The contract usually decides the outcome before the dispute starts
By the time we are looking at a breach, the remedies available have generally already been fixed by the drafting. The provisions that matter most:
- Limitation of liability. A cap, and an exclusion of consequential damages, can reduce a seven-figure commercial harm to a refund of fees paid. These clauses are widely enforced between sophisticated commercial parties.
- Liquidated damages. Enforceable in the commercial context on our reading of Civil Code section 1671 unless the challenging party shows the provision was unreasonable under the circumstances existing when the contract was made.
- Attorney fees. California generally follows the American rule, so each side bears its own fees absent a contract or statute providing otherwise. Where a contract does provide for fees, our reading is that the entitlement is treated as reciprocal even if drafted one-sidedly. On a mid-size dispute the fee clause frequently matters more than the damages clause.
- Notice and cure. A cure period the claimant did not follow can defeat an otherwise sound termination.
- Mediation and arbitration. These change forum, cost, timeline and appeal rights, and some forms condition fee recovery on having offered mediation first.
- Limitations shortening. Some contracts shorten the period for bringing a claim below the statutory default.
What we do in the first two weeks of a breach
Read the contract before writing anything to the other side, particularly the notice, cure and dispute resolution provisions — an intemperate email can amount to a repudiation. Give notice in exactly the manner the contract prescribes, to the address it prescribes. Preserve documents and suspend any automatic deletion. Start mitigating and document the effort. Assemble the loss with invoices and contemporaneous records rather than estimates. Diary the limitations period and any contractual shortening of it.
Be realistic about the economics
We would rather say this plainly: many commercial breach claims are not worth litigating on the numbers, and clients are better served by hearing that early. Where the counterparty is undercapitalized, a judgment may be uncollectable. Where liability is capped at fees paid, the ceiling may be below the cost of getting there. Where the loss is real but the proof is thin, the settlement value reflects the proof rather than the loss. And where there is no fee-shifting clause, a claim can be entirely valid and still not worth bringing. No outcome is ever guaranteed, and past results do not predict future results.
How we work on these
Contract review, drafting and breach analysis are hourly or flat-fee work, and we generally scope an initial assessment as a flat fee so a business knows what the evaluation costs before committing to anything further. This is not contingency work and we would not describe it as such.
If a California business contract has been breached, in either direction, we are happy to look at it. Call us at (310) 556-9692.
Related reading: our contracts resource page, plus what an indemnification clause actually commits you to, which California contracts must be in writing, and what a business purchase agreement actually does.
These are our general observations and opinions only. They are not legal advice and not a definitive statement of California law, every situation turns on its own facts, and reading this does not create an attorney-client relationship between us.
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