By Julie Brook, Esq., CEB (reprinted with permission)
When a contract has been breached and it’s clear that performance won’t continue, plaintiff’s counsel needs to consider what damages are recoverable before filing a complaint, and then how to prove them.
First, do this analysis before deciding to file suit:
- Figure out what the actual damages are. Although many cases deal with the measure of damages for breach of contract, no hard and fast rules can be stated because often the outcome depends on the particular factual situation. In addition, damages must be analyzed in the context of the type of breach that’s involved because the measure of damages can differ significantly depending on the type of breach and the nature of the contract. But a good rule for to follow is to ask yourself: “In what financial position would the innocent party be if the breach hadn’t occurred?” When this rule is applied, you may incidentally find that a breach of contract doesn’t always result in recoverable damages because of changed market conditions or other circumstances.
- Consider whether the defendant can pay. You should not only analyze the appropriate measure of damages, but also look at the defendant’s financial capability to satisfy a judgment.
- Consider whether there are likely to be counterclaims and suits against your client. Consider the possibility of counterclaims against your client if a suit is filed. Likewise, consider the possibility of third party actions against your client.
If you decide to file suit after this analysis, then:
- Take care in pleading damages. The burden of pleading and proving damages rests on the party claiming them. Be careful to plead all items of recovery sought. There are no clear rules setting out what constitute items of general damages as contrasted with special damages in breach of contract cases, so the best practice is to spell out each item of recovery that’s sought. Take particular care when pleading the amounts for different types of damages in the event a default judgment is sought because in such cases a plaintiff can’t recover more than what was demanded in the complaint. CCP §580(a). For example, a prayer for compensatory damages “in excess of $20,000 … or according to proof” is inadequate under CCP §580 to support a default judgment for $26,457.50. Becker v S.P.V. Constr. Co. (1980) 27 C3d 489, 494. See also Airs Aromatics, LLC v CBL Data Recovery Technols., Inc. (2018) 23 CA5th 1013, 1019 (complaint not alleging any specific damages amount, but instead only alleging damages estimated to exceed $25,000, could only support default judgment up to $25,000). But service of a CCP §425.11 statement of damages can give a defendant the requisite notice of the amount of damages to be included in a default judgment, if the defendant doesn’t respond to the complaint. CCP §425.11(d)(1).
- Consider what witnesses and evidence you’ll need at trial. Proof of contract damages can be enhanced by careful preparation and imaginative trial technique. Often, expert witnesses must be used. For example, loss of market value is generally a matter of expert opinion, and appraisers may be essential to persuasive proof. Likewise, accountants are often necessary to interpret and analyze accounting records that contain the best evidence of actual damages. And use the provisions of Evid C §§1520–1523 in cases involving voluminous documentary evidence. For example, in cases involving extensive repair costs, a suggested technique is to collect items, such as timecards of laborers and invoices for materials, and to prepare a summary of them in a presentable form for use at trial. At trial, have the originals of all documents used in making the summary. The summary itself, though, is admissible under Evid C §1521 and is often a graphic portrayal of the damages suffered.
For guidance on recovering contract damages, turn to CEB’s California Attorney’s Guide to Damages, chap 1.