CACI No. 1923. Damages - “Out of Pocket” Rule

Judicial Council of California Civil Jury Instructions (2023 edition)

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1923.Damages - “Out of Pocket” Rule
If you decide that [name of plaintiff] has proved [his/her/nonbinary
pronoun/its] claim against [name of defendant], you also must decide how
much money will reasonably compensate [name of plaintiff] for the harm.
This compensation is called “damages.”
The amount of damages must include an award for all harm that [name
of defendant] was a substantial factor in causing, even if the particular
harm could not have been anticipated.
[Name of plaintiff] must prove the amount of [his/her/nonbinary pronoun/
its] damages. However, [name of plaintiff] does not have to prove the
exact amount of damages that will provide reasonable compensation for
the harm. You must not speculate or guess in awarding damages.
To decide the amount of damages you must determine the [fair market]
value of what [name of plaintiff] gave and subtract from that amount the
[fair market] value of what [he/she/nonbinary pronoun/it] received.
[“Fair market value” is the highest price that a willing buyer would have
paid on the date of the transaction to a willing seller, assuming:
1. That there is no pressure on either one to buy or sell; and
2. That the buyer and seller know all the uses and purposes for
which the [insert item] is reasonably capable of being used.]
[Name of plaintiff] may also recover amounts that [he/she/nonbinary
pronoun/it] reasonably spent in reliance on [name of defendant]’s [false
representation/failure to disclose/false promise] if those amounts would
not otherwise have been spent.
New September 2003; Revised December 2009
Directions for Use
For discussion of damages if there is both a breach of fiduciary duty and intentional
misrepresentation, see the Directions for Use to CACI No. 1924,
Damages - “Benefit of the Bargain” Rule.
Sources and Authority
Damages for Fraud. Civil Code section 1709.
Measure of Damages in Tort. Civil Code section 3333.
Damages for Fraud in Sale of Property. Civil Code section 3343.
This instruction should be modified in cases involving promissory fraud: “In
cases of promissory fraud, the damages are measured by market value as of the
date the promise was breached because that is the date when the damage
occurred.” (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co.
(1977) 66 Cal.App.3d 101, 145-146 [135 Cal.Rptr. 802].)
“There are two measures of damages for fraud: out of pocket and benefit of the
bargain. The ‘out-of-pocket’ measure of damages ‘is directed to restoring the
plaintiff to the financial position enjoyed by him prior to the fraudulent
transaction, and thus awards the difference in actual value at the time of the
transaction between what the plaintiff gave and what he received. The “benefit-
of-the-bargain” measure, on the other hand, is concerned with satisfying the
expectancy interest of the defrauded plaintiff by putting him in the position he
would have enjoyed if the false representation relied upon had been true; it
awards the difference in value between what the plaintiff actually received and
what he was fraudulently led to believe he would receive.’ ‘In California, a
defrauded party is ordinarily limited to recovering his “out-of-pocket” loss
. . . .’ (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 [44
Cal.Rptr.2d 352, 900 P.2d 601], internal citations omitted.)
“Of the two measures the ‘out-of-pocket’ rule has been termed more consistent
with the logic and purpose of the tort form of action (i.e., compensation for loss
sustained rather than satisfaction of contractual expectations) while the ‘benefit-
of-the-bargain’ rule has been observed to be a more effective deterrent (in that it
contemplates an award even when the property received has a value equal to
what was given for it).” (Stout v. Turney (1978) 22 Cal.3d 718, 725 [150
Cal.Rptr. 637, 586 P.2d 1228].)
“In fraud cases involving the ‘purchase, sale or exchange of property,’ the
Legislature has expressly provided that the ‘out-of-pocket’ rather than the
‘benefit-of-the-bargain’ measure of damages should apply. Civil Code section
3343 provides the exclusive measure of damages for fraud in such cases.”
(Fragale v. Faulkner (2003) 110 Cal.App.4th 229, 236 [1 Cal.Rptr.3d 616].)
“Civil Code section 3343 does not apply, however, ‘when a victim is defrauded
by its fiduciaries.’ Instead, in the case of fraud by a fiduciary, ‘the “broader”
measure of damages provided by sections 1709 and 3333 applies.’ . . . [¶] In
the case of a negligent misrepresentation by a fiduciary, ‘a plaintiff is only
entitled to its actual or “out-of-pocket” losses suffered because of [the]
fiduciary’s negligent misrepresentation under section 3333.’ [¶] The Supreme
Court has not decided whether ‘the measure of damages under section 3333
might be greater for a fiduciary’s intentional misrepresentation . . . .’ (Fragale,
supra, 110 Cal.App.4th at pp. 236-237, original italics, internal citations
“We have previously held that a plaintiff is only entitled to its actual or ‘out-of-
pocket’ losses suffered because of fiduciary’s negligent misrepresentation under
section 3333. While the measure of damages under section 3333 might be
greater for a fiduciary’s intentional misrepresentation, we need not address that
issue here.” (Alliance Mortgage Co., supra, 10 Cal.4th at pp. 1249-1250.)
“To recover damages for fraud, a plaintiff must have sustained damages
proximately caused by the misrepresentation. A damage award for fraud will be
reversed where the injury is not related to the misrepresentation.” (Las Palmas
Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1252
[1 Cal.Rptr.2d 301], internal citations omitted.)
Secondary Sources
6 Witkin, Summary of California Law (11th ed. 2017) Torts, §§ 1893-1900
3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts,
§ 40.23 (Matthew Bender)
23 California Forms of Pleading and Practice, Ch. 269, Fraud and Deceit § 269.27
(Matthew Bender)
10 California Points and Authorities, Ch. 105, Fraud and Deceit § 105.252
(Matthew Bender)

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