CACI No. 1924. Damages - “Benefit of the Bargain” Rule

Judicial Council of California Civil Jury Instructions (2023 edition)

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1924.Damages - “Benefit of the Bargain” 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 determine the amount of damages, you must:

1. Determine the fair market value that [name of plaintiff] would

have received if the representations made by [name of defendant]

had been true; and

2. Subtract the fair market value of what [he/she/nonbinary pronoun/

it] did receive.

The resulting amount is [name of plaintiff]’s damages. “Fair market

value” is the highest price that a willing buyer would have paid 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.

Fair market value must be determined as of the date that [name of

plaintiff] discovered [name of defendant]’s [false representation/ failure to

disclose].

[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

There is a split of authority regarding whether benefit-of-the-bargain damages can

ever be recovered for intentional misrepresentation in the sale or exchange of

property. It is settled that in a nonfiduciary relationship, damages are limited to the

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out-of-pocket measure, even if the misrepresentation is intentional. (See Alliance

Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240 [44 Cal.Rptr.2d 352, 900

P.2d 601]; Civ. Code, § 3343.) However, there is disagreement on the proper

measure if there is a fiduciary relationship.

Some courts have held that benefit-of-the-bargain damages are available if there is

both a fiduciary relationship and intentional misrepresentation. (See Fragale v.

Faulkner (2003) 110 Cal.App.4th 229, 235-239 [1 Cal.Rptr.3d 616]; Salahutdin v.

Valley of California, Inc. (1994) 24 Cal.App.4th 555, 564 [29 Cal.Rptr.2d 463]; see

also Alfaro v. Community Housing Improvement System & Planning Assn., Inc.

(2009) 171 Cal.App.4th 1356, 1383 [89 Cal.Rptr.3d 659].) At least one court has

held to the contrary, that only out-of-pocket losses may be recovered. (See Hensley

v. McSweeney (2001) 90 Cal.App.4th 1081, 1086 [109 Cal.Rptr.2d 489].)

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].)

Sources and Authority

• Damages for Fraud. Civil Code section 1709.

• Measure of Damages in Tort. Civil Code section 3333.

• “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. supra, 10 Cal.4th at p. 1240, 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].)

• “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

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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.)

• “The measure of damages for a real estate broker’s intentional misrepresentation

to a buyer for whom he acts as agent is not limited to the out-of-pocket losses

suffered by the buyer. Because the broker is a fiduciary, damages for intentional

fraud may be measured by the broader benefit-of-the-bargain rule.” (Fragale,

supra, 110 Cal.App.4th at p. 232.)

• “[T]he measure of damages for fraud by a fiduciary is out-of-pocket damages,

not the benefit of the bargain computation normally applicable to contract causes

of action.” (Hensley, supra, 90 Cal.App.4th at p. 1085.)

• “Recognizing a split of authority on the matter, we follow those cases adopting

the broader measure of damages under sections 1709 and 3333, a course that is

not only consonant with the position we have taken in the past but just. This

division has consistently applied the broader measure of damages for fiduciary

fraud, refusing to limit damages to the ‘out of pocket’ measure.” (Salahutdin,

supra, 24 Cal.App.4th at pp. 566-567.)

• “Unlike the ‘out of pocket’ measure of damages, which are usually calculated at

the time of the transaction, ‘benefit of the bargain’ damages may appropriately

be calculated as of the date of discovery of the fraud.” (Salahutdin, supra, 24

Cal.App.4th at p. 568.)

• “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.)

• “[O]ne may recover compensation for time and effort expended in reliance on a

defendant’s misrepresentation.” (Block v. Tobin (1975) 45 Cal.App.3d 214, 220

[119 Cal.Rptr. 288], 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

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, § 105.131 et seq.

(Matthew Bender)

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Page last reviewed May 2023