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
[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
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
“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
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 brokers 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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