California Civil Jury Instructions (CACI)
353. Loss of Profits—Some Profits Earned
To recover damages for lost profits, [name of plaintiff] must prove that it is reasonably certain [he/she/it] would have earned more profits but for [name of defendant]’s breach of the contract.
To decide the amount of damages for lost profits, you must:
1. First, calculate [name of plaintiff]’s estimated total profit by determining the gross amount [he/she/it] would have received if the contract had been performed, and then subtracting from that amount the costs [including the value of the [labor/materials/ rents/expenses/interest on loans invested in the business]] [name of plaintiff] would have had if the contract had been performed;
2. Next, calculate [name of plaintiff]’s actual profit by determining the gross amount [he/she/it] actually received, and then subtracting from that amount [name of plaintiff]’s actual costs [including the value of the [labor/materials/rents/expenses/interest on loans invested in the business]]; and
3. Then, subtract [name of plaintiff]’s actual profit, which you determined in the second step, from [his/her/its] estimated total profit, which you determined in the first step. The resulting amount is [name of plaintiff]’s lost profit.
You do not have to calculate the amount of the lost profits with mathematical precision, but there must be a reasonable basis for computing the loss.
New September 2003
Directions for Use
Insertion of specified types of costs to be deducted from gross earnings is optional, depending on the facts of the case. Other types of costs may be inserted as appropriate.
Sources and Authority
- Civil Code section 3301 provides: “No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.”
- Restatement Second of Contracts, section 351(3), provides: “A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.”
- “Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. This is especially true where, as here, it is the wrongful acts of the defendant that have created the difficulty in proving the amount of loss of profits or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled.” (GHK Associates v. Mayer Group (1990) 224 Cal.App.3d 856, 873–874 [274 Cal.Rptr. 168], internal citations omitted.)
- “The extent of such damages may be measured by ‘the past volume of business and other provable data relevant to the probable future sales.’ ” (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 890 [93 Cal.Rptr.2d 364], internal citation omitted.)
- “ ‘Lost profits to an established business may be recovered if their extent and occurrence can be ascertained with reasonable certainty; once their existence has been so established, recovery will not be denied because the amount cannot be shown with mathematical precision.’ However, ‘[i]t has been frequently stated that if a business is new, it is improper to award damages for loss of profits because absence of income and expense experience renders anticipated profits too speculative to meet the legal standard of reasonable certainty necessary to support an award of such damage. However, the rule is not a hard and fast one and loss of prospective profits may nevertheless be recovered if the evidence shows with reasonable certainty both their occurrence and the extent thereof. In the present case the question is whether the evidence of loss of prospective profits meets that standard.’ Unestablished businesses have been permitted to claim lost profit damages in situations where owners have experience in the business they are seeking to establish, and where the business is in an established market.” (Resort Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1698–1699 [42 Cal.Rptr.2d 136], internal citations omitted.)
- “Even if [plaintiff] was able to provide credible evidence of lost profits, it must be remembered that ‘[w]hen loss of anticipated profits is an element of damages, it means net and not gross profits.’ Net profits are the gains made from sales ‘after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed.’ ” (Resort Video, Ltd., supra, 35 Cal.App.4th at p. 1700, internal citations omitted.)
- “Under general contract principles, when one party breaches a contract the other party ordinarily is entitled to damages sufficient to make that party ‘whole,’ that is, enough to place the nonbreaching party in the same position as if the breach had not occurred. This includes future profits the breach prevented the nonbreaching party from earning at least to the extent those future profits can be estimated with reasonable certainty.” (Postal Instant Press v. Sealy (1996) 43 Cal.App.4th 1704, 1708–1709 [51 Cal.Rptr.2d 365], internal citations omitted.)
- “It is the generally accepted rule, in order to recover damages projected into the future, that a plaintiff must show with reasonable certainty that detriment from the breach of contract will accrue to him in the future. Damages which are remote, contingent, or merely possible cannot serve as a legal basis for recovery.” (California Shoppers, Inc. v. Royal Globe Insurance Co. (1985) 175 Cal.App.3d 1, 62 [221 Cal.Rptr. 171], internal citations omitted.)
- “Where the injured party shows that, as a reasonable probability, profits would have been earned on the contract except for its breach, the loss of the anticipated profits is compensable. Where business activity has been interrupted by a breach of contract, damages for the loss of prospective profits that otherwise might have been made from its operation are generally recoverable where such damages are shown to have been foreseeable and reasonably certain.” (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 468 [277 Cal.Rptr. 40], internal citations omitted.)
1 Witkin, Summary of California Law (10th ed. 2005) Contracts, §§ 879–882
California Breach of Contract Remedies (Cont.Ed.Bar 1980; 2001 supp.) Recovery of Money Damages, §§ 4.11–4.17
15 California Forms of Pleading and Practice, Ch. 177, Damages, § 177.79 (Matthew Bender)
1 Matthew Bender Practice Guide: California Contract Litigation, Ch. 7, Seeking or Opposing Damages in Contract Actions, 7.12