Legal Memorandum: Damages for Breach of Contract in CA

Issue: Under California law, what potential damages may homeowners who lack any current ownership interest in a property recover in a breach of contract action against home builders for defective construction?

As a general rule, in a breach of contract action the measure of damages is “the amount which will compensate the party aggrieved for all detriment proximately caused thereby, or which, in the ordinary course of things, would likely result therefrom.”  Cal. Civ. Code § 3300.  Any such damages must be clearly ascertainable in both their nature and origin.  Id. § 3301.  In an action for injury caused by tort, such as a negligence action, damages are measured by “the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.”  Id. § 3333.

More, specifically, when recovery for damage to real property is sought, the measure of damages is the lesser of the cost of repair or the diminution in value (the difference between the value of the property immediately before and immediately after the injury).  Mozzetti v. City of Brisbane (1st Dist. 1977) 67 Cal. App. 3d 565, 576, 136 Cal. Rptr. 751.  In some circumstances, however, the cost of repair may be recovered even though it exceeds the property’s diminution in value: “Restoration costs may be awarded even though they exceed the decrease in market value if ‘there is a reason personal to the owner for restoring the original condition’ or, ‘where there is reason to believe that the plaintiff will, in fact, make the repairs.'”  Orndorff v. Christiana Community Builders (4th Dist. 1990) 217 Cal. App. 3d 683, 687,