Stanford Law School - Robert Crown Law Library

Filed 12/23/04
IN THE SUPREME COURT OF CALIFORNIA

LEWIS JORGE CONSTRUCTION
MANAGEMENT, INC.,
Plaintiff and Respondent,
S112624
v.
Ct.App. 2/5 B143162
POMONA UNIFIED SCHOOL
DISTRICT et al.,
Los Angeles County
Defendants and Appellants.
Super. Ct. No. KC023186

A school district terminates a construction contract when the contractor,
four and a half months after the promised due date, still has not finished the
project. The contractor’s bonding company then hires another firm to complete
the project, but it suspends then later reduces the amount of bonding for the
contractor. The latter successfully sues the school district for breach of contract,
recovering in damages some $3 million dollars for potentially lost profits, which
the contractor claimed it would have earned on prospective construction contracts
it never won because of its impaired bonding capacity. The Court of Appeal
concluded that those potential profits were a proper item of general damages in
this action for breach of contract. We disagree.
I.
In 1994, the Pomona Unified School District (District) solicited bids for
building improvements at Vejar Elementary School. The District awarded the
contract to Lewis Jorge Construction Management, Inc. (Lewis Jorge), the low
bidder at $6,029,000. Although the contract originally provided for completion in
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December of 1995, heavy rains delayed work, and the parties agreed to a revised
completion date of January 22, 1996. That date came and went, but the project
remained unfinished.
The District withheld payments to Lewis Jorge for work completed in April
and May, 1996. On June 5, the District terminated the contract with Lewis Jorge
and made a demand on the contractor’s surety to finish the project under the
performance bond the surety had provided for Lewis Jorge. The surety then hired
another contractor to complete the school project for $164,000. That contractor
completed the project between early July and mid-September, 1996.
Lewis Jorge sued the District, alleging it breached the contract by declaring
Lewis Jorge in default and terminating it from the construction project. The
complaint sought damages and alleged six causes of action. The first, alleging
breach of contract, and the second, alleging breach of an implied warranty of
sufficiency of the plans and specifications for the project, are both contractual
claims naming the District as a defendant. Causes of action three through five—
alleging nondisclosure of material facts, inducing breach of contract, and
negligence—named a district employee as a defendant. The sixth cause of action
sought equitable indemnity against both the District and the employee for claims
against Lewis Jorge by its surety and its unpaid subcontractors. Lewis Jorge did
not plead as special damages the profits it claimed to have lost on future contracts.
Lewis Jorge, in turn, was sued by a number of its subcontractors for
nonpayment of their past due bills.
At trial, Lewis Jorge presented evidence from its bonding agent that in June
1996 it had a bonding limit of $10 million per project, with an aggregate limit of
$30 million for all work in progress. By mid-1997, the only sureties willing to
provide Lewis Jorge with bonding imposed a limit of $5 million per project, with
an aggregate limit of $15 million, a reduction of its bonding capacity to the level
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its surety had imposed in the early 1990’s. Sometime in 1998, Lewis Jorge ceased
bidding altogether and eventually closed down.
Lewis Jorge sought to prove the extent of its lost future profits on
unidentified construction projects, using as the relevant period the date of the
District’s breach to the date of trial, and relying on its profitability during the four
years preceding the breach. Robert Knudsen, a financial analyst who specialized
in calculating lost profits claims, projected that Lewis Jorge had lost $95 million in
gross revenue for future contracts that, based on its past history, it would likely
have been awarded. Historically, Lewis Jorge had realized a profit of about 6
percent of revenue. Knudsen calculated lost profits on unidentified projects at
$4,500,000, which discounted to present value came to $3,148,107.
The jury returned special verdicts in favor of Lewis Jorge, finding the
District liable for $362,671 owed on the school construction contract, of which
$143,755 was attributable to the District’s “breach of warranty as to the fitness of
its plans or specification” (the complaint’s second cause of action). It awarded
$3,148,1971 in profits Lewis Jorge did not realize “due to the loss or reduction of
its bonding capacity.” Having found the District’s employee negligent, the jury
found him and the District jointly and severally liable for $ 3,510,868.
The District and its employee appealed. Lewis Jorge also appealed, raising
issues that are not material here and were rejected by the Court of Appeal.
Although the Court of Appeal reversed the judgment against the District’s
employee, and reversed awards against the District for prejudgment interest and

1
The jury returned an award some ninety dollars greater than the lost profit
sum calculated by expert witness Knudsen.
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contractual attorney fees (Civ. Code, § 1717), it rejected the District’s claim that
the award to Lewis Jorge of $3,148,197 for potential profits on future projects was
an improper component of general damages for breach of contract. The Court of
Appeal granted the District’s petition for rehearing on that question; after
receiving additional briefing, it concluded that “the lost profit damages sought by
Lewis Jorge were in the nature of general damages, [] not special damages as
claimed by the District.”
We granted the District’s petition for review to resolve whether general
damages for breach of a construction contract include potential profits lost on
future contracts that a contractor does not win when, as a consequence of the
property owner’s breach, the contractor’s surety reduces the contractor’s bonding
capacity.2 We later solicited and received briefing from the parties on the related
issue of whether an award of lost potential profits would have been proper here as
special damages.
II.
Damages awarded to an injured party for breach of contract “seek to
approximate the agreed-upon performance.” (Applied Equipment Corp. v. Litton
Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 (Applied).) The goal is to put the
plaintiff “in as good a position as he or she would have occupied” if the defendant
had not breached the contract. (24 Williston on Contracts (4th ed. 2002) § 64:1,
p. 7.) In other words, the plaintiff is entitled to damages that are equivalent to the
benefit of the plaintiff’s contractual bargain. (Id. at pp. 9-10; 1 Witkin, Summary
of Cal. Law (9th ed. 1987) Contracts, § 813, pp. 732-733; Peterson v. Larquier
(1927) 84 Cal.App. 174, 179 [breach of lease permits injured party to recover

2
The District does not challenge either the jury’s finding that the District
breached the contract or its award of $362,671 in general damages for the breach.
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difference between rental value at date of breach and rent specified in lease for its
term].)
The injured party’s damages cannot, however, exceed what it would have
received if the contract had been fully performed on both sides. (Civ. Code,
§ 3358.) This limitation of damages for breach of a contract “serves to encourage
contractual relations and commercial activity by enabling parties to estimate in
advance the financial risks of their enterprise.” (Applied, supra, 7 Cal.4th at
p. 515.)
Contractual damages are of two types—general damages (sometimes called
direct damages) and special damages (sometimes called consequential damages).
(24 Williston on Contracts, supra, § 64.1, pp. 11-12; 3 Dobbs, Law of Remedies
(2d ed. 1993) § 12.2(3), pp. 39-42; see, e.g., Erlich v. Menezes (1999) 21 Cal.4th
543, 558.)
A. General Damages
General damages are often characterized as those that flow directly and
necessarily from a breach of contract, or that are a natural result of a breach. (Civ.
Code, § 3300 [damages “which, in the ordinary course of things, would be likely
to result” from breach]; Mitchell v. Clarke (1886) 71 Cal. 163, 167-168 [general
damages are those that naturally and necessarily result from breach].) Because
general damages are a natural and necessary consequence of a contract breach,
they are often said to be within the contemplation of the parties, meaning that
because their occurrence is sufficiently predictable the parties at the time of
contracting are “deemed” to have contemplated them. (Calamari & Perillo, The
Law of Contracts (2d ed. 1977) § 14-5, p. 525; Hunt Bros. Co. v. San Lorenzo
Water Co. (1906) 150 Cal. 51, 56 [parties need not “actually have contemplated
the very consequence that occurred,” but they would have supposed such a
consequence was likely to follow a breach].)
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B. Special Damages
Unlike general damages, special damages are those losses that do not arise
directly and inevitably from any similar breach of any similar agreement. Instead,
they are secondary or derivative losses arising from circumstances that are
particular to the contract or to the parties. Special damages are recoverable if the
special or particular circumstances from which they arise were actually
communicated to or known by the breaching party (a subjective test) or were
matters of which the breaching party should have been aware at the time of
contracting (an objective test). (Mitchell v. Clarke, supra, 71 Cal. at pp. 164-167;
1 Witkin, Summary of Cal. Law, supra, § 815, p. 733.) Special damages “will not
be presumed from the mere breach” but represent loss that “occurred by reason of
injuries following from” the breach. (Mitchell v. Clarke, supra, 71 Cal. at p. 168.)
Special damages are among the losses that are foreseeable and proximately caused
by the breach of a contract. (Civ. Code, § 3300.)
California follows the common law rule that an English court articulated
some 150 years ago in Hadley v. Baxendale (1854) 156 Eng.Rep. 145. After
Hadley’s mill shut down because of a broken crankshaft, he entered into a contract
to have a new one built. When the builder asked Hadley to send him the broken
shaft to use as a model, Hadley took it to Baxendale, a common carrier, for
delivery to the builder. Baxendale did not deliver until seven days later. Hadley
then sued Baxendale for lost profits for that period. Hadley’s lost profits, the court
held, were not recoverable, because he had failed to inform the carrier that the mill
would be shut down until delivery of the new shaft. (Id. at p. 151.) Because the
special circumstance—the mill’s inoperability without a mill shaft—was not
communicated to Baxendale, he did not assume the risk of compensating Hadley
for mill profits lost as a resulting of Baxendale’s late delivery of the mill shaft.
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Hadley did not expressly distinguish between general and special damages.
But such a distinction flows naturally from that case; hence the rule that a party
assumes the risk of special damages liability for unusual losses arising from
special circumstances only if it was “advised of the facts concerning special harm
which might result” from breach—it is not deemed to have assumed such
additional risk, however, simply by entering into the contract. (1 Witkin,
Summary of Cal. Law, supra, § 815, p. 733; Mitchell v. Clarke, supra, 71 Cal. at
pp. 165-169.)
The Hadley rule has long been applied by California courts, which view it
as having been incorporated into California Civil Code section 3300’s definition
of the damages available for breach of a contract. (Hunt Bros. Co. v. San Lorenzo
Water Co., supra, 150 Cal. at p. 56; Christensen v. Slawter (1959) 173 Cal.App.2d
325, 334; Sabraw v. Kaplan (1962) 211 Cal.App.2d 224, 227.) Contract damages,
unlike damages in tort (Civ. Code, § 3333), do not permit recovery for
unanticipated injury. (Hunt Bros. Co. v. San Lorenzo Water Co., supra, 150 Cal.
at p. 56.) Parties may voluntarily assume the risk of liability for unusual losses,
but to do so they must be told, at the time the contract is made, of any special harm
likely to result from a breach (Mendoyoma, Inc. v. County of Mendocino (1970) 8
Cal.App.3d 873, 879-880; see Erlich v. Menezes, supra, 21 Cal.4th 543, 558-560;
Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d
442, 455-456). Alternatively, the nature of the contract or the circumstances in
which it is made may compel the inference that the defendant should have
contemplated the fact that such a loss would be “the probable result” of the
defendant’s breach. (Burnett & Doty Development Co. v. Phillips (1978) 84
Cal.App.3d 384 [defendant’s delay in preparing site for subdivision breached
contract with developer and subjected defendant to liability for profits that
developer could not earn on unbuilt houses].) Not recoverable as special damages
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are those “beyond the expectations of the parties.” (Applied, supra, 7 Cal.4th at
p. 515.) Special damages for breach of contract are limited to losses that were
either actually foreseen (see, e.g., Dallman Co. v. Southern Heater Co. (1968) 262
Cal.App.2d 582, 586 [in contract negotiations, supplier was put on notice that its
failure to perform would result in lost profits]) or were “reasonably foreseeable”
when the contract was formed. (Applied, at p. 515.)
III.
Here, the Court of Appeal affirmed the jury’s award to Lewis Jorge of
$3,148,197 in general damages, based on profits Lewis Jorge did not earn on
future unidentified contracts because its surety had reduced its bonding capacity
after the District’s termination of the construction contract. The Court of Appeal
concluded that such potential profits were recoverable as general damages because
they followed “from the breach in the ordinary course of events” and were a
“natural and probable consequence.” The Court of Appeal found it significant, as
did the trial court, that the contract at issue, like much of Lewis Jorge’s business,
was a public contract that required bonding.
The Court of Appeal reasoned: When the contract was formed, the District
knew of its own bond requirements, and it knew that public works contractors
must provide bonds to secure their performance. Because impaired bonding
capacity “has long been recognized as a direct consequence of an owner’s breach
of a construction contract,” the Court of Appeal concluded that the District should
have known that breaching the contract and resorting to the surety to complete the
project could impair Lewis Jorge’s ability to obtain bonds without which it could
not bid on other public contracts. Accordingly, the Court of Appeal held that the
potential profits Lewis Jorge lost on contracts it did not win after the District’s
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termination of the school construction contract were general damages attributable
to the District’s breach.3
The Court of Appeal, however, failed to consider a threshold inquiry. If the
purpose of contractual damages is to give the nonbreaching party the benefit of its
contractual bargain, then the first question is: What performance did the parties
bargain for? General damages for breach of a contract “are based on the value of
the performance itself, not on the value of some consequence that performance
may produce.” (3 Dobbs, Law of Remedies, supra, § 12.4(1), p. 62.) Profits
“ ‘which are the direct and immediate fruits of the contract’ ” are “ ‘part and parcel
of the contract itself, entering into and constituting a portion of its very elements;
something stipulated for, the right to the enjoyment of which is just as clear and
plain as to the fulfillment of any other stipulation.’ ” (Shoemaker v. Acker (1897)
116 Cal. 239, 245.)
Unearned profits can sometimes be used as the measure of general damages
for breach of contract. Damages measured by lost profits have been upheld for
breach of a construction contract when the breaching party’s conduct prevented

3
The District advances various public policy arguments in urging us to
preclude lost future profits as a component of general damages when the hiring
party is a public entity and especially when, as here, it is a school district. Lewis
Jorge responds that because public contracts require bonding, profits lost on
potential projects because of impaired bonding capacity after an owner’s breach of
a public contract will always be general damages. Whatever the merits of these
arguments, we need not base our holding on the circumstance that the contract was
a public contract or that a public school district was the breaching party. For
bonding, although it is statutorily required for most public contracts, is also
commonly imposed under contracts between private parties for larger construction
projects. (See, e.g., Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th
28, 35, 40 [condominium developer required contractor to furnish a labor and
materials payment bond and a performance bond for the full $3.9 million contract
price]; 1 Cal. Construction Contracts and Disputes (Cont.Ed.Bar 3d ed. 2003)
Drafting Construction Contracts, § 2.9, p. 82 [“owner should also reserve the right
to require bidders to furnish performance and payment bonds”].)
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the other side from undertaking performance. (Stark v. Shaw (1957) 155
Cal.App.2d 171, 181 [contractor’s delay in building subdivision prevented roofing
subcontractor from performing]; De Flavio v. Estell (1959) 173 Cal.App.2d 226,
232-233 [lost profit damages below contractor’s estimated profit upheld when
owner repudiated contract].) The profits involved in Stark and De Flavio,
however, were purely profits unearned on the very contract that was breached.
Lost profits from collateral transactions as a measure of general damages
for breach of contract typically arise when the contract involves crops, goods
intended for resale, or an agreement creating an exclusive sales agency. (Nelson v.
Reisner (1958) 51 Cal.2d 161, 170-171 [lessor’s breach of lease precluded
sharecropping farmer from raising crops and realizing profit on their sale];
Morello v. Growers Grape Prod. Assn. (1947) 82 Cal.App.2d 365 [disappointed
purchaser of brandy who intended to bottle and resell it]; Brunvold v. Johnson
(1939) 36 Cal.App.2d 226 [termination of exclusive agent for sale of rope and
twine products]; Tahoe Ice Co. v. Union Ice Co. (1895) 109 Cal. 242 [termination
of supply contract by ice retailer]; Grupe v. Glick (1945) 26 Cal.2d 680 [defective
oil refining machines purchased for resale by exclusive agent]; see also Brandon
& Tibbs v. George Kevorkian Accountancy Corp., supra, 226 Cal.App.3d at p. 457
[where parties conceded that lost profits were the measure of damages for breach,
the breach of a joint venture to expand accounting practice by acquiring an
existing practice in another city supported an award of unearned profits as
component of general damages for breach of contract].) The likelihood of lost
profits from related or derivative transactions is so obvious in these situations that
the breaching party must be deemed to have contemplated them at the inception of
the contract.
We are not aware of any California authority involving a construction
contract that has upheld an award of general damages against a breaching owner
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for profits unearned on unidentified contracts the contractor did not get when its
bonding was impaired as a result of the contract breach. Lewis Jorge,
nevertheless, urges us to permit such recovery, citing a Montana decision, Laas v.
Mont. Hwy. Comm’n et al (1971) 157 Mont. 121. In that case the plaintiff
highway contractor, who had been in business for 22 years and had made a profit
on every construction project, claimed three years of profits lost or $250,000 for
projects he was unable to win when his bonding capacity was reduced after the
state breached the construction contract. The Montana Supreme Court affirmed a
jury award of $78,000 in lost profits. (Id. at p. 130.) It did so without reference to
the construction context, by simply applying rules for profits lost to an established
business. But five years later, in Zook Brothers Constr. Co. v. State (1976) 171
Mont. 64, another case involving breach of a highway construction contract, the
same court disallowed recovery of profits lost on other projects after the state’s
breach. The Montana court found “vague and speculative” future profits the
contractor did not earn when the state’s breach caused him financial woes, forcing
him to sell equipment without which he was unable to take on additional work.
(Id. at p. 76.) The Montana court’s earlier decision in Laas appears to represent a
singular instance of upholding lost profits on future construction projects as an
item of general damages for breach of a construction contract, a holding that has
not been followed in a published opinion outside Montana in the 33 years it has
been on the books.
The only California decision upholding damages for a contractor’s lost
profits on future contracts it did not win because its bonding capacity was
impaired arises not, as here, from a construction contract but from a contract to
provide future bonding. (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co.
(1996) 47 Cal.App.4th 464, 489.) The parties to the breached contract in Arntz
were the contractor and its surety, which agreed to provide the contractor with
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ongoing bonding. (Id. at p. 473.) Because the contract was one for future
bonding, it was entirely within the contemplation of the surety that its breach of
the contract—resulting in the contractor’s loss of actual bonding—would preclude
the contractor from bidding on and being awarded major projects. Thus, the loss
of profits on those projects were properly general damages, for they were the
“direct and immediate fruits” (Shoemaker v. Acker, supra, 116 Cal. at p. 245) of
the surety’s breach of the contract to provide bonding.
Applying these rules to the school construction contract here, we cannot say
that the parties’ bargain included Lewis Jorge’s potential profits on future
construction projects it had not bid on and been awarded. Full performance by the
District would have provided Lewis Jorge with full payment of the contract price.
Certainly, Lewis Jorge anticipated earning a profit on the school contract with the
District, but that projected profit was limited by the contract price and Lewis
Jorge’s costs of performance. If Lewis Jorge’s bid accurately predicted its costs,
the benefit of its contractual bargain for profits was capped by whatever net profit
it had assumed in setting its bid price.
The District’s termination of the school contract did not directly or
necessarily cause Lewis Jorge’s loss of potential profits on future contracts. Such
loss resulted from the decision of CNA, Lewis Jorge’s surety at the time of the
breach, to cease bonding Lewis Jorge.
Contrary to Lewis Jorge’s contention, our decision in Warner Constr. Corp.
v. City of Los Angeles (1970) 2 Cal.3d 285 does not compel a different result.
There, a contractor sued the city for breach of a contract to construct a retaining
wall. The complaint alleged four causes of action. As relevant here, the third
cause of action alleged that the city had breached the contract by refusing to issue
a “change order” to compensate the contractor for additional costs when soil at the
site proved to be more unstable than city test holes had revealed, requiring the
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contractor to use special, more expensive casting methods, which did not comply
with the contract’s specifications. (Id. at p. 290.) The fourth cause of action
alleged that the city provided misleading results of two test holes it had drilled and
did not disclose earlier landslides on the site. (Id. at pp. 290-291.) The jury
returned a general verdict for $150,000 against the city. (Id. at pp. 289, 300, fn.
18.)
Of the $150,000 awarded by the jury in Warner, we upheld only
$81,743.55 in damages.4 (Warner Constr. Corp. v. City of Los Angeles, supra, 2
Cal.3d at pp. 301, 303.) The city had challenged the $150,000 award on the
ground that it included “compensation for speculative and unproven items of
damages.” (Id. at p. 300.) The plaintiff, relying on evidence that it had suffered
impairment of capital when it funded added construction costs out of pocket,
argued that it was entitled to the entire $150,000 award because of its
uncompensated losses, including profits it did not earn after the city’s breach.
This court rejected the contention that lost profits would necessarily be speculative
“[f]or an established firm such as Warner.” (Id. at p. 301.) We went on to state
that “[l]oss of business, restriction of research, reduction of bonding capacity, and
destruction of a former advantageous competitive position comprise imponderable
factors which may affect different companies to differing extents and amounts.”
(Ibid.) The measure of such damages, we said, “requires proof of the effect of
these factors” on the plaintiff’s profits. (Ibid.) Warner did not reach the merits of
the contractor’s lost profits claim, however, because it concluded that the

4
Although the complaint in Warner framed the fourth cause of action as one
for fraudulent concealment, which is a tort, this court treated the claim as an action
in contract for breach of warranty. (Warner Constr. Corp. v. City of Los Angeles,
supra, 2 Cal.3d at p. 294 & fn. 4.)
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contractor had failed to prove lost profits, and therefore any award for lost profits
could not “be sustained.” (Ibid.)
Warner did not hold that potential profits lost from future contracts are
general damages that naturally flow from a breach of a construction contract. At
most, it acknowledged that to recover profits lost on future contracts the plaintiff
contractor must prove their occurrence and extent. (Warner Constr. Corp. v. City
of Los Angeles, supra, 2 Cal.3d at pp. 301-302.) Indeed, the two lost profits cases
cited by Warner are instructive, and we briefly discuss them below.
The first, Lucky Auto Supply v. Turner (1966) 244 Cal.App.2d 872,
concerned a claim of trespass, a tort, for which the measure of damages is broader
than for breach of a contract. (See Civ. Code, § 3333 [“all the detriment
proximately caused” whether or not it could have been “anticipated”]; Lucky Auto
Supply, at pp. 881-882.)
The second case, Dallman Co. v. Southern Heater Co. (1968) 262
Cal.App.2d 582, involved profits lost by a plumbing distributor when the supplier
of its private-label water heaters breached a contract for providing a ready supply
of heaters and spare parts. (Id. at pp. 591-592.) The Court of Appeal upheld an
award of lost profits because the plaintiff had specifically informed the defendant
that it would suffer losses if new heaters and parts would not be readily available.
(Id. at p. 586.) In other words, the lost profits claim there met the rule of Hadley
v. Baxendale, supra, 156 Eng. Rep. 145, allowing damages flowing from unusual
circumstances communicated to the breaching party when the contract was
formed.
Having here concluded that profits Lewis Jorge might have earned on
future construction projects were improperly awarded as general damages, we now
decide whether those lost potential profits were recoverable as special damages.
Lost profits, if recoverable, are more commonly special rather than general
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damages (3 Dobbs, Law of Remedies, supra, § 12.4(3), pp. 76-77), and subject to
various limitations. Not only must such damages be pled with particularity
(Mitchell v. Clarke, supra, 71 Cal. at p. 164), but they must also be proven to be
certain both as to their occurrence and their extent, albeit not with “mathematical
precision.” (Berge v. International Harvester Co. (1983) 142 Cal.App.3d 152,
161; accord, Grupe v. Glick, supra, 26 Cal.2d at pp. 692-693; Resort Video, Ltd. v.
Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1698-1700.) “When the
contractor’s claim is extended to profits allegedly lost on other jobs because of the
defendant’s breach” that “claim is clearly a claim for special damages.” (3 Dobbs,
Law of Remedies, supra, § 12.4(3), fn. 12, p. 71.) Although Lewis Jorge did not
plead its lost future profits as special damages, the issue of their availability as
special damages was presented to the jury, and at oral argument the District
expressly stated that it was not relying on that pleading omission.
Although a few cases state that a contractor suing for breach of contract
may recover as special damages any profits it might have earned on other
unawarded construction contracts, such damages are frequently denied as too
speculative. (See, e.g., Hirsch Elec. Co., Inc. v. Community Services, Inc. (1988)
145 A.D.2d 603, 605 [536 N.Y.S.2d 141, 143] [contractor’s claim that breach
rendered it unable to obtain bonding, without which it could not bid or win another
contract on which it would have made a profit of $800,000, was rejected as
consisting of “inferences piled upon inferences” that “as a matter of law, are too
speculative to give rise to the recovery of damages for lost profits”]; Manshul
Constr. Corp. v. Dormitory Auth. of N.Y. (1981) 111 Misc.2d 209 [444 N.Y.S.2d
792, 803-804].) And there are federal decisions that likewise have rejected as too
remote and speculative special damages for breach consisting of profits lost on
other contracts. As one circuit court explained, “even in a common-law suit there
would be no recovery for general loss of business, the claimed loss of [the
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contractor’s entire] net worth, and losses on the non-federal work—such damages
are all deemed too remote.” (William Green Construction Co., Inc. v. United
States (1973) 477 F.2d 930, 936; accord, Olin Jones Sand Company v. United
States (1980) 225 Ct.Cl. 741 [failure of government to make timely progress
payments to contractor caused it loss of standing in the business community and
occasioned denial of bonding on other contracts; lost profits on such contracts too
remote and indirect]; Rocky Mountain Constr. Co. v. United States (1978) 218
Ct.Cl. 665, 666 [“wholly conjectural” whether the plaintiff contractor would have
received other contracts; such speculative and remote damages not compensable as
a matter of law].) These cases bar recovery of profits lost on future contracts not
because the amount of the lost profits is speculative or remote, but because their
occurrence is uncertain. (Continental Car-Na-Var Corporation v. Moseley (1944)
24 Cal.2d 104, 113; see 1 Dunn, Recovery of Damages for Lost Profits (5th ed.
1998.) § 1.6, p. 17; 2 Bruner and O’Connor, Construction Law (2002) § 7:173, p.
945 [an impaired bonding claim is a lost business claim with the added
requirement that plaintiff must prove that the breach of contract caused the
impairment of bonding capacity].)
California, likewise, has not upheld as special damages a contractor’s
unearned profits after breach of the construction contract. In S.C. Anderson v.
Bank of America (1994) 24 Cal.App.4th 529, a contractor hired to build tenant
improvements did not receive timely payment from a financially strapped
developer, and because of the contractor’s rising receivables, its surety reduced its
bonding capacity. Before the surety’s action, the contractor had submitted the low
bid on a public school construction project. Instead of awarding the contract to
that contractor, the school district rebid the project. The contractor prepared a
rebid, but could not submit its rebid because it lacked the requisite bonding
capacity. Its rebid was lower than the winning bid for the school project. The
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contractor sued the developer’s lender for fraud, seeking damages of $140,588 for
profits it did not earn on the school project, amounting to 5 per cent of its rebid.
The Court of Appeal affirmed nonsuit for the lender on the lost profits damages,
noting there was “no evidence which would have enabled the jury to conclude it
was reasonably probable” the contractor “would in fact have earned a profit” in
the claimed amount. (Id. at p. 536.) Although the contractor “was only obliged to
demonstrate its loss with reasonable certainty” (id. at pp. 537-538), the court said
that the contractor had failed to show that it would be “impossible or impracticable
to produce evidence relating to the accuracy of its bid, its ability to competently
and efficiently perform the [school] project, or its likely net profit.” (Id. at p. 538.)
In contrast to S.C. Anderson, where the lost profits claim was for a sum
certain and flowing from a particular project that the contractor would likely have
won as the low bidder, the lost profits Lewis Jorge claimed it would have made on
future construction projects were uncertain and speculative.
At trial, Lewis Jorge presented evidence that its bonding capacity was
reduced by its surety after the District’s termination of the contract. But Lewis
Jorge did not establish that when the contract was formed the District could have
reasonably contemplated that its breach of the contract would probably lead to a
reduction of Lewis Jorge’s bonding capacity by its surety, which in turn would
adversely affect Lewis Jorge’s ability to obtain future contracts. As the evidence
at trial disclosed, Lewis Jorge’s bonding agent, who had obtained the construction
bonds from CNA, anticipated that CNA’s suspension of Lewis Jorge’s bonding
capacity would only be temporary. “Damages may be awarded for breach of
contract for those losses which naturally arise from the breach, or which might
reasonably have been foreseen by the parties at the time they contracted, as the
probable result of the breach.” (Burnett & Doty Development Co. v. Phillips,
supra, 84 Cal.App.3d at p. 389.) But the breaching party “is not required to
17

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compensate the injured party for injuries that it had no reason to foresee as the
probable result of its breach when it made the contract.” (Ibid.; Coughlin v. Blair
(1953) 41 Cal.2d 587, 603.)
Evidence at trial established that the owner’s terminating a contract might
or might not cause the contractor’s surety to reduce its bonding capacity. As the
District pointed out at oral argument, when it signed the contract it did not know
what Lewis Jorge’s balance sheet showed or what criteria Lewis Jorge’s surety
ordinarily used to evaluate a contractor’s bonding limits. Absent such knowledge,
the profits Lewis Jorge claimed it would have made on future, unawarded
contracts were not actually foreseen nor reasonably foreseeable. Hence they are
unavailable as special damages for the breach of this contract.
To summarize: It is indisputable that the District’s termination of the
school construction contract was the first event in a series of misfortunes that
culminated in Lewis Jorge’s closing down its construction business. Such
disastrous consequences, however, are not the natural and necessary result of the
breach of every construction contract involving bonding. Therefore, as we
concluded earlier, lost profits are not general damages here. Nor were they
actually foreseen or foreseeable as reasonably probable to result from the
District’s breach. Thus, they are not special damages in this case.
DISPOSITION
The judgment of the Court of Appeal must be modified to read: “The
judgment against Christopher Butler is reversed; the award of prejudgment interest
is reversed; the award of attorney fees is reversed; and the award of $3,148,197 for
lost profits is reversed. In all other respects, the judgment is affirmed. The matter
18

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is remanded to the trial court for an award of prejudgment interest consistent with
the opinion of the Court of Appeal.” As modified that judgment is affirmed.
KENNARD,
J
WE CONCUR:

GEORGE, C. J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
BROWN, J.
MORENO, J.
19

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Lewis Jorge Construction Management, Inc. v. Pomona Unified School District
__________________________________________________________________________________

Unpublished Opinion

NP opn. filed 11/26/02 - 2d Dist., Div. 5
Original Appeal
Original Proceeding
Review Granted
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S112624
Date Filed: December 23, 2004
__________________________________________________________________________________

Court:

Superior
County: Los Angeles
Judge: Harold I. Cherness*

__________________________________________________________________________________

Attorneys for Appellant:

Horvitz & Levy, Mitchell C. Tilner, John A. Taylor, Jr.; Best, Best & Krieger, Howard B. Golds and Piero
C. Dallarda for Defendants and Appellants.

Atkinson, Andelson, Loya, Ruud & Romo, Terry T. Tao and Joseph J. Huprich for Education Legal
Alliance of the California School Boards Association as Amicus Curiae on behalf of Defendants and
Appellants.

Orbach & Huff, David M. Huff and Sima R. Salek for Coalition for Adequate School Housing as Amicus
Curiae on behalf of Defendants and Appellants.

__________________________________________________________________________________

Attorneys for Respondent:

Case, Ibrahim & Clauss, F. Albert Ibrahim; Snell & Wilmer, Richard A. Derevan and Marc L. Turman for
Plaintiff and Respondent.

Gordon & Rees and Thorsten J. Pray for Associated General Contractors of California as Amicus Curiae on
behalf of Plaintiff and Respondent.

*Retired judge of the former Municipal Court for the Culver Judicial District, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
20

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Mitchell C. Tilner
Horvitz & Levy
15760 Ventura Boulevard, 18th Floor
Encino, CA 91436-3000
(818) 995-0800

Richard A. Derevan
Snell & Wilmer
1920 Main Street, Suite 1200
Irvine, CA 92614-7060
(949) 253-2700

21

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Opinion Information

Date:	Docket Number:
Thu, 12/23/2004	S112624

Disposition
Dec 23 2004	Opinion: Affirmed as modified

Dockets
Jan 7 2003	Petition for review filed   by both counsel for defendants, appellants and respondents (Pomona Unified School District and Christopher Butler) CRC40k/FedExp
Jan 7 2003	Record requested
Jan 21 2003	Received Court of Appeal record   one doghouse sent overnight.
Jan 21 2003	2nd record request
Jan 27 2003	Answer to petition for review filed   Plaintiff; respondent, appellant LEWIS JORGE CONSTRUCTION MGMNT, INC.
Jan 28 2003	Received document entitled:   Lewis Jorge Construction Management, Inc.'s Request for Judicial Notice and Appendix in Answer to Petition for Review.
Feb 19 2003	Petition for review granted; issues limited (civil case)   Review shall be restricted to those issues raised in the petition for review. The request for judicial notice is denied.( See Cal. Rules of Court, rule 977(c); see also Mangini v. R.J. Reynolds Tobacco Co.(1994) 7 Cal. 4th 1057, 1064.) Votes: George, C.J., Kennard, J.,Baxter,J.,Werdegar, J.,Chin, J.,Brown,J.,and Moreno, J.
Feb 21 2003	Received Court of Appeal record   remainig doghouse.
Mar 4 2003	Certification of interested entities or persons filed   By counsel for Defendants, Appellants & Respondents {Pomona Unified School Disitrict et al.,}.
Mar 6 2003	Request for extension of time filed   By counsel for Defendants. Appellants & Respondents {Pomona Unified School District} requesting a 31-day extension to April 21, 2003 to file Opening Brief on the Merits.
Mar 7 2003	Certification of interested entities or persons filed   By counsel for Plaintiff, Respondent and Appellant {Lewis Jorge Construction Management INC.}.
Mar 11 2003	Exhibits lodged   5 black binders>>appellant Lewis Jorge Construction
Mar 12 2003	Received Court of Appeal record   remaining [8] doghouses shipped regular to Jorge.
Mar 13 2003	Extension of time granted   To April 21, 2003 to file Respondents' Opening Brief on the Merits.
Apr 21 2003	Opening brief on the merits filed   By Respondents {Pomona Unified School District et al.,}.
May 5 2003	Request for extension of time filed   By Appellant {Lewis Jorge Construction Management Inc.,} asking until July 7, 2003 to file Appellant's Answer Brief on the Merits.
May 5 2003	Association of attorneys filed for:   Appellant {Lewis Jorge Construction Management Inc.,}. Richard A. Derevan, Snell & Wilmer LLP.,
May 13 2003	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the appellant's answer brief on the merits is extended to and including July 7, 2003.
Jul 8 2003	Answer brief on the merits filed   By Appellant {Lewis Jorge Construction Management Inc.,}. / 40(K).
Jul 14 2003	Request for extension of time filed   By Respondent {Pomona Unified School District} asking until August 27, 2003 to file Respondent's Reply Brief on the Merits.
Jul 21 2003	Extension of time granted   To August 27, 2003 to file Respondent's Reply brief on the Merits.
Aug 19 2003	Request for extension of time filed   By Respondents asking until September 11, 2003 to file Respondent's Reply Brief on the Merits.
Aug 20 2003	Extension of time granted   To September 11, 2003 to file Respondent's Reply Brief on the Merits.
Sep 12 2003	Received:   Respondents' Reply Brief on the Merits. / 40(K). Brief exceeds the 4200 word limit.
Sep 12 2003	Application to file over-length brief filed
Sep 12 2003	Reply brief filed (case fully briefed)   with permission.
Oct 7 2003	Received:   request for extension of time to file amicus curiae brief of Coalition for Adequate School Housing to and including November 13, 2003.
Oct 10 2003	Received:   amended p.o.s. for the application for extension of time to file application and amicus brief
Oct 14 2003	Received application to file amicus curiae brief; with brief   Education Legal Alliance of the California School Boards Association in support of Pomona Unfiied School District. [App & Brief are separate.]
Oct 14 2003	Received application to file Amicus Curiae Brief   Of Associated General Contractors of California in support of Appellant {Lewis Jorge Constructions Managment Inc.,}.
Oct 16 2003	Extension of time granted   To November 12, 2003 to file Application and AC Brief of Coalition for Adequate School Housing.
Oct 20 2003	Permission to file amicus curiae brief granted   Associated General Contractors of California.
Oct 20 2003	Amicus curiae brief filed   Associated General Contractors of California in support of Appellant. Answer is due within twenty days.
Oct 21 2003	Permission to file amicus curiae brief granted   The Education Legal Alliance of the California School Boards Association in support of Respondents.
Oct 21 2003	Amicus curiae brief filed   The Education Legal Alliance of the California School Boards Association in support of Respondents {Pomona Unified School District}. An answer is due within twenty days.
Oct 27 2003	Request for extension of time filed   By appellants & Respondents asking until December 2, 2003 to file their respective Consolidated Responses to AC Briefs.
Oct 31 2003	Extension of time granted   To December 2, 2003 to file Appellant's {Lewis Jorge Construction Management} and Respondents' {Pomona Unified School District} Consolidated Responses to AC Briefs.
Nov 12 2003	Received application to file amicus curiae brief; with brief   Coalition for Adequate School Housing supports Respondent, Pomona Unfiied School District
Nov 19 2003	Permission to file amicus curiae brief granted   Coalition for Adequate School Housing in support of Respondents.
Nov 19 2003	Amicus curiae brief filed   Coalition for Adequate School Housing in support of Respondents. Answer is due within twenty days.
Dec 3 2003	Response to amicus curiae brief filed   By Respondent {Pomona Unified School District} to AC Brief filed by Associated General Contractors of California. / 40(K).
Dec 3 2003	Response to amicus curiae brief filed   Appellant {Lewis Jorge Contrcution Management INC.} to AC Briefs filed by Education Legal Alliance of the California School Boards Assn. and by Coalition for Adequate School Housing. / 40(K).
Apr 9 2004	Received:   letter from counsel for appellant {Lewis Jorge Construction Management, Inc.,} regarding unavailability of counsel for oral argument in June.
Aug 25 2004	Supplemental briefing ordered   The parties are directed to answer the following question in letter briefs to be received by this court not later than 5 pm on Tuesday, September 14, 2004. Reply letter briefs must be received by this court not later than 5 pm on Tuesday, September 21, 2004. Would an award for lost future profits on other, unawarded contracts have been proper as special damages under California law in this case?
Sep 1 2004	Case ordered on calendar   10/6/04 @ 9am - Los Angeles
Sep 14 2004	Supplemental brief filed   By counsel for Defendants/Appellants/Respondents {Pomona Unified School District et al.,}.
Sep 14 2004	Supplemental brief filed   by counsel for plntff/resp/applnt LEWIS JORGE CONSTRUCTION MANAGEMENT, INC.
Sep 14 2004	Supplemental brief filed   By AC "Associated General Contractors of California".
Sep 21 2004	Received:   Letter brief of resps.,POMONA U.S.D. - responding to brief of applnt. Lewis Jorge Construction Mgmnt., Inc., dated Sept 14, 2004.
Sep 21 2004	Supplemental brief filed   REPLY - by counsel for Plaintiff/Res/Appellant {Lewis Jorge Construction Management, Inc.,}
Oct 6 2004	Cause argued and submitted
Dec 23 2004	Opinion filed: Judgment affirmed as modified   The judgment of the Court of Appeal must be modified to read: "The judgment against Christopher Butler is reversed; the award of prejudgment interest is reversed; the award of attorneys fees is reversed; and the award of $3,148,197 for lost profits is reversed. In all other respects; the judgment is affirmed. The matter is remanded to the trial court for an award of prejudgment interest consistent with the opinion of the Court of Appeal." Majority Opinion by Kennard, J., ----- Joined by George, CJ., Baxter, Werdegar, Chin, Brown and Moreno, JJ.
Jan 7 2005	Rehearing petition filed   By counsel for appellant {Lewis Jorge Construction Management, Inc.,}.
Jan 10 2005	Time extended to consider modification or rehearing   To March 23, 2005.
Jan 19 2005	Answer to rehearing petition filed   By Respondents {Pomona Unified School District et al.,} / CRC 40.1(b)
Feb 16 2005	Rehearing denied
Feb 16 2005	Remittitur issued (civil case)
Feb 23 2005	Received:   Receipt for Remittitur from 2 DCA Div. 5.

Briefs
Apr 21 2003	Opening brief on the merits filed
Jul 8 2003	Answer brief on the merits filed
Sep 12 2003	Reply brief filed (case fully briefed)
Oct 20 2003	Amicus curiae brief filed
Oct 21 2003	Amicus curiae brief filed
Nov 19 2003	Amicus curiae brief filed
Dec 3 2003	Response to amicus curiae brief filed
Dec 3 2003	Response to amicus curiae brief filed

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website