Lost Profits vs. Actual Losses
When a contract is breached or a business suffers harm due to someone else’s wrongful actions, a common question arises: Can I recover damages for lost profits, or am I limited to just my actual (out-of-pocket) losses?
The answer is: Yes, you may be able to recover lost profits—under the right circumstances. But it’s more complex than simply tallying up missed sales. Courts treat lost profits as a form of compensatory damages, but with special evidentiary requirements that go beyond basic losses.
What Are “Actual Losses” vs. “Lost Profits”?
- Actual (or direct) losses refer to the tangible expenses or costs you’ve already incurred due to the wrongful conduct—such as inventory costs, repair bills, or lost equipment.
- Lost profits are the earnings you would have made had the harm or breach not occurred. This is a form of consequential or expectation damages.
Can I Recover Lost Profits?
Yes—if you can prove three key things:
- Foreseeability: The lost profits must have been a foreseeable result of the breach or misconduct. In contract cases, this usually means the parties understood—or should have understood—that profits were at stake when the deal was made.
- Causation: You must prove that the other party’s actions directly caused your lost profits—not market conditions, unrelated events, or your own choices.
- Reasonable Certainty: Courts don’t require mathematical precision, but they do require enough evidence to estimate lost profits with a reasonable degree of certainty. This often includes:
- Past performance records
- Industry benchmarks
- Expert testimony
- Sales forecasts or contracts that were disrupted
Common Situations Where Lost Profits Are Claimed
- Breach of contract: A supplier backs out of a deal, causing a manufacturer to lose a major customer.
- Business interruption: A landlord wrongfully locks out a tenant’s retail store during peak season.
- Tortious interference: A third party unlawfully disrupts a valuable deal you were about to close.
In these cases, lost profits may be awarded if properly proven.
Challenges to Recovering Lost Profits
Courts scrutinize lost profit claims carefully because they can be speculative. For new businesses, the burden is even higher, since there’s no track record of earnings. However, with good evidence—like market research, expert projections, or comparable business performance—it’s still possible.
Bottom Line
You can recover lost profits in addition to actual losses, but doing so requires solid evidence and a strong legal foundation. If you’re involved in a business dispute or breach of contract case, speak with a qualified attorney early to help preserve and document your lost profit claim.
Need legal help? In California, navigating legal challenges, whether they involve personal injury, workers’ compensation, criminal defense or civil litigation, can be overwhelming. Khoury Law Group is here to provide the critical legal support you need. As a leading advocate for individuals facing legal battles, our experienced attorneys understand the complexities of the legal system and are committed to fighting for your best interests. With personalized legal strategies and compassionate support, we are dedicated to achieving the justice and compensation you deserve.
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