Also known as: incidental damages · consequential damages
Written by attorneys · grounded in primary & secondary sources — see below
Expenses and losses recoverable by a buyer in addition to the primary measure of damages for a seller's breach of a contract for the sale of goods. Incidental damages cover reasonable costs of inspection, receipt, transportation, care of rejected goods, and charges incurred in effecting cover. Consequential damages cover losses resulting from the buyer's general or particular requirements that the seller had reason to know at contracting and that could not reasonably be prevented by cover.
Imperial Motors contracted to buy specialized engines from a supplier at a fixed price for delivery by a set date. When the supplier failed to deliver, Imperial Motors purchased substitute engines from another vendor at a higher price within a reasonable time. Imperial Motors seeks the difference between the cover price and the contract price along with the reasonable costs of arranging the substitute purchase.
Iris Energy agreed to purchase solar panels from a manufacturer at a contract price with delivery scheduled for a specific month. The manufacturer repudiated the contract before delivery. Iris Energy measures its damages by the difference between the market price on the date it learned of the breach and the contract price plus any reasonable expenses incurred in responding to the nondelivery.
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Innovate Pharmaceuticals received a shipment of chemical compounds that failed to meet contract specifications. The company incurred expenses inspecting the goods, storing them pending return, and transporting them back to the seller. These outlays qualify as recoverable expenses arising directly from the seller's breach.
Integrity Partners purchased industrial equipment under a contract that excluded recovery of consequential damages for lost production. When the equipment failed, Integrity Partners sought to recover profits lost from plant shutdowns. The exclusion clause bars those losses because the transaction involved commercial goods rather than consumer products causing personal injury.
Ivy Ibarra purchased cigarettes whose advertising created an express warranty. After developing lung cancer, she sought damages for medical expenses and lost wages caused by the breach. The court permitted recovery of those losses as consequential damages proximately resulting from the warranty breach.
Irene Ingalls purchased a vehicle that rolled over during normal use, causing personal injuries. She pursued both strict products liability and breach of warranty claims. The court treated the personal-injury losses as recoverable consequential damages under the warranty theory while applying tort standards to the defect analysis.
Incidental damages include reasonable costs of inspecting, receiving, transporting, and storing goods that a buyer rightfully rejects, plus commercially reasonable charges incurred in effecting cover and any other reasonable expenses arising from the seller's delay or breach.
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A seller may limit or exclude consequential damages unless the limitation is unconscionable. A limitation on consequential damages for personal injury in consumer-goods transactions is prima facie unconscionable, but a limitation in a purely commercial transaction is not.
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When a buyer properly covers after a seller's breach, the buyer recovers the difference between the cost of cover and the contract price together with any incidental or consequential damages, less expenses saved because of the breach.
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The buyer must show that the seller had reason to know of the buyer's particular requirements at the time of contracting and that the loss could not reasonably have been prevented by cover or other mitigation.
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…name of warranty goes far beyond any liability based upon conventional contract notions and encompasses such tort concepts as consequential damages and contributory fault. As Dean Prosser has said: "[T]his warranty, if that is the name for it is something separate and distinct which sounds in tort exclusively, and not at all in…