Also known as:warranty damage · damages for breach of warranty
Written by attorneys — see sources below.
Damages awarded to a buyer for a seller's breach of warranty after acceptance of goods. The amount equals the difference at the time and place of acceptance between the value of the goods as delivered and the value they would have possessed if they had conformed to the warranty, unless special circumstances demonstrate that proximate damages differ in amount.
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How its tested
Common Examples
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Defective Servers Trigger Value Differential
Harbor Logic purchased servers from Star Networks after seeing advertisements promising reliable performance with one thousand concurrent users. The buyer accepted the servers at the seller's facility following only basic power-on tests. Market evidence later showed that servers limited to five hundred users sold for substantially less than the contract price at the time and place of acceptance. Harbor Logic recovered the difference between the servers' actual value and their warranted value under the governing damages rule.
Surgical Warranty Produces Expectation Loss
A patient contracted with a surgeon for an operation that the doctor warranted would produce a good hand. The procedure left the hand in worse condition than before. The court measured damages by the difference between the value of the hand as it existed after the operation and the value it would have possessed if the warranty had been fulfilled, placing the patient in the position promised by the contract.
Nine years before the events in question, the plaintiff suffered a severe burn from contact with an electric wire, resulting in substantial scar tissue on the palm of his right hand. The defendant, a surgeon, repeatedly solicited the plaintiff's father for the opportunity to perform an operation to remove the scar tissue and graft skin from the plaintiff's chest in its place.
Before the operation, the plaintiff and his father visited the defendant's office, where the defendant responded to a question about the hospital stay by stating that the boy would be in the hospital three or four days, not over four, after which the boy could go home and return to work with a perfect hand in just a few days thereafter. The defendant further stated that he would guarantee to make the hand a hundred per cent perfect hand or a hundred per cent good hand.
Following the operation, a trial was held in which the jury awarded damages to the plaintiff. The trial court subsequently set aside the verdict to the extent it exceeded five hundred dollars, determining those amounts to be excessive. The case reached the Supreme Court of New Hampshire.
When does the special circumstances exception permit a measure of warranty damages other than the standard value differential?
The exception applies when facts show that the buyer's actual proximate loss differs from the ordinary difference in value at acceptance. Courts examine whether the defect was latent, whether the buyer provided notice of special needs, and whether later events demonstrate harm beyond the market value gap at the moment of acceptance.
Supporting sources
How do warranty damages under UCC 2-714(2) differ from consequential damages under 2-714(3)?
The value-differential formula in subsection (2) supplies the primary measure focused on the goods themselves at acceptance. Subsection (3) separately authorizes incidental and consequential damages in a proper case, but only after the base measure is applied or when special circumstances justify an alternative calculation.
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Does buyer acceptance of nonconforming goods bar all warranty damages claims?
Acceptance precludes rejection of the goods but does not impair the buyer's right to recover damages for nonconformity. The buyer may still pursue the value-differential measure plus any available incidental or consequential damages after proper notice.
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What evidence establishes the value of goods as warranted versus as accepted?
Market data for comparable goods at the time and place of acceptance supplies the most direct proof. When comparable sales exist, courts use those prices to calculate the differential without requiring proof of the buyer's later actual losses.
Supporting sources
84 N.H. 114, 146 A. 641 (1929)
…to one in which a machine is built for a certain purpose and warranted to do certain work. In such cases, the usual rule of damages for breach of warranty in the sale of chattels is applied and it is held that the measure of damages is the difference between the value of the machine if it had corresponded with the warranty and its actual…