Damages And Disclaimers in Actions for Breach of a “Repair or Replacement” Warranty

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How should damages be measured in an action for breach of repair-and-replacement warranty? And what elements of damages should available? I recently ran across a piece I wrote addressing these questions in 2005. Remarkably – or, perhaps, not so remarkably given the pace at which the law evolves – it remains relevant; so I thought I’d put it out there for comment. 

Items “normally used for personal, family, or household purposes,” such as automobiles and motor homes, fall within the definition of “consumer products” covered by the Magnuson-Moss Warranty Act—Federal Trade Commission Improvement Act of 1975 (“MMWA” or “Magnuson-Moss”), 15 U.S.C. § 2101, et seq., and other consumer protection statutes. Consumer products are generally sold with a “limited warranty;” that is, a warranty that promises only to repair or replace defects in material and workmanship at no charge for a specified period. Ever more frequently, the MMWA is being invoked by customers who claim to have experienced problems with their vehicles, and related warranty repairs, especially in states without strong “Lemon Laws.” How should damages be measured in such cases? And how should disclaimers be treated?

Typically, Magnuson-Moss plaintiffs request “difference in value” or benefit-of-the bargain damages, along with incidental and consequential damages for aggravation and inconvenience, and loss of use. Courts routinely apply the Uniform Commercial Code’s (“U.C.C.” or “the Code”) “standard” measure of damages found in § 2-714(2) (difference in the value of the goods at the and place of acceptance (delivery) as compared to the value the goods would have had had they been as warranted). On the other hand, many courts effectively ignore § 2-719(3) of the Code’s express requirement that an incidental and consequential damages disclaimer be found unconscionable before being cast aside. As a result, damage awards seldom are in line with the actual economic loss sustained or the warranty terms.

The Code’s damages provisions should not be mechanically applied in breach of limited warranty actions. Its standard measure of damages does not fit the promise made—or breached. But a limited warranty is sufficiently analogous to a U.C.C. warranty that the Code’s policies provide useful guidance for determining damages calculations. The best course is for the courts to fashion a measure of damages that produces a result that (1) is consistent with the U.C.C.’s aim of placing the aggrieved party in as good a position as he would have been in but for the breach, and (2) comports with the warranty promise. Because it is a promise to repair that has been breached, these aims are met by measuring damages in terms of repair cost. And consistent with the Code’s policy of allowing the parties to shape their contractual relationship, the courts should enforce damages limitations and disclaimers unless unconscionable. Applying an appropriate measure of damages and enforcing proper damages disclaimers will promote fairness and efficiency. Damages awards will more accurately reflect the economic harm sustained, and will be more predictable. This in turn will facilitate prompt dispute resolution.

My next couple of posts will take a deeper dive into legal analysis.

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