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Chatlos Systems Inc. v. Nat'l Cash Register Corp. - 670 F.2d 1304 (3d Cir. 1982)

Rule:

Evidence of the contract price may be relevant to the issue of fair market value, but it is not controlling.

Facts:

Plaintiff initiated an action alleging breach of warranty regarding a computer system it had acquired from defendant. The case was removed under 28 U.S.C. § 1441(a) to the United States District Court for the District of New Jersey. Following a non-jury trial, the district court determined that defendant was liable for breach of warranty and awarded $ 57,152.76 damages for breach of warranty and consequential damages in the amount of $ 63,558.16.Defendant appealed and the court affirmed the district court's findings of liability, set aside the award of consequential damages, and remanded for a recalculation of damages for breach of warranty. On remand, applying the "benefit of the bargain" formula,  the district court determined the damages to be $ 201,826.50, to which it added an award of prejudgment interest. Defendant then appealed from these damage determinations contending that the district court erred in failing to recognize the $ 46,020 contract price of the delivered NCR computer system as the fair market value of the goods as warranted, and that the award of damages is without support in the evidence presented. Defendant also contests the award of prejudgment interest. The court affirmed the damage award and award of prejudgment interest against defendant in the breach of warranty suit.

Issue:

Did the district court properly calculate damages pursuant to state statute?

Answer:

Yes.

Conclusion:

The court noted that defendant had waived the opportunity to submit evidence as to value on the remand and chose to rely on the original trial record. Plaintiff purchaser submitted expert testimony on the market value of a computer which would have performed the functions defendant had warranted. Contract price was not necessarily the same as market value. Plaintiff did not order, nor was it promised, merely a specific computer model, but a computer system with specified capabilities. The correct measure of damages, under N.J. Stat. Ann. § 12A:2-714(2), was difference between the fair market value of the goods accepted and the value they would have had if they had been as warranted. Defendant limited its fair market value analysis to the contract price of the computer model it actually delivered. Plaintiff developed evidence of the worth of a computer with the capabilities promised by NCR, and the trial court properly credited the evidence. The court affirmed the judgment, holding that the computation of damages for breach of warranty was not clearly erroneous, and the district court acted within its discretion in awarding pre-judgment interest.

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