Legal Definitions - diminution in value

Diminution in value is a legal concept used to calculate the financial compensation, or damages, owed to a party when a contract has been breached. It measures the reduction in the market worth of an item or service that was delivered imperfectly, compared to its value if the contract had been performed exactly as agreed. Essentially, it represents the difference between the market value of what was promised and the market value of what was actually received.

This method of calculating damages aims to put the harmed party in the financial position they would have been in had the contract been fully and properly performed, by compensating them for the lost value.

• Example 1: Vehicle Repair Contract

  Imagine you contract with an auto body shop to repair significant damage to your luxury car after an accident. The agreement specifies using original manufacturer parts to restore the car to its pre-accident condition, ensuring its resale value is maintained. However, the shop uses cheaper, aftermarket parts without your consent. While the car appears repaired, an independent appraisal reveals that its market value is now $10,000 less than it would have been if genuine parts had been used as promised.

  This $10,000 difference represents the diminution in value. It's the reduction in the car's worth due to the breach of contract (using aftermarket parts instead of genuine ones), calculated by comparing the car's value as promised versus its value as actually delivered.

• Example 2: Custom Furniture Commission

  Suppose you commission a custom-made solid oak dining table from a furniture maker for $8,000, with the contract explicitly stating the use of premium, kiln-dried white oak. Upon delivery, you discover that while the table appears well-made, the builder used a less expensive, lower-grade red oak, which is prone to warping and has a different aesthetic. An expert appraisal determines that a table made from red oak, even with the same craftsmanship, would only fetch $6,000 on the market.

  The $2,000 difference ($8,000 promised value - $6,000 actual value) is the diminution in value. This amount compensates you for the reduced market worth of the table you received compared to the table you were promised, directly resulting from the furniture maker's failure to adhere to the contract's material specifications.