When one party fails to live up to their part of a mutual agreement, it’s called a breach of contract. This breach can leave the other party facing unexpected costs or losses, but they may have the option of taking legal recourse.
But here’s the catch: the party affected by the breach can’t just sit back and let the losses pile up. They have a legal duty to minimize the damage, a concept known as mitigation of damages.
Mitigating damages is all about taking reasonable steps to reduce the impact of the breach. If you don’t try to mitigate, it could seriously affect how much you can recover. Let’s take a closer look at what mitigation is, some examples where it is necessary, and how BrewerLong can help.
What Is the Obligation to Mitigate Damages?
Mitigation of damages is a legal requirement that obligates the non-breaching party to take reasonable steps to minimize the financial impact of a breach of contract.
This duty isn’t about passively waiting for compensation; it’s about actively working to reduce the potential losses that arise from the breach. For instance, if a supplier fails to deliver goods, you might need to seek out alternative vendors to fulfill your needs, even if it costs a bit more.
If a tenant breaks a lease, you should try to re-rent the property as soon as possible. And if a buyer backs out of a deal, you might need to find another buyer rather than letting the goods go to waste. The obligation to mitigate involves several key actions, including:
- Taking prompt steps to limit losses,
- Avoiding behaviors that could unnecessarily increase damages, and
- Acting in a manner consistent with what a reasonable person would do under similar circumstances.
Legally, courts see mitigation as a matter of fairness. They expect you to act responsibly and reasonably to minimize your losses. If you fail to do so, the court may reduce the damages you can recover, as they don’t want to reward inaction.
Courts will closely scrutinize whether you made reasonable efforts to mitigate, which can significantly impact the outcome of your case.
Practical Examples of Mitigation Scenarios
Example 1: Employment Contract
An employer wrongfully terminates an employee. To mitigate damages, the employee must make reasonable efforts to find new employment. This doesn’t mean they have to accept any job, but they should look for a similar role, salary, and location position.
If the employee fails to do so, the court might reduce any damages they seek for lost wages, reflecting the income they could have earned had they made reasonable efforts to find new work.
Example 2: Supply Contract
Imagine a supplier failing to deliver critical materials needed for a project. The buyer should seek alternative suppliers to fulfill their needs rather than waiting and letting the project suffer further delays, even if it costs more.
By doing so, the buyer mitigates the financial impact of the breach. This is a mitigation of damages example where if the buyer doesn’t take these steps and allows the project to stall, the damages they can recover might be limited, as the court may view the additional losses as avoidable.
Example 3: Rental Agreements
When a tenant breaks a lease and vacates the property early, the landlord must try to re-rent the property as soon as possible. The landlord cannot simply leave the property vacant and claim the remaining rent from the tenant.
Courts expect landlords to make reasonable efforts to find a new tenant to mitigate their losses. If the landlord does nothing, the court may reduce the damages awarded, reflecting the rent that could have been earned had the landlord acted promptly.
What If Someone Fails to Mitigate?
Failing to mitigate damages in contract law can significantly affect how much a non-breaching party can recover. The court may reduce the damages awarded if the affected party doesn’t take reasonable steps to minimize their losses.
For example, if an employee fails to seek new work after being wrongfully terminated, the court could significantly reduce the damages for lost wages. The principle here is that the non-breaching party should not be compensated for losses they could have reasonably avoided.
When it comes to recoverable damages, they typically fall into two categories:
- Compensatory damages—these damages cover direct losses resulting from the breach, such as lost wages or the cost of substitute goods or services; and
- Consequential damages—this category addresses secondary losses, like lost profits or additional expenses incurred due to the breach.
Mitigation plays a crucial role in calculating these damages. If the non-breaching party fails to mitigate, the court may only award damages for losses that could not have been reasonably avoided, further reducing the overall recovery.
Trust the Contract Law Attorneys at BrewerLong
If you’re dealing with a breach of contract and need guidance on mitigating damages, the attorneys at BrewerLong are here to assist. Our experienced contract law team can help you navigate the complexities of your case and ensure your rights are protected. Contact our office or fill out our online contact form to schedule a consultation and discuss your situation.
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