Mitigation of damages is a contract law concept that arises if a contract is breached. It means that the non-breaching party to a contract may be required to take steps to minimize their losses after the other party breaches the contract.
Despite doing nothing wrong, a non-breaching party may have an obligation to not only avoid further loss because of a breach of contract, but also actively minimize the results of the breach.
To the average observer, this may seem very unfair. However, as most experienced executives know, this concept arises again and again in business. If you choose not to mitigate damages, your recovery in a breach of contract lawsuit could be reduced by the amount you could have saved if you had mitigated your damages.
In this article, we will discuss the basics of the duty to mitigate damages in contract law, as well as cover some mitigation of damages examples to help explain how this concept works in real life.
What Does Duty to Mitigate Damages Mean?
Duty to mitigate damages is a contract concept that simply means that the party who did not breach the contract cannot take advantage of the breach. This duty protects a breaching party from unfair liability. This duty also prevents recovery of any damages that could have been reasonably avoided.
While each person and each court might have a slightly different interpretation of reasonableness, the legal standard is typically, what is reasonable under these circumstances? Using that metric for the mitigation of damages, courts will typically reduce a damages award in breach of contract cases if a party had a duty to mitigate and did not do it. Usually, these awards are reduced by the amount that the court believes the party could or should have mitigated.
Mitigation of Damages in Breach of Contract
Examples of mitigation of damages and the duty to mitigate can be found in all types of contracts. For instance, suppose a homeowner contracts with a roofing company to repair broken shingles on a leaking roof. The roofing company begins the job, removes the broken shingles, and identifies the source of the leak. However, weeks pass, and the roofers never return to complete the work. The homeowner never covers the hole left by the removed shingles and never hires another tradesperson to finish the job. As a result, the homeowner’s house is badly damaged by rot and mold. When the homeowner sues the roofing company, their award is drastically reduced by the judge. The judge chastises the homeowner for their failure to mitigate damages by covering the hole.
Proving Failure to Mitigate Damages
As a business owner or executive, you want to be able to prove that a party failed to mitigate their damages. One of the most important things to note is that it is your responsibility to show that the other party failed to reasonably reduce their costs. If you do find yourself in a breach of contract situation, keep good records. Make sure to maintain all documentation. Contact an experienced commercial litigator as soon as possible. Good legal advice can save you thousands in costs and liabilities.
Once you have demonstrated that the other party failed to mitigate damages, the court will evaluate the case and terms of the contract. Looking at the contract price and language, the court typically estimates damages by looking at how much of the contract was fulfilled. The court also often examines whether the other party’s actions were actually responsible for the breach, and if so, how much. Taking all these things into consideration, the court can then calculate a damages award, taking into account the mitigation of damages and any appropriate reductions.
The Miller Law Firm Difference
With a deep bench of commercial litigators experienced in all aspects of contract law, the Miller Law difference is obvious. We provide hands-on client service to some of America’s top businesses and executives, helping to navigate through complex contract disputes. Contact us today for a consultation.