Mitigation of damages

Definition

Mitigation of damages is a legal principle requiring a party suffering loss due to a breach of contract to take reasonable steps to reduce or minimize their damages. This concept emphasizes that the injured party cannot simply sit back and let damages accumulate; instead, they must actively seek ways to lessen the impact of the breach. The idea is rooted in fairness and encourages responsible behavior in response to contract violations.

5 Must Know Facts For Your Next Test

1. The injured party has an obligation to mitigate damages, meaning they must act reasonably and promptly after a breach occurs.
2. Failure to mitigate can result in a reduction of recoverable damages, as courts may limit compensation to what could have been reasonably avoided.
3. Mitigation does not require the injured party to take extreme measures; they only need to act in good faith and make reasonable efforts.
4. The burden of proof typically lies with the breaching party to show that the injured party failed to mitigate their damages.
5. Courts will often look at industry standards to determine what constitutes reasonable mitigation efforts in specific cases.

Review Questions

• How does the principle of mitigation of damages affect the injured party's responsibilities following a breach of contract?
  • The principle of mitigation of damages places an active responsibility on the injured party to take reasonable steps to minimize their losses after a breach. This means they cannot simply allow damages to accumulate without attempting to lessen them. If they fail to take appropriate actions, they may find that their recoverable damages are reduced, as courts expect them to make reasonable efforts consistent with industry practices.
• Evaluate the consequences an injured party might face if they do not adequately mitigate their damages after a breach.
  • If an injured party does not adequately mitigate their damages, they may face significant consequences, such as a decrease in the amount of compensation awarded by a court. The breaching party can argue that the injured party's failure to act reasonably resulted in higher losses than necessary. Consequently, courts may limit recovery only to those damages that could have been avoided with proper mitigation efforts, reinforcing the importance of proactive measures.
• Assess how the mitigation of damages principle interacts with other damage-related legal concepts, such as foreseeability and consequential damages, in determining recoverable losses.
  • The mitigation of damages principle interacts closely with concepts like foreseeability and consequential damages in assessing recoverable losses. While foreseeability establishes the boundaries of what types of damages are recoverable based on what was anticipated at the time of contract formation, mitigation emphasizes that plaintiffs must also act reasonably post-breach. This interplay means that if a plaintiff can foresee certain consequences of a breach but fails to take action to avoid them, they may be barred from recovering those particular consequential damages, ultimately ensuring fairness and responsibility in contractual relationships.

Related terms

Consequential Damages: Damages that are not directly caused by a breach but occur as a foreseeable consequence of the breach.

Compensatory Damages:

Damages intended to compensate the injured party for their actual losses resulting from the breach.

Foreseeability:

The concept that parties should only be held liable for damages that were foreseeable at the time of contracting.