Duty to Mitigate: What is mitigation of damages?

Key takeaway:

  • Mitigation of damages requires parties in contract disputes to minimize their losses through reasonable efforts.
  • The duty to mitigate damages applies in various contexts, including employment termination, service contracts, and sales of goods.
  • Failure to mitigate damages can result in reduced compensation for the injured party in legal disputes.
  • Proactively seeking alternatives to limit financial losses promotes fairness and efficiency in contractual relationships.

By Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Have a quick question? I answered nearly 1500 FAQs.

What is mitigation of damages?

The doctrine of mitigation of damages, also known as the doctrine of avoidable consequences, prevents an injured party from recovering damages that could have been avoided through reasonable efforts. This duty to mitigate damages is most commonly applied in tort and contract law. In a breach of contract case, upon receiving notice that one party does not intend to perform, the other party must take reasonable actions to avoid further losses from the breach.

Mitigation of damages requires a party in a contract dispute to minimize damages caused by the other party’s breach. The principle discourages parties from allowing damage to increase without making any efforts to alleviate it. In contract law, this often involves making reasonable efforts to reduce losses resulting from the breach. For instance, if a contract is canceled, the injured party is expected to seek similar employment elsewhere to mitigate damages.

The rationale behind the duty to mitigate damages is to promote fairness and efficiency in contractual relationships. It prevents parties from passively suffering increased losses and then seeking full compensation from the breaching party. By requiring the injured party to take reasonable steps to reduce their damages, it encourages proactive behavior and minimizes unnecessary economic waste. This principle ensures that compensation is based on actual, unavoidable losses rather than avoidable ones, thereby promoting justice and discouraging opportunistic behavior in legal disputes.

Example: Employee was fired from job

If an employee is terminated from their job, they have a duty to mitigate damages by actively seeking new employment. For example, if an employee is let go, they should promptly start looking for a similar job in their field. If they find a comparable position and refuse it without a valid reason, they may not be able to recover the full amount of lost wages from their former employer. This demonstrates their obligation to take reasonable steps to minimize their financial losses after termination. Failure to mitigate damages in this context could lead to a significant reduction in the compensation they are entitled to receive.

Example: Breach of Service Contract by service provider

In a service contract for two years that is breached or terminated after one year, the service provider has a duty to mitigate damages. For instance, if a consultant is contracted to provide services for two years but the client terminates the contract after one year, the consultant must take reasonable steps to find similar consulting work for the remaining year. If the consultant can secure a similar contract or employment and chooses not to, they may not be able to claim the full amount of lost earnings from the breach. This illustrates their responsibility to minimize financial losses by seeking alternative opportunities. The failure to mitigate damages in such scenarios highlights the importance of proactive measures to limit financial harm.

Example: Breach of Service Contract by service buyer

Consider a contract where a graphic design firm agrees to provide a company with design services for one year, delivering monthly marketing materials. After six months, the design firm breaches the contract by ceasing to deliver the agreed-upon services. The company has a duty to mitigate damages by seeking another graphic design firm to continue providing the necessary services for the remaining six months. If the company finds another design firm capable of fulfilling the requirements at a similar cost but chooses not to hire them, the company may not be able to recover the full amount of damages from the original design firm. This example illustrates the company’s obligation to take reasonable steps to minimize their financial losses following the breach. Failure to mitigate damages in this instance underscores the need for diligent efforts to reduce losses. See definition of mitigation of damages.

Example: Buyers Breach of contract for sales of goods

In a contract for the sale of goods, consider a scenario where a supplier agrees to deliver 1,000 units of a product to a retailer over the course of one year. After six months, the supplier breaches the contract by failing to deliver the remaining 500 units. The retailer, to mitigate damages, should make reasonable efforts to find another supplier to obtain the remaining 500 units. If the retailer can secure the goods from another source at a similar price but chooses not to, they may not be able to recover the full amount of the loss from the original supplier. This example illustrates the retailer’s duty to mitigate damages by seeking alternative solutions to minimize financial loss. The failure to mitigate damages here demonstrates the critical role of timely and reasonable actions to prevent additional losses. See definition of duty to mitigate.

Example: Seller breach of contract for sales of goods

In a contract for the sale of goods, imagine a scenario where a manufacturer agrees to supply a retailer with 2,000 units of a product over a six-month period. After delivering 1,000 units, the manufacturer breaches the contract by failing to deliver the remaining 1,000 units. The retailer, in this case, has a duty to mitigate damages by seeking an alternative supplier to fulfill the remaining 1,000 units. If the retailer finds another supplier who can provide the goods at a reasonable price but decides not to purchase from them, the retailer may not be able to recover the full extent of the losses from the original manufacturer. This example demonstrates the retailer’s obligation to take reasonable steps to minimize their financial losses after the breach. Failure to mitigate damages in such cases highlights the necessity of proactive measures to reduce the impact of contractual breaches.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:

What Is a Gap Analysis

What is a Gap analysis?

Gap analysis helps businesses compare current performance with desired goals, identifying inefficiencies. This method aids in developing action plans to bridge performance gaps.
SWOT Analysis Example

SWOT Analysis Example

Conducting an HR SWOT analysis helps identify strengths, weaknesses, opportunities, and threats within and external to an organization. This process aids in developing strategic HR actions aligned with the company's objectives.

Costco Hot Dog Price Story

The story about Costco $1.50 hot dog price began in 1993 when the Costco merged with Price Club. Costco's $1.50 hot dog price remains unchanged in 2024.

Request for Production of Documents, RPOD, CCP 2031.280

Starting January 1, 2020, California's civil litigants face stricter discovery rules under Cal. Civ. Pro. § 2031.280(a). All produced documents must now be labeled by request number, impacting both new and ongoing cases.
What is a default judgment

What is a default judgment

A default judgment is issued when a defendant fails to respond to a lawsuit, allowing the plaintiff to win by default. Understanding this process is crucial for both parties involved in litigation.
What is a quitclaim deed

What is a quitclaim deed

Quitclaim deeds offer a quick way to transfer property ownership without guarantees, distinct from warranty deeds. Ideal for non-sale property transfers among family or into trusts, they require careful legal consideration.
Sole Proprietorship Business License

Sole Proprietorship Business License

Sole proprietorships offer simplicity and fewer formalities for new business owners, with benefits like no separate taxes. Remember, personal and business assets aren't distinct, impacting liabilities and the need for proper licensing.
What is the most important part of your business plan

What is the most important part of your business plan

The executive summary shines as the pivotal element of a business plan, serving as a decisive factor for readers to delve deeper. A comprehensive guide on crafting an impactful business plan, focusing on unique strategies and essential components.
Easy Businesses To Start

Easy Businesses To Start

Unleash your entrepreneurial spirit with these straightforward home-based business ideas, from e-commerce to creative pursuits. Embrace the flexibility and potential for financial independence with diverse options suited for various interests and investment levels.
What is the standard deduction

What is the standard deduction

Understand the IRS standard deduction, a straightforward option for reducing taxable income without needing detailed documentation. Delve into eligibility, amounts for 2023-2024, and considerations for itemizing versus standard deduction.
How to get a business license

How to get a business license

Grasp the essentials of obtaining a business license in California, focusing on local and state-level requirements. Uncover specifics on when and why different types of business licenses are needed.
Why Do Businesses Fail

Why Do Businesses Fail?

Uncover the key factors contributing to small business challenges, including financial obstacles, inadequate management, and flawed marketing strategies. Understand the role of a comprehensive business plan in ensuring long-term success.
What is a BOC 3

What is a BOC 3

Understand the essentials of a BOC-3 filing for transportation businesses in California, detailing the designation of process agents for FMCSA certification. Learn the requirements, costs, and benefits of choosing the right process agent for your business.
Standard deduction vs itemized deduction

Standard Deduction vs Itemized Deduction

Understand the key differences between standard and itemized deductions to effectively reduce your taxable income and potentially save on taxes. Choose wisely to maximize your tax benefits based on personal financial details.
How to calculate net income

How to calculate net income

Unveil the significance of calculating net income for business profitability, a key indicator for financial health and decision-making. Understand the formula and practical applications for determining net earnings.
Itemized deductions

Itemized Deductions: What they mean on a tax return

Optimize your tax return by understanding the differences between itemized and standard deductions, crucial for minimizing tax liability. Learn the benefits and challenges of itemizing to make informed financial decisions.
What are intangible assets

What Are Intangible Assets

Discover the value of intangible assets like patents and trademarks in your business, crucial for strategic and financial planning. Learn how to manage and amortize these non-physical yet essential resources.
What is accounting

What Is Accounting

Understand the importance of accounting in monitoring financial activities and making informed decisions for your business. Gain insight into accounting fundamentals and its role in legal and tax matters.
Dysfunctional family

Dysfunctional Family: Key traits and impacts

Explore the impact of growing up in a dysfunctional family, where constant conflict, neglect, and various addictions shape childhood experiences. Understand common traits, the consequences on children, and the cycle of unhealthy parenting behaviors.
When Was the Great Recession

When Was the Great Recession?

Delve into the Great Recession's timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
When Was the Last Recession in the US

When Was the Last Recession in the US?

Review discussions on America's most recent downturn, comparing the impacts and definitions of Covid-19 and the Great Recession. Analyze the significant effects of past economic crises on US policy and business approaches.
What to Invest in During a Recession- 4 Ideas

What to Invest in During a Recession: 4 Ideas

Uncover effective strategies for investing during a recession, assessing personal goals and current market situations. Examine four robust investment approaches to manage through economic declines effectively.
Will the US Get Hit with a Recession in 2024

Will the US Get Hit with a Recession in 2024?

Experts debate the likelihood of a 2024 US recession, analyzing factors like the yield curve and consumer confidence. Predictions vary, with a focus on interest rates and tech layoffs impacting the economy's future.
How Long Do Recessions Last

How Long Do Recessions Last?

Learn about typical US recession lengths and influencing factors, noting recent trends with shorter durations averaging 10 months. Investigate how external factors and government decisions affect recession timelines, comparing historical data.
When Will the Recession End

When Will the Recession End?

Economists predict a mild US recession with limited impact on employment and spending. The duration and impact of the recession depend on Federal Reserve policies and business cycle patterns.

Contact our attorney.

Please tell us your story:

1 + 6 = ?