Protecting Your Business

Mitigation of damages in contracts

On Behalf of | Jan 27, 2023 | Firm News |

What to do as the non-breaching party

Even if a party is innocent/not responsible for breach of a contract, they cannot sit around and do nothing and expect a ruling to go overwhelmingly in their favor. Why is this? There is a concept called “mitigation of damages” that explains this further. Contract law is more concerned with repairing damages done to an agreement than punishing one party as much as possible. The innocent party cannot simply take advantage of a breach, and if further damages incur, use this as ammunition against the responsible party.

One party having either unfair leverage, or a better contractual position in and of itself is antithetical to a proper and fair agreement. The law desires a fair and reasonable solution over anything else. If the law worked differently, then breaching parties could receive punishments well beyond what is fair and reasonable.

What is considered reasonable?

It usually depends on the parties involved and the facts of each particular case.

Often, courts will reduce damages awarded in cases involving breach of a contract if one party was obligated, or capable of, mitigating (reducing) their damages yet did not do so.

Examples are a seller that resells goods that a breaching party did not pick up and pay for or a landlord re-letting a property to a new tenant after the previous tenant breached the lease.

The award issued is typically measured against this metric.

What to do if you breach a contract?

If the unfortunate situation arises where you are responsible for a breach of contract, there are a few ways to remedy the situation, thus preventing further damages and potential legal ramifications.

First, you should hire a lawyer experienced in resolving contract disputes. Choosing an attorney can be a stressful process, but it is imperative you find an individual with both the professional qualifications necessary to be a trusted advisor. Having an attorney will make the whole process easier and allow you to minimize the ramifications.

Second, go over the contract again (with or without your lawyer). Look for any potential legal defenses possible. There may be something you find in the contract that helps your case. There are many types of defenses possible, the specific plan for a case will vary greatly depending on circumstances.

Finally, If a court finds you liable for breaching the contract, be prepared for a remedy. This may include paying damages to the non-breaching party. Besides monetary damages , the remedy may be a court-ordered performance of your obligations under the contract, usually called “specific performance”.