The Duty to Mitigate Damages
The duty to mitigate requires a party suffering a breach of contract to take reasonable steps to mitigate those damages. In general, if you or your business suffers a loss or is damaged because a third party has breached a contract, you have the legal obligation to minimize your losses and damages. This is called the duty to mitigate. Here are the contours of the duty.
Reasonable Steps are Required for Mitigation
If you do not take reasonable steps to mitigate damages, you will not be able to recover for any losses that could have been avoided if the case goes to court. You have to take the reasonable steps even if this results in the breaching party “getting away with it” completely.
One of the most common examples where mitigation is required is landlord/tenant lease agreements. If your tenant suddenly announces that he or she is breaking the lease and stops paying the rent, the tenant has breached the lease contract. But, you, as the landlord, are required to mitigate your losses by trying to obtain a new tenant. If you find a tenant — equally as qualified as the former tenant — ready to move in with no loss of rent, you cannot sue the former tenant because you have not suffered any damages. Yes, the former tenant “got away with breaking the lease,” but that is the law. You can only recover for breach of contract if you suffer actual losses.
Heroic Efforts are Not Required to Prove Mitigation
When mitigating your damages, you are not required to take extraordinary or unreasonable steps or sacrifice any substantial right.
In our landlord example, we stipulated that your new tenant is “equally as qualified” as the former tenant. A landlord does not have to sacrifice any substantial right while trying to mitigate losses. In this example, sacrificing a right is taking a tenant of lesser quality. Landlords can protect themselves by renting only to viable tenants with good jobs and good credit ratings.
Reasonable is Based on Your Unique Circumstances
What constitutes “reasonable” has no specific definition. In general, it depends on your unique circumstances. Often “reasonable” is phrased in terms of what a reasonable person would do under similar circumstances. One particular court used the phrase “ordinary care and
reasonable exertion.” Agam v. Gavra, 236 Cal.App.4th 91 (2015).
Unsuccessful Mitigation is Still Mitigation
As long as an innocent party to a contract takes reasonable steps, the fact that the steps were not successful will not preclude recovery of those losses if the case goes to court.
Burden on the Breaching Party
Finally, if the case goes to court, the burden of proving that losses could have been avoided by reasonable effort and expense will fall on the party who has broken the contract.
Contact San Diego Corporation Law Today
If you would like more information about the duty to mitigate, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2017 by SuperLawyers.com. Mr. Leonard can help explain the law and your rights and offer advice on what constitutes “reasonable” steps in the context of mitigation of damages as defined by California courts. Mr. Leonard can be reached at (858) 483-9200 or via email.