What is the Duty to Mitigate Contract Damages?
Consider the following scenario: company A and company B recently signed a $50,000 purchase agreement. The agreement stipulates that company A must deliver a certain product on the morning of January 1st. However, when company A shows up to make the delivery, a representative from company B states that they changed their mind and that they no longer want the product. This is a classic example of a breach of contract. Therefore, company A can recover $50,000 in damages right? Not necessarily. In Florida, allowing any form of preventable economic waste is disfavored. As such, company A has a legal obligation to take reasonable steps to find something to do with that product. This is known as the duty to mitigate damages.
Understanding the Duty to Mitigate
As is stated by Florida jury instruction 504.9, a breaching defendant does not have pay damages if they can prove that the plaintiff could have reasonably avoided those damages. In other words, once a party becomes a victim of a contract breach, they must do what they reasonable can to minimize the greater economic harm. The general duty to mitigate is imposed on many different types of contracts. For example, you could have a responsibility to mitigate contract damages if you are a:
- Company involved in a dispute over a buy-sell agreement;
- Commercial or residential landlord dealing with a breaching tenant;
- Contractor or company involved in a construction project; or
- Business involved in some aspect of the manufacturing process.
To be clear, the duty to mitigate does not require that herculean efforts be undertaken by the victimized party. After all, the breaching party is the one who is primarily responsible for contract damages. They were the party that caused this issue in the first place. Still, if there are any reasonable steps that can be taken to minimize the loss, your company should follow through with those steps after a breach. Consider once again the example of companies A and B. Initially, company A sustained at least $50,000 in contract damages. However, if that firm could simply travel down the road and sell their product on the market for $40,000, they must do so. This would satisfy their duty to mitigate and it would still entitle them to contract damages that would fill the gap in what that should have made. In other words, they would be entitled to $10,000 in damages for the gap plus compensation for any other incidental damages that might have occurred as a direct result of the breach. Incidental damages are losses that occurred as a natural result of responding to a breach. For example, if your company had to pay $500 to re-direct the illegitimately rejected delivery, that $500 could also be recovered.
Contact Our Office Today
At Pike & Lustig, LLP, our West Palm Beach business contract lawyers have handled a wide variety of contract litigation cases. If you are involved in a contract dispute, please do not hesitate to call us today to schedule your free initial consultation. Our firms represents businesses throughout South Florida, including in Broward County, Martin County and Dade County.