Mitigation of Damages
Rule
An injured party has a duty to take all reasonable steps to minimize losses after a breach. Damages are reduced by the amount the injured party could have avoided with reasonable effort. The duty is to avoid “unreasonable” losses; an injured party need not take extraordinary or humiliating steps to mitigate.
Elements
- Breach by the defendant
- Plaintiff had an opportunity to mitigate (avoid losses)
- Plaintiff failed to take reasonable steps to mitigate
- Damages reduced to the extent of avoidable loss
Exceptions
- Comparable employment: In wrongful discharge cases, plaintiff need not accept a different or inferior job; only substantially similar employment reduces damages (Parker v. 20th Century Fox)
- After material breach: An injured party may walk away without mitigating further; is not required to continue working with the breaching party
- UCC affirmative duty: Under the UCC, seller has an affirmative duty to investigate other ways to minimize loss, including seeking substitute buyers (Schiavi Mobile Homes v. Gironda)
- Unfinished goods (UCC § 2-704): Seller may complete or stop manufacture, choosing whichever is commercially reasonable; can recover higher damages from either option if judgment was reasonable
- Clark v. Marsiglia rule: Upon countermand by owner, contractor has no right to continue work and increase the penalty on the breaching party
- Lost volume: Selling to a substitute buyer does not mitigate a lost-volume seller because the substitute sale would have occurred anyway
Policy
Mitigation prevents waste and encourages efficient economic responses to breach. Requiring the injured party to take reasonable steps prevents “piling on” damages. However, the rule must not force the injured party into undignified or inferior positions (Parker), nor require cooperation with the very party who breached.
Key Cases
- Parker v. 20th Century Fox Film Corp. — wrongfully discharged actress need not accept an offer for a different and inferior type of role to mitigate
- Clark v. Marsiglia — contractor cannot continue work after countermand and claim full contract price when mitigation was possible