Overview
When a contract is breached, the non-breaching party still has a duty to make reasonable efforts to mitigate (a fancy word for lessen or control) damages caused by the breach (if applicable). The non-breaching party will NOT be able to recover for damages that could have reasonably been avoided, even if the damages were foreseeable.
Example: I enter into a contract to pay a roofer $1000 to fix a large crack on the roof of my house. The roofer breaches the contract by failing to repair the crack. Another local roofer is available and willing to do the job for $1,200. However I just sit around and leave my roof in the state that it’s in rather than hiring the available roofer. Rainwater leaks in and causes $5,000 in damages to the interior of my house over the next several weeks. Can I recover this $5,000 from the original roofer who breached the contract? NO. I did not make any reasonable effort to mitigate the damages. I should have hired the available roofer who was charging $1,200, and recovered $200 from the original roofer who breached the contract. This is the difference between what I would have paid for the available roofer ($1,200), and what I would have paid if the breaching party had performed his duty ($1,000).
What Happens If the Non-Breaching Party Fails to Mitigate Damages?
A non-breaching party who fails to mitigate damages cannot recover for damages caused by their failure to mitigate, as we discussed above. However, that does not mean the non-breaching party will come away with nothing at all. The non-breaching party is still entitled to the damages that would have been recoverable HAD they mitigated.
Example: In the above scenario, I would not be entitled to the $5,000 in damages to the interior of my house because they were a result of my failure to mitigate. However, I would still be entitled to $200 from the original roofer who breached the contract even though I failed to mitigate damages (just as if I had properly mitigated the damages by hiring the available roofer).
When you encounter a scenario on an MBE question where the non-breaching party fails to make a reasonable effort to mitigate the damages, simply ask yourself “how much would the non-breaching party be entitled to if they HAD mitigated the damages,” and that’s the amount.
What Else Can the Non-Breaching Party Recover For?
The non-breaching party can also recover for reasonable mitigation expenses, even if those expenses are not connected to a successful mitigation attempt.
Example 1: I enter into a contract with a memorabilia collector to sell him my autographed picture of Hulk Hogan for $200. The collector breaches the contract. I make a reasonable attempt to mitigate my damages by driving to the store of another collector, which costs me $5 in gas money. This collector decides that he wants to purchase the autographed picture of Hulk Hogan, but he’s not willing to pay more than $180 for it (which is what I end up selling it to him for). How much am I entitled to from the original collector who breached our contract? $25. This includes the $20 difference between the contract price ($200) and the price I ended up selling it for ($180), plus the additional $5 in gas money I spent as part of my mitigation costs.
Example 2: I enter into a contract with a memorabilia collector to sell him my autographed picture of Hulk Hogan for $200. The collector breaches the contract. I make a reasonable attempt to mitigate my damages by driving to the store of a second collector, which costs me $5 in gas money. The second collector is not interested in purchasing the photograph. I then drive to the store of a third collector, which costs me an additional $5 in gas money. The third collector purchases the photograph for $160. How much am I entitled to from the original collector who breached our contract? $50. This includes the $40 difference between the contract price ($200) and the price I ended up selling it for ($160), plus the $5 in gas money I spent traveling to the store of the second collector, and the $5 in gas money I spent traveling to the store of the third collector.
Note that even though my mitigation attempt was unsuccessful with the second collector (he was not interested in buying the picture), I would still be entitled to the $5 in gas money because expenses connected to a reasonable mitigation attempt are recoverable, even if the attempt is not ultimately successful.