Mitigation of damages: Overview, definition and example
What is mitigation of damages?
Mitigation of damages is the legal principle that requires a person or business harmed by a breach of contract or wrongdoing to take reasonable steps to reduce their losses. It means that if something goes wrong, the injured party can’t just sit back and let the losses pile up—they must try to limit the damage as much as possible.
For example, if a supplier fails to deliver goods on time, the buyer should try to source the goods elsewhere to minimize the impact, rather than waiting and incurring larger losses.
Why is mitigation of damages important?
Mitigation of damages is important because it ensures fairness in disputes. It prevents the injured party from recovering losses they could have reasonably avoided. For the party at fault, it helps limit the compensation they owe, as they’re not responsible for damages caused by the other party’s failure to act.
In business, understanding this principle encourages proactive problem-solving and reduces unnecessary costs or disputes. Courts often reduce damage awards if they find the injured party didn’t try to mitigate their losses.
Understanding mitigation of damages through an example
Imagine a business leases office space, but the tenant breaks the lease early. The landlord can’t simply let the space sit empty and sue the tenant for all the lost rent. Instead, the landlord must try to find a new tenant as soon as possible. If they succeed, the original tenant is only responsible for the rent lost while the space was vacant.
In another example, a company contracts a vendor to provide equipment for an event, but the vendor cancels at the last minute. The company must try to find an alternative supplier, even if it costs more. If they don’t make any effort, they might not recover all their damages in court.
An example of a mitigation of damages clause
Here’s how a mitigation of damages clause might look in a contract:
“The Parties agree to take all reasonable steps to mitigate any damages arising from a breach of this Agreement, including seeking alternative arrangements or solutions to minimize losses.”
Conclusion
Mitigation of damages requires injured parties to take reasonable steps to reduce their losses after a breach or wrongdoing. It ensures fairness by balancing responsibilities between both parties and encourages practical solutions to disputes.
By understanding this principle, businesses can better navigate conflicts and minimize financial impacts, while also protecting themselves from excessive damage claims in legal disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.