No obligation to mitigate: Overview, definition, and example
What does "no obligation to mitigate" mean?
The phrase "no obligation to mitigate" refers to a situation in which a party is not legally required to take steps to reduce or minimize any losses, damages, or negative consequences that arise from a breach of contract, wrongful act, or other adverse events. Typically, in contract law, parties are often expected to mitigate their losses, meaning they must make reasonable efforts to reduce the damage or harm caused by the other party's failure to perform or breach of contract.
However, when a contract includes a "no obligation to mitigate" clause, it means that the injured party does not have to take any steps to lessen the harm they suffer. They may choose to take action or do nothing, but they are not legally required to act in a way that minimizes their losses.
Why is "no obligation to mitigate" important?
The inclusion of a "no obligation to mitigate" clause is important because it clarifies the responsibilities of the parties involved when a breach or damage occurs. Without this clause, the party suffering the damage may be expected to act in a way that reduces their losses, which can sometimes involve additional costs or effort.
For businesses, having a "no obligation to mitigate" clause can offer more flexibility in managing a situation where they have suffered harm. It can also provide the injured party with the option of seeking full compensation without having to take mitigating actions that might be costly, time-consuming, or impractical. On the other hand, it may reduce the likelihood of the responsible party arguing that the injured party's failure to mitigate should reduce their liability.
Understanding "no obligation to mitigate" through an example
Imagine a company contracts a supplier to deliver goods on a specific date. The supplier fails to deliver the goods, causing a disruption in the company’s operations. If the company does not have a "no obligation to mitigate" clause, it might be expected to find an alternative supplier to minimize the disruption and reduce the financial losses it incurs. However, if the contract includes a "no obligation to mitigate" clause, the company is not required to find a new supplier or take other actions to reduce its losses. It could choose to seek the full value of the contract without having to take additional steps to mitigate the damage.
In another example, a tenant in a commercial lease might experience a breach of the lease by the landlord, such as failing to maintain the property. If the lease includes a "no obligation to mitigate" clause, the tenant is not required to make repairs or try to reduce the negative impact of the breach. They could choose to do nothing and still seek compensation or other remedies as outlined in the lease.
An example of a "no obligation to mitigate" clause
Here’s how a "no obligation to mitigate" clause might look in a contract:
“In the event of a breach of this Agreement, the injured party shall have no obligation to mitigate its losses, and may seek full compensation for the damages or losses incurred as a result of the breach, without having to take any steps to reduce or alleviate the harm caused.”
Conclusion
The "no obligation to mitigate" clause removes the responsibility for a party to take action to reduce their losses after a breach or adverse event. This clause can give the injured party the flexibility to either take action or allow the damages to accumulate without affecting their right to seek full compensation. While this provision can be beneficial for the injured party, it also means that the party responsible for the breach or harm may face a higher liability, as there is no requirement for the injured party to mitigate the damage.
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.