Breach of Contract: Duty to Mitigate
Breach of contract is a common legal problem. Suppose I operate a manufacturing company. Suppose that I make a contract with a shipping company to transport my products. Let’s assume that the shipping company breaches the contract. Could I file a lawsuit alleging breach of contract and state that the company is liable for all damages arising out of the breach for the failure to have the products shipped? I certainly could, and would likely prevail, but is there a limit on damages?
The answer is yes. Generally, contract damages do not include punitive damages; moreover, I, the plaintiff in the above scenario, have an affirmative obligation to mitigate and limit the amount of losses I sustain for the company’s failure to perform under the contract. In other words, I cannot mope around and cry woe is me. I have a duty to attempt in good faith to find a replacement and try to negate losses.
Accordingly, with this hypothetical, I have a right to be “made whole” (and returned to as close of a position as I would have been had the contract been performed), but in a way that is least costly to the defendant. So, while I would cover contract expectancy damages, any damages I could have “reasonably avoided” are not recoverable. “Reasonable” avoidance is difficult to define. Courts have generally understood it to mean what a reasonable person would do under like circumstances. It’s an objective ceiling put in place by the law to ensure that contract damages are not unlimited.