Mitigation : Contract Law

1. Mitigation
   1. Definition
      1. Mitigation of Damages is a requirement that one injured by reason of another’s breach of an agreement exercise reasonable diligence and ordinary care to avoid aggravating the injury or increasing the damages.
   2. When Applicable
      1. In general, the party that did not breach has the duty to mitigate in lessening the damages incurred by the other party, and not increasing their damages.
      2. UCC §2-709(1)Action for the Price – when the buyer fails to pay, the seller may recover the price of goods accepted or of conforming goods lost or damaged within a reasonable time after risk of loss has passed to the buyer or goods identified to the contract if the seller can’t reasonably resell them.
      3. A seller only has the duty to mitigate when loss could be avoided with reasonable effort and without undue risk, expense, or humiliation.
   3. Madsen v. Murrey & Sons Co.
      1. Facts: Pool tables case
      2. Rule re: Mitigation: the non-breaching party has a duty to act in a reasonably diligent manner to attempt to lessen its losses as a consequence of the other party’s breach
         1. Sub-rule: The non-breaching party cannot, either by action OR inaction, aggravate the injury occasioned by the breach–non-breacher must actively mitigate its damages
      3. Seller argues the trial court erred in assessing its damages by failing to consider loss of expected profit, together with any incidental damages and costs incurred (under 2-708(2)) (Prof notes that court rejected to use 2-708-2. How would 708-2 have helped the seller? 708-1 says MP – KP; while 708-2 factors in lost profits). Prof. says some commentators suggest 708-1 is not a fair way to assess damages.
         1. UCC 2-718 (2), (3): allows for Buyer to recover any of his 42,500 outlay–although Seller justifiably withheld delivery of the 100 tables, due to Buyer’s breach, Buyer is still entitled to recover the 42,500 paid on the contract LESS the damages suffered by Seller
         2. Seller argues its damages should be assessed under 2-708(2)
         3. Court holds the trial court DID err in assessing Seller’s damages–BUT disagrees with Seller and finds the damages should be assessed under 2-708(1)
            1. There was a market that existed which, if taken advantage of by Seller, would have substantially mitigated Seller’s damages….and Seller failed to perform its duty to mitigate
            2. Applying trial court’s finding that the pool tables could have been sold for 21,250, Seller’s damages are the difference b/w the market price (21,250) and the contract price (55,000) which equals 33,750.
      4. Under 2-718(2), (3), then, Buyer’s right to restitution of his 42,250 is offset by the Seller’s damages (33,750), and that equals a total recovery of 8,750.
   4. Monouchehri v. Heim
      1. (the doctor/salesman x-ray case; consequential damages of 2500 to doctor; salesman appealed on three grounds; court affirmed jury finding for doctor).
         1. Consequential damages (2-715): include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and could not be reasonably prevented by cover or otherwise; and injury to person or property proximately resulting from any breach of warranty. Three arguments:
            1. M could have avoided those damages by renting or buying a substitute machine. (Obviously Prof. points out this aspect of mitigation)
               1. Rule: UCC 2-715: Consequential damages cannot be recovered unless they were foreseeable by the seller at the time of contracting, and they could not reasonably have been prevented by cover or otherwise
               2. Court says it is not unreasonable as a matter of law that M delayed seeking a replacement machine for a “few months” (Court basically affirmed the award for one month’s time–after that time, it was no longer reasonable for M to rely on H)
            2. H argues the consequential damages were not foreseeable, that H did not have “reason to know” of these potential damages (And this aspect, of foreseeability)
               1. Rule: Although M did not tell H how much income M would earn from use of the machine, M did not need to do so in order to recover consequential damages so long as the consequence of lost income was reasonably foreseeable.
               2. Court mentions Rst. 2d, Sec. 351(3): court may limit damages for foreseeable loss “in order to avoid disproportionate compensation” (usually in the case of recovery for very large lost profits)
            3. H argues that evidence of lost profits was too uncertain for recovery
               1. Rule: “When it is POSSIBLE to present accurate evidence on the amount of damages, the party upon whom the burden rests to prove damages must present such evidence.”
               2. The evidence in the instant case was small, but in the circumstances, it was adequate.