Jun 2010 , Vol. VI, No.1

The Duty to Mitigate Damages “But I Didn’t Do Anything Wrong!”

Builders and Contractors Exchange
Weekly Bulletin: 1 june 2010

The Duty to Mitigate Damages “But I Didn’t Do Anything Wrong!”
By: Wyatt Booth

Hope springs eternal at the beginning of any project, and the last thing any developer, general contractor, or subcontractor is anticipating is a problem that delays the project or cancels the job.  But sometimes financial difficulties, personality conflicts, poor performance, unknown site conditions, or even the occasional act of God can get in the way of completing a project or job.  What many developers and contractors may not realize, however, is that when a contract is terminated early, even the non-breaching party that has done nothing wrong will have certain duties that are continuing.  One of these, and the subject of this article, is the duty to mitigate damages.

The duty to mitigate damages, also known as the “doctrine of avoidable consequences,” is an affirmative defense and can be generally viewed as a duty on the part of a non-breaching party to take reasonable steps to avoid or “mitigate” the consequences of a breaching party’s actions.  See Haywood v. Massie, 188 Va. 176, 49 S.E.2d 281 (Va. 1948); see also Gibbs v. Western Union Telegraph Co., 196 N.C. 516, 146 S.E. 209 (N.C. 1929).  Unlike setoff, the failure to mitigate damages is not a cause of action unto itself, and is merely a defense by which a defendant is entitled to prove that a plaintiff’s damages should be reduced because the plaintiff failed to take reasonable steps after a breach to reduce his own damages.  See 22 Am. Jur. 2d, Damages, §§ 336-337 (2003).  In the construction setting, failure to mitigate could be shown when a prime contractor fails to timely replace a subprime contractor that was fired, or when a subprime contractor fails or refuses to seek out a new job after being wrongfully terminated or following a project failure.

Perhaps the most important thing to remember when it comes to mitigating damages is that the fact you did not breach your contract is irrelevant.  The focus is entirely on what you, as the non-breaching party, did after your contract was breached or terminated.  And a clever defense attorney is going to look very carefully at your actions after the breach, as he or she will be seeking to reduce their client’s damages number by any means possible.  In short, there is no rest for the weary, and even though the project that was going to make your year has fallen through or your most critical sub has walked off the job at the worst possible time, you must still make your best efforts to replace that income or fill that subcontractor’s shoes.  If you don’t, when your case makes it to a jury or arbitration, you may not be able to recover everything you thought for sure was coming your way.