Do You Have a Duty to Mitigate Your Losses After a Breach of Contract?

When the other party breaches your contract, that doesn’t always mean you’re off the hook…

When the other party breaches your contract, that doesn’t always mean you’re off the hook. Under New Jersey law, a party claiming damages for a breach of contract has an obligation to use reasonable efforts to lessen or reduce the resulting damages.

What Is Mitigation of Damages?

More specifically, under New Jersey contract law, a party who suffers injury or damage because of a breach must make a reasonable effort to avoid or minimize the loss by taking advantage of any reasonable business or employment opportunities that may be available under the circumstances. If a party fails to mitigate damages, the court may limit or reduce the amount of damages.

By way of example, let’s assume two parties entered into a contractual agreement whereby the breaching party agreed to deliver goods to the other party. If at the time of the expected performance the party does not fulfill the obligation, the non-breaching party has an obligation to attempt to procure the goods by other means in order to fully recover damages.

Contract mitigation also often comes into play when one party breaches a lease agreement. For instance, if a tenant breaks the lease and vacates the premises without legal justification, the landlord must try to rent the property to another tenant as soon as reasonably possible in an effort to limit the losses. Further, the landlord has the burden of proving the reasonableness of the mitigation efforts.

Employees also have a duty to mitigate their losses. In the employment context, a worker who alleges wrongful termination is obligated to attempt to find similar employment. As in the other examples, the failure to do so may result in a reduction of any damages that may be awarded.

What Happens If You Fail to Mitigate Your Losses?

In a breach of contract lawsuit, the defendant has the burden of proving that the plaintiff failed to take reasonable steps to minimize damages. For instance, in a wrongful termination suit, the defendant may argue that the employee failed to pursue subsequent employment opportunities. Specifically, the defendant employer must show that the employee could reasonably have taken advantage of comparable substitute employment and the amount of any such earnings. If the court is satisfied that the employer has satisfied the burden of proof, any subsequent earnings that employee could reasonably have earned if the employee had taken advantage of an available employment opportunity will be subtracted from the damages the employee claims to have suffered as a result of the alleged wrongful termination.

Similarly, in the context of a residential or commercial lease, the defendant may seek to reduce its damages by offering evidence that the landlord did not take actions to re-rent the property and simply let it sit vacant. If that defense is proven, the landlord will not be awarded the full amount of the unpaid rent, and its claim for lost rent will be reduced accordingly.

Key Takeaway

The failure to mitigate your losses can turn a fairly straightforward breach of contract lawsuit into protracted and costly litigation. If you are the victim of a contract breach, you must be diligent about mitigating your losses. While New Jersey courts don’t expect you to make a heroic effort, you must be able to show that your actions were reasonable in the circumstances. Accordingly, it is always advisable to keep records of your efforts to mitigate your damages, i.e. resumes submitted for new jobs, advertisements placed to lease a property, or emails seeking a substitute vendor for goods/services.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jessica Faustin, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.