When a breach of contract occurs, the party not in breach is required to mitigate (i.e., to minimize) his or her damages by whatever means are reasonably available. A failure to mitigate damages will result in a loss of the right to recover the amount that should have been mitigated.
Let’s say, for example, a company store has a grand opening ceremony scheduled in two weeks. Its painting contractor calls and says he will not be able to complete the painting of the interior of the store as he had promised. The Company’s contract with its painting contractor was for $10,000. The Company learns it can contract with another painting contractor for $15,000 (which it can afford) and get the painting done on time to have its grand opening. If the Company does not hire the new contractor, its grand opening will be delayed, and it will lose $25,000.
In those circumstances, the Company is obligated to mitigate its loss by paying the $15,000 and suing its original painting contractor for the $5,000 difference between the original painting contract price and the replacement contractor’s price.
If the Company chose not to hire the replacement contractor, missed its grand opening, and then sued its original painting contractor for its $25,000 loss for failing to timely open, the original contractor could show that the Company had failed to mitigate its loss, and could limit the damage award to $5,000.
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