When a contract is breached, the non-breaching party may feel entitled to recover the full measure of damages caused by the other party’s failure to perform. However, California law imposes a critical limitation: the duty to mitigate damages. This obligation requires the injured party to take reasonable steps to reduce or avoid further losses after a breach has occurred. Failure to do so can significantly reduce the amount of recoverable damages, even if the breach itself is clear and undisputed.
The Legal Basis for Mitigation
The duty to mitigate damages in California contract law is codified in Cal. Civ. Code § 3359, which provides that damages must be reasonable and cannot be grossly disproportionate to the actual harm suffered. While § 3359 does not explicitly use the term “mitigation,” California courts have long interpreted this principle to mean that damages which could have been avoided with reasonable effort are not recoverable.
This principle was clearly articulated in Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686 (1994), where the court reduced a damages award because the plaintiff failed to take reasonable steps to prevent further losses after the breach.
Scope of the Duty
The duty to mitigate applies to all types of contracts—commercial, real estate, employment, and service agreements alike. The injured party is not required to take extraordinary or unreasonable measures; rather, the law demands only those efforts that a reasonable person in the same circumstances would make to reduce harm.
For example:
- A landlord whose tenant vacates early must make reasonable efforts to relet the property, as established in Green v. Smith, 261 Cal. App. 2d 392 (1968).
- A seller whose buyer breaches a purchase agreement must attempt to resell the goods or property within a reasonable time to minimize the loss.
- An employee wrongfully terminated must make reasonable efforts to find comparable employment, as affirmed in Parker v. Twentieth Century-Fox Film Corp., 3 Cal. 3d 176 (1970).
Reasonableness Standard
What constitutes “reasonable” mitigation depends on the facts of the case. The burden of proof lies with the breaching party to demonstrate that the non-breaching party could have reasonably avoided some or all of the claimed damages. Importantly, the injured party’s refusal to accept alternative performance does not automatically violate the mitigation duty if the alternative is materially different from what was promised under the original contract (Parker, supra).
Relationship to Contractual Damages
The duty to mitigate interacts directly with Cal. Civ. Code § 3300, which governs the measure of damages for breach of contract. This statute allows recovery for all detriment proximately caused by the breach, provided that damages were foreseeable and unavoidable through reasonable effort.
If a court determines that the plaintiff could have reasonably reduced their losses, the damages award will be decreased accordingly. This ensures that the breaching party is not held liable for harm that could have been prevented and that the non-breaching party does not receive a windfall.
Practical Steps for Fulfilling the Duty to Mitigate
- Act Promptly – Take immediate steps to limit ongoing losses.
- Document Efforts – Keep detailed records of mitigation actions, such as advertisements for replacement tenants, job applications, or communications with prospective buyers.
- Avoid Unreasonable Expense – The law does not require spending excessive amounts to mitigate; efforts must be proportionate to the loss.
- Consult Legal Counsel Early – Prompt legal advice can help ensure compliance with the duty and preserve claims for full damages.
Consequences of Failing to Mitigate
Failure to fulfill the mitigation duty can be costly. Courts may:
- Reduce the damages award proportionally.
- Deny certain categories of damages altogether.
- Shift costs if the failure to mitigate caused unnecessary litigation.
In Sequoia Vacuum Systems v. Stransky, 229 Cal. App. 2d 281 (1964), the court held that a plaintiff who fails to mitigate is barred from recovering losses that could have been avoided with reasonable diligence.
Conclusion and Call to Action
In California contract law, proving a breach is only part of the battle. To recover the maximum allowable damages, you must also demonstrate that you took reasonable steps to limit your losses after the breach occurred. At Guiding Legal Counsel, APC, we help clients navigate the complex interplay between breach, damages, and mitigation obligations, ensuring that claims are preserved and defensible. Contact us today to schedule a confidential consultation and secure strategic guidance for protecting your contractual rights while meeting your legal duties.