Abstract

It is well established that a person who makes reasonable efforts to mitigate her damages after a breach of contract will be able to recover the costs of those mitigation efforts as incidental damages and that a person who fails to make such efforts will be denied recovery of the damages that could have been avoided. But will a person who fails to take reasonable efforts to mitigate damages still be able to recover the probable cost of those mitigation efforts as an offset against the reduction in her damages for failure to mitigate, even though she did not incur those costs? The conventional wisdom among judges and scholars is that mitigation costs that were not incurred by an injured person are not recoverable as an offset or otherwise. In my opinion, however, this conclusion is not justified as a matter of social policy, and arguably is also not required as a matter of positive law, at least under common law if not also under Article 2 of the Uniform Commercial Code ("U.C.C.").

In this Article, I first consider the proper resolution of this question as a matter of policy. I then review the applicable law, first with regard to sale of goods contracts governed by state statutes implementing Article 2 of the U.C.C., and then with regard to contracts governed primarily by general common law principles as articulated in the Restatement (Second) of Contracts. I will draw an analytical distinction between "primary" efforts made to mitigate the damages resulting from a contract breach, and "secondary" financing-type mitigation efforts intended to avoid the risk of further consequential losses that may result from the cash shortfall caused by non-avoidable losses from breach until they are reimbursed. I also consider the significance of the presence of applicable prejudgment interest statutes for this question.

I conclude on the basis of both fairness concerns and efficiency considerations that the probable costs of mitigation efforts that are not undertaken should as a matter of policy still be recoverable as an offset against any reduction in damages for failure to mitigate. I also conclude, however, that as a matter of positive law both the common law and U.C.C. Article 2 are unclear as to whether the recovery of probable mitigation costs that are not incurred is allowed, particularly the U.C.C., and particularly with regard to secondary mitigation efforts.

Publication Title

Hofstra Law Review

Publication Date

2018

Document Type

Article

Included in

Contracts Commons

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