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Pennsylvania Commercial Law: Breach of Contract and the Duty to Mitigate Damages (Part Two)

Breach of contract damages vary greatly, depending on the type of contract:

  • service,
  • purchase,
  • lease,
  • labor/employment,
  • delivery, or
  • materials.

In the event of breach, Pennsylvania law allows for recovery of losses incurred as a result of the breach.  However, every party has a duty to mitigate their damages.

A party that has incurred damage because of the breach of a contract has a duty to mitigate their damages. The nonbreaching party must take reasonable steps to reduce the damages which result from breach.

For example, in a situation where a tenant breaches a lease agreement, the landlord must take steps to rent the property to another tenant. The landlord cannot simply do nothing and expect the tenant to pay rent for the remainder of the lease term. Similarly in a services agreement situation where breach occurs, the service provider must take steps to reduce their damages, such as finding a substitute.

This defense will be raised by the breaching party, who bears the burden of proof to show that the other, nonbreaching party failed to mitigate their damages.

In order to raise this defense, the breaching party must show:

  1. the reasonable actions that the nonbreaching party should have taken,
  2. that those actions would have reduced damages, and
  3. the actual amount the damages incurred would have been reduced by taking the actions.

If all three are shown, then the damages will be reduced accordingly.

Related Article: Pennsylvania Commercial Law: Breach of Contract and Damages

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