[Originally published 01/01/2011]
Hope springs eternal at the beginning of any project, and the last thing any
developer, general contractor, or subcontractor is anticipating is a problem
that delays the project or cancels the job. But sometimes financial
difficulties, personality conflicts, poor performance, unknown site conditions,
or even the occasional act of God can get in the way of completing a project or
job. What many developers and contractors may not realize, however, is
that when a contract is terminated early, even the non-breaching party that has
done nothing wrong will have certain duties that are continuing. One of
these, and the subject of this article, is the duty to mitigate damages.
The duty to mitigate damages, also known as the "doctrine of avoidable
consequences," is an affirmative defense and can be generally viewed as a duty
on the part of a non-breaching party to take reasonable steps to avoid or
"mitigate" the consequences of a breaching party's actions. See Haywood
v. Massie, 188 Va. 176, 49 S.E.2d 281 (Va. 1948); see also Gibbs v.
Western Union Telegraph Co., 196 N.C. 516, 146 S.E. 209 (N.C. 1929).
Unlike setoff, the failure to mitigate damages is not a cause of action unto
itself, and is merely a defense by which a defendant is entitled to prove that
a plaintiff's damages should be reduced because the plaintiff failed to take
reasonable steps after a breach to reduce his own damages. See 22 Am. Jur.
2d, Damages, §§ 336-337 (2003). In the construction setting,
failure to mitigate could be shown when a prime contractor fails to timely
replace a subprime contractor that was fired, or when a subprime contractor
fails or refuses to seek out a new job after being wrongfully terminated or
following a project failure.
Perhaps the most important thing to remember when it comes to mitigating
damages is that the fact you did not breach your contract is irrelevant.
The focus is entirely on what you, as the non-breaching party, did after your
contract was breached or terminated. And a clever defense attorney is
going to look very carefully at your actions after the breach, as he or she
will be seeking to reduce their client's damages number by any means possible.
In short, there is no rest for the weary, and even though the project that was
going to make your year has fallen through or your most critical sub has walked
off the job at the worst possible time, you must still make your best efforts
to replace that income or fill that subcontractor's shoes. If you don't,
when your case makes it to a jury or arbitration, you may not be able to
recover everything you thought for sure was coming your way.
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Wyatt Booth is an associate with Vandeventer Black and concentrates his
practice in real estate and commercial transactions, wills, trusts and
estate planning, environmental regulation and municipal law.
Wyatt’s transactions practice involves real estate closings,
corporate formations and acquisitions, and business financing. Wyatt
regularly works with real estate developers, agents and appraisers to
assist clients with the details of their transactions. Wyatt is also
experienced in the preparation of wills and trusts and advises clients
on estate planning, probate and estate administration.
Wyatt is experienced in North Carolina coastal regulation, and has
represented landowners and municipalities before the North Carolina
Coastal Resources Commission. In addition, Wyatt has represented
municipalities on a wide range of matters including zoning and planning,
ordinance drafting, and eminent domain acquisitions.
Wyatt earned a B.S. in Chemical Engineering from North Carolina
State University and a J.D. from Washington and Lee University School of
Law, where he served as a staff writer for the Law Review.
He is admitted to practice in both North Carolina and Virginia,
and is a member of the Dare County, First District, North Carolina,
North Carolina State and Virginia State Bar Associations. Wyatt is also
admitted to federal practice before the Eastern District of North
Carolina, the Fourth Circuit Court of Appeals, and the United States