Mitigation and Anticipatory breach.

Introduction

A contract is an agreement that is binding upon the parties entering it. It is in essence a pact placing specific duties and obligations on the parties entering them. A party that seeks to enter a contract has made an offer or accepted an offer and furnished consideration. However, most contracts do not have an easy transition from offer to acceptance. Performance of contractual obligations is not always guaranteed. Parties will for one reason or another fail to perform their obligations. In such cases, it may be out of breach, frustration or operation of the law. 

The aggravated party will seek restitution. In some cases, the party will not wait for the loss to occur or wait for the matter to be decided. Some parties will seek to salvage their situation and mitigate their losses. In truth, the design of the doctrine of mitigation is modest and justiciable. Whereas this is true, there are arguments that mitigation does not protect the interests of innocent injured parties. This paper seeks to investigate the veracity of these concerns. It shall first assess how anticipatory breach operates and whether or not it mitigation does not favour the innocent party. 

How mitigation operates in cases of anticipatory breach.

Anticipatory breach is a form of discharge of contractual obligations. Here a party has repudiated the contract before the date of performance. An anticipatory breach occurs when one party gives notice that it will not fulfill its obligations. It only becomes a breach where the innocent party either accepts that the contractual obligations will remain unperformed until the date of performance. 

The injured party has the option to wait until the date of performance and sue for breach. This means that the party will accept that there will be no performance and hence proceed to await the contractual date on which performance was slotted. As a result, the injured party will claim for losses for non-performance. In the alternative, the injured party may accept that the other party will not fulfill its end of the bargain but seek to mitigate his/her position. 

Mitigation is defined in contract law as the steps taken by a party to reduce the loss or damage. Therefore, where a party has or is incurring losses, the steps taken to stop or reduce the severity of damage will be considered mitigation. Mitigation as far as anticipatory breach is concerned, requires the claimant to take reasonable steps to mitigate the loss on his part. It is important to note that there is no binding legal requirement for mitigation. There is no binding legal requirement under statute of commo n law that provides this. 

The courts have, however, held that in some cases the claimant will not be awarded damages in a case where the claimant failed to mitigate loss. This means that, some circumstances will imply a duty on the claimant to have taken reasonable steps to mitigate the loss. Reasonable steps are not listed or cast in stone. It is a question of fact. It will depend on the circumstances of each case. What is required is that the claimant shows the steps taken to minimize risk as a result of the anticipatory breach. Thus, the mitigation should not lead to a situation where the claimant has increased the loss suffered after the breach. 

Impacts of mitigation on the innocent party.

Mitigation operates in such a manner that; the injured party has an obligation to reduce the loss. There are advantages to mitigation in its application. For instance, as was seen in the Banco de Portugal case, the concept of mitigation helps the claimant react in a quick manner so as to incur less damage. Mitigation will require that the innocent party acts to reduce the losses suffered and hence allows him/her to adjust his/her position so as no to feel a more painful pinch. It is argued that an innocent party who mitigates the loss will suffer a less hazardous damage than the one who waited for the actual breach. This argument seems more relevant in the case of anticipatory breach as the party has time to mitigate before the date of performance.

Another advantage of mitigation is that it is a broader principle on claimant responsibility. Inasmuch as the claimant has duties to perform under the contract, he/she also has a duty to mitigate losses. The concept of mitigation is hence a broader understanding of the principle of claimant responsibility.

Although the advantages above are noteworthy, the concept of mitigation presents the innocent party with a more harmful than beneficial situation. First, the innocent party is forced to go out of his/her way to perform the defendant’s end of the bargain. The innocent party is forced to mitigate which will involve him/her engaging his/her own resources to minimize the damage. This means that on top of performing his/her share of the burden he/she has to perform the defendant’s end.

Second, the claimant is forced to consider either partial performance or to sort out alternatives. The contract is meant to be discharged on performance. That is, the parties are to carry out their obligations to the standard and threshold required by the contract. They are bound to the contract. The fact that the innocent party did not cause the injury, means that it will have to consider other alternatives to performance of the contract. 

Mitigation will force the innocent party to now look for an alternative consideration. One of which was not contemplated at the start of the contract. Also, it will require the innocent party to consider whether he/she will accept part performance and stay with such part performance until the date of performance. The injured party will also have to assess the possible reasonable steps to take. Steps that will be subject to review based on the circumstances. This places him/her in a situation that was neither foreseen nor planned for. Mitigation may require the claimant to renegotiate the terms of the contract with a new party to meet the performance requirements. 

On a balance of the advantage and the disadvantages, mitigation seems to unfairly disadvantage the innocent party. As compared to the state the innocent party will be at during an anticipatory breach, it is clear to see that mitigation will require a lot from the innocent party than ordinarily required in the normal breach. 

Proposal for reform

There should be reform to the situation in the present case. It is evident that a lot is required and the reward is limited. As such the more plausible reform is that the concept of mitigation is maintained but the defendant is made to compensate the claimant. The damages in this case are first in regard to the anticipatory breach and second to reimburse the claimant for the steps taken to seek mitigation. Where alternatives were sought at a greater price, the defendant should cover the difference. Where there were expenses to meet the procure performance by another party (as a step of mitigation), the claimant should be reimbursed. 

Conclusion

In general, mitigation does seem to favour the injured party in theory and on paper. It does call upon parties to be alert and diligent and to act with haste to salvage their sinking ship. This will not only minimize the loss but also allow the claimant to reduce the quantum of damages. However, when weighed against the disadvantages it places upon the innocent party, it is clear and evident that mitigation does act unfairly on the innocent party. Thus, the concept of the doctrine does serve a justiciable purpose but its impact on the innocent party is unfair. 

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