Mitigation of Loss | The rule regarding a person’s responsibility to mitigate his damages is not an absolute rule, explaining the principle, respond to the above statement.

Question: Mitigation of Loss | The rule regarding a person’s responsibility to mitigate his damages is not an absolute rule, explaining the principle, respond to the above statement. [Punjab JS 2013]

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Answer

The explanation attached to Section 73 provides for the duty to mitigate damages.

It says: In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. The injured party has to make reasonable efforts to avoid the losses resulting from the breach so that his loss is kept to the minimum. The most frequent application of this rule takes place in contracts for the sale or purchase of goods.

On the buyer’s refusal to take delivery, the seller should resell the goods at the prevailing market price and he may then recover from the defaulting buyer as damages the difference between the price he realized and the price he would have received under the contract. If the seller does not resell the goods and his loss is aggravated by the falling market, he cannot recover the enhanced loss.

The well-known authority is the Jamal v. Moola Dawood Sons & Co. [I.L.R. (1916) 43 Cal. 493] in which the privy council has held that the proper measure of damages is the difference between the contract price and the market price on the date of the breach of the contract irrespective of the fact that the seller does not sell the goods on that day, but sells the same on a subsequent date and the actual loss to him is different from the difference in the prices on the date of the breach.

Lord Wrenbury explained the principles of law thus: It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss subsequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.

The Bombay High Court in K.G. Hiranandani v. Bharat Barrel & Drum Mfg Co P [AIR 1969 Bom 373] explained the real nature of the duty of mitigation. Vimad Lal J. said:

Though what the Explanation enacts is popularly called the ‘rule‘ in regard to mitigation of damages, and has been so-referred to even in decided cases and standard works, and though it is loosely called a “duty” to mitigate, the position really is, as our legislature has rightly stated, merely this, that what the Explanation means is not in the nature of an independent rule or duty but is merely a factor to be taken into account in assessing the damages naturally arising from the breach, for the purpose of the main part of Section 73.

In Murlidhar v. Harishchandra, [A.I.R. 1962 S.C. 366, at p. 369], it was stated that the party suffering from the breach of contract should take reasonable steps to mitigate the extent of damage caused by the breach. If, he fails to take such a step then, he won’t be held entitled to claim compensation for such loss which could have been mitigated. While he could also get debarred from claiming any part of the damage which is due to his neglect to take such steps.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X