Mitigation of Damages Affirmative Defense to Breach of Lease & Contract in California
Parties to contracts, including landlords and tenants, should be aware of the duty to mitigate damages by all parties, including landlords. This includes damages for unpaid rent that becomes due after the breach of a lease. This doctrine of mitigation of damages, often called a duty to mitigate, forms one of the most common affirmative defenses to a breach of contract claim, such as a lawsuit for breach of a lease.
Specifically, the law in California is that, “if a lessee of real property breaches the lease and abandons the property before the end of the term or if his right to possession is terminated by the lessor because of a breach of the lease, the lease terminates. Upon such termination, the lessor may recover from the lessee…the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the lessee proves could be reasonably avoided.” Cal. Civ. Code § 1951.2(a)(3).
As a secondary source on California law explains this section, “future damages may be awarded under the provision only if the lease expressly authorizes the recovery to the extent it exceeds what could have been avoided by reasonable efforts to relet, or the lessor relet the property prior to the time of award and proves that in reletting the property he or she acted reasonably and in a good-faith effort to mitigate the damages, but the recovery of damages under this provision is subject to any limitations specified in the lease.” 42 Cal. Jur. 3d Landlord and Tenant § 214.
A recent case from the the California Court of Appeal explained that: “The duty to mitigate the damages will often require that the property be relet at a rent that is more or less than the rent provided in the original lease. The test in each case is whether the lessor acted reasonably and in good faith in reletting the property.” Lu v. Grewal (2005) 130 Cal. App. 4th 841, 850.
Green v. Smith (1968) 261 Cal. App. 2d 392, 396–97 – Mitigation of Damages in California:
Lu went on to quote Green v. Smith (1968) 261 Cal.App.2d 392, 396–397, which has stood as the leading case on mitigation of damages for over a half-century in California as follows in providing the definition of mitigation of damages in California: “A plaintiff cannot be compensated for damages which he [or she] could have avoided by reasonable effort or expenditures…. The doctrine does not require the injured party to take measures which are unreasonable or impracticable or which would involve expenditures disproportionate to the loss sought to be avoided or which may be beyond his [or her] financial means.”
This quote came from the famous and often-cited cases of Green v. Smith (1968) 261 Cal. App. 2d 392, 396–97, which explained in full that:
It has been the policy of the courts to promote the mitigation of damages. (Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co., 63 Cal.2d 602, 605 [47 Cal.Rptr. 564, 407 P.2d 868]; Jordan v. Talbot, 55 Cal.2d 597, 610 [12 Cal.Rptr. 488, 361 P.2d 20, 6 A.L.R.3d 161]; Mabb v. Stewart, 147 Cal. 413, 417 [81 P. 103].) The doctrine applies in tort, wilful as well as negligent. (See Kleinclaus v. Marin Realty Co., 94 Cal.App.2d 733, 739 [211 P.2d 582]; Rest., Torts, § 919, com. a.) (2) A plaintiff cannot be compensated for damages which he could have avoided by reasonable effort or expenditures. (Guerrieri v. Severini, 51 Cal.2d 12, 23 [330 P.2d 635]; Valencia v. Shell Oil Co., 23 Cal.2d 840, 844 [147 P.2d 558]; Schultz v. Town of Lakeport, 5 Cal.2d 377, 382, 383 [54 P.2d 1110, 55 P.2d 485, 108 A.L.R. 1168]; Murphy v. Kelly, 137 Cal.App.2d 21, 31 [289 P.2d 565].) The frequent statement of the principle in the terms of a “duty” imposed on the injured party has been criticized on the theory that a breach of the “duty” does not give rise to a correlative right of action. (Ellerman Lines, Ltd. v. The President Harding (2d Cir. 1961) 288 F.2d 288, 289-290; 5 Corbin, Contracts, § 1039, p. 242; 20 Am.Jur.2d 50.) It is perhaps more accurate to say that the wrongdoer is not required to compensate the injured party for damages which are avoidable by reasonable effort on the latter’s part. (Ellerman Lines, Ltd. v. The President Harding, supra, at p. 290; 5 Corbin, Contracts, pp. 242-243; Rest., Torts, § 918; McCormick (1935) Damages, p. 127; see Murphy v. Kelly, supra, 137 Cal.App.2d 21, 31.) As Judge Friendly observed in Ellerman Lines, Ltd. v. The President Harding, supra, at p. 290, the current phraseology of the principle may lead to sounder results than its statement in terms of a “duty.”
The doctrine does not require the injured party to take measures which are unreasonable or impractical or which would involve expenditures disproportionate to the loss sought to be avoided or which may be beyond his financial means. (Jordan v. Talbot, supra, 55 Cal.2d 597, 611; Valencia v. Shell Oil Co., supra, 23 Cal.2d 840, 846; Schultz v. Town of Lakeport, supra, 5 Cal.2d 377, 384; Joerger v. Pacific Gas & Elec. Co., 207 Cal. 8, 28 [276 P. 1017]; 2 Witkin, Summary of Cal. Law (1960), p. 1608.) (3) The reasonableness of the efforts of the injured party must be judged in the light of the situation confronting him at the time the loss was threatened and not by the judgment of hindsight. (Basin Oil Co. v. Baash-Ross Tool Co., 125 Cal.App.2d 578, 602-603 [271 P.2d 122]; McCormick, Damages, pp. 133- 134; Sedgwick, Damages, § 221, p. 415.) The fact that reasonable measures other than the one taken would have avoided damage is not, in and of itself, proof of the fact that the one taken, though unsuccessful, was unreasonable. (Basin Oil Co. v. Baash-Ross Tool Co., supra, at p. 602-603.) “If a choice of two reasonable courses presents itself, the person whose wrong forced the choice cannot complain that one rather than the other is chosen.” (McCormick, Damages, p. 134.) (4) The standard by which the reasonableness of the injured party’s efforts is to be measured is not as high as the standard required in other areas of law. (See Ellerman Lines, Ltd. v. The President Harding, supra, 288 F.2d 288; McCormick, Damages, p. 134.) It is sufficient if he acts reasonably and with due diligence, in good faith. (Basin Oil Co. v. Baasch-Ross Tool Co., supra, 125 Cal.App.2d 578, 602; Marshall v. Ransome Concrete Co., 33 Cal.App. 782, 786 [166 P. 846].)
In 2013, the California Court of Appeal cited both Lu and Green to conclude that a “plaintiff cannot be compensated for damages that were not incurred or could have been mitigated by reasonable effort or expenditures. (Lu v. Grewal (2005) 130 Cal.App.4th 841, 849–850.) Whether a plaintiff acted reasonably to mitigate damages, however, is a factual matter to be determined by the trier of fact, and is reviewed under the substantial evidence test. (Green v. Smith (1968) 261 Cal.App.2d 392, 397.) The burden of proving a plaintiff failed to mitigate damages, however, is on the defendant, not the other way around. (Lu, supra, at pp. 849–850, 30 Cal.Rptr.3d 623[, et al].” Powerhouse Motorsports Grp., Inc. v. Yamaha Motor Corp., U.S.A. (2013) 221 Cal. App. 4th 867, 884, as modified on denial of reh’g (Dec. 24, 2013).
Yet another court cited Green in explaining that “mitigation of damages is a question of fact, and is subject to review for the existence of substantial evidence.” OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal. App. 4th 835, 875, as modified (Dec. 26, 2007).
Contact a Breach of Contract or Landlord-Tenant Attorney to Understand Your Rights
Mitigation of damages is a fact-sensitive defense that requires careful consideration of the amount of the potential offset, the actions by the parties, any offers that were made that could have mitigated the damages, the reasonableness of the rejection of any offers, and other factors. It is important to consult a business attorney, landlord-tenant lawyer, real estate lawyer, other legal professional skilled in business litigation or real estate litigation.
If you need a breach of contract or landlord-tenant attorney in Riverside county, San Bernardino county, Orange County, Los Angeles or elsewhere in Southern California, call the highly experienced lawyers at Talkov Law today at (951) 888-3300 for a free analysis of your situation. We will help you understand your rights and come up with the best course of action for your situation!