Contracts Law In Action

Mitigating Damages – Leases

My previous job during college was as a real estate associate. First, on numerous occasions, students (lessees) who because of one reason or another would terminate their lease before moving into apartment, but after signing a lease and depositing first month’s rent, last month’s rent, security deposit, and the broker’s fee. It was always our standard practice to return their money (almost always in full) upon finding another group to lease the apartment. However, it seemed that the burden was placed upon us (as real estate agents) to find the other group? These students would leave the office, and most of the time, end up renting a different apartment with another agency without bothering to find replacements. Would it have been appropriate on the part of the agent not to spend the extra effort to find other renters for those properties? What about imposing an automatic forfeiture of one month’s rent or the broker’s fee?

—- The standard practice that you described is consistent with the law that recovery is lessened by the amount of damages that could be mitigated with reseasonable efforts. If you did not expend “the extra effort to find other renters” then your recovery would be limited to those damages which you could not mitigate by reasonable efforts. The automatic forfeiture would be unenforceable [as a penalty].

Mitigating damages – UCC

Would it be fair to assume that a court could apply (or an attorney to argue successfully) the “different or inferior” standard from the Parker case in relation to mitigation of damages in the steak delivery scenario, if the only available meat was in fact frozen Omaha steaks?

— You ask: Are the non-breaching party’s remedies (the Resport) limited by their failure to take delivery of Omaha streaks, rather than the steaks of the seller (the Butcher)? 2-712(3) says “Failure of the buyer to effect cover . . . does not bar him from any other remedy.” The Official Comment notes, “However, this subsection must be read in conjunction with the section which limits the recovery of . . . damages.” So, the UCC does include mitigation, but rather than using the “different or inferior” language of Parker, it asks whether the alternative goods are “commercially usable as reasonable substitutes for under the circumstances of the particular case.” (2-712, Comment 2) If they are, the failure to buy them (effect cover) will lessen the buyer’s recovery.

Ferengi – for the uninitiated

September 20th, 2011