Contract Law

M. Lachia Setty & Sons Ltd. v. Coffee Board

AIR 1981 SC 162; (1980) 4 SCC 636

Facts

The Coffee Board auctioned coffee under stated conditions.
Successful bidders were required to pay and take delivery within the prescribed period.
The appellants successfully bid for quantities of coffee but failed to complete their purchases.
The Board treated this as breach and resold the coffee.
Because the resale prices were lower, the Board claimed the difference from the defaulting bidders.
The bidders argued that the Board:
waited too long before resale;
did not obtain the best price;
failed to mitigate its loss properly.

The claimant cannot recover loss that could reasonably have been avoided.
The so-called duty to mitigate is not an independent obligation owed to the party in breach.
It is a limitation on the amount of recoverable damages.
The claimant need only act reasonably.
The claimant is not required to:
take extraordinary measures;
incur unreasonable expenditure;
expose itself to undue risk;
accept an unsuitable substitute arrangement.
The burden lies on the defaulting party to show unreasonable failure to mitigate.

The Coffee Board was entitled to arrange resale consistently with its established commercial and auction procedures.
The defaulting buyers could not demand an immediate distress sale merely to minimise their liability.
The relevant question was whether the Board’s conduct was reasonable in the circumstances, not whether another course might retrospectively have produced a better result.
Commercial decisions must be judged using the information available at the time, not hindsight.
The bidders failed to establish that:
an available buyer would have paid a higher price;
the Board deliberately aggravated the loss;
the chosen resale method was commercially unreasonable.
Mitigation is a shield limiting damages, not a separate cause of action in favour of the wrongdoer.

The Supreme Court upheld the Coffee Board’s recovery.
No unreasonable failure to mitigate was proved.
Use this case for: the innocent party must act reasonably, not perfectly, and the breaching party must prove avoidable loss.