What is Detrimental Reliance?
How do you legally define it?
What are the essential elements you should know!
In this article, we will break down the legal definition of Detrimental Reliance so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
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What Is Detrimental Reliance
Detrimental reliance is when a party is “induced” to rely on another’s promise or commitment resulting in a detrimental outcome to the party.
Typically, this legal jargon is used to refer to a plaintiff’s promissory estoppel against a defendant legally requesting that the defendant perform the content of its promise or seek damages.
Generally, in the context of a detrimental reliance claim, the plaintiff will need to show the detriment that resulted in its loss or injury.
Every state has its own rules governing the cause of action based on detrimental reliance.
For example, in Virginia, the courts do not recognize promissory estoppel which is typically the cause of action for detrimental reliance but equitable estoppel.
In other states like Maryland, a plaintiff can assert a detrimental reliance cause of action based on promissory estoppel.
The plaintiff seeking remedies can ask for:
- The enforcement of the promise
- Compensatory damages
- Lost profits
- Other damages to compensate for losses suffered
Detrimental Reliance Definition
How do you define detrimental reliance?
Here is how we can define detrimental reliance:
The doctrine of detrimental reliance refers to a situation where a person or entity detrimentally relies on the promise of another to act to its own detriment thereby suffering a loss or injury.
In contract law, the recovery of damages in reliance cases is generally based on the promissory estoppel doctrine.
Detrimental Reliance Elements
What are the elements required to succeed when suing for detrimental reliance?
Although you must observe the specific requirements in your state, the standard detrimental reliance action will have the following elements:
- A promise was made by a party (promisor) to another
- The other party (promisee) reasonably relied on the promise
- The reliance by the promisee was reasonable and foreseeable
- The promisee suffered a detriment by relying on the promise
- It would be unjust not to enforce the promise
For the court to grant damages, the detrimental reliance test must be passed.
Let’s look at the notion of detrimental reliance and promissory estoppel as, in many cases, they go hand in hand.
In a situation when a party makes a promise to another one who ends up relying on that promise to act in a detrimental way, we’ll refer to that as detrimental reliance.
Most often, detrimental disputes arise in cases involving oral contracts or commercial transactions where the parties did not enter into a contract.
The legal theory invoked to argue the detriment in most states is the doctrine of promissory estoppel.
What damages can you obtain in the context of a detrimental reliance dispute?
When a party sues another on the basis of reliance leading to its detriment, the damages claimed are called “reliance damages”.
Reliance damages compensate the plaintiff for the “detriment” or losses suffered by relying on the defendant’s promise.
The objective of the law is to compensate the plaintiff in such a way that it will be put in a financial and factual position as close as possible to its position before having relied on the promise.
For example, if a person relied on another’s promise and the detriment caused a financial loss of $100,000, then the court will compensate the plaintiff for $100,000, making it whole again.
Detrimental reliance examples
Let’s look at a few examples of how a detrimental reliance claim can be exercised in contract law.
Example 1: Manufacturer and distributor example
Let’s consider a manufacturer and a distributor that have a long-lasting commercial relationship.
They’ve done business with one another for many years and a certain level of trust has been developed between them.
Imagine that one day, the distributor informs the manufacturer that it is ready and able to sell 100,000 units of their product but the production must start quickly so they can capture the market.
Without having time to finalize a contract, the manufacturer produces the 100,000 units at a significant cost but the distributor eventually refuses to accept delivery arguing they have no legal obligation as such.
In this example, it would be potentially justified for the manufacturer to sue the distributor on the basis of detrimental reliance.
The manufacturer reasonably relied on the promise that the distributor would accept to distribute 100,000 and so it suffered damages in producing these units.
Example 2: Neighbor disputes
Imagine that Jack’s neighbor offers him do some landscaping work on his property.
Jack responds to his neighbor that he thinks it’s a good idea.
Imagine the neighbor brings his equipment and starts working on Jack’s property.
Jack does not stop his neighbor from doing the work.
Eventually, when the neighbor demands a payment of $1,000, Jack refuses on the basis that there was no contract.
In this example, Jack’s neighbor will have a possible recourse against him.
The reason for that is:
- The neighbor relied on Jack’s statement that “it was a good idea”
- Jack did not protest to the neighbor working on his property
- It was reasonable to expect that the neighbor would rely on Jack’s statement
There are many other examples that we can provide to illustrate the point.
What’s important to note is that detrimental reliance is typically invoked when oral contracts or verbal agreements were made and then breached by a part.
This can happen in any contractual setting:
- Real estate
What are the legal defenses that may be raised against a detrimental reliance action?
The defendant can raise several arguments in an attempt to defend a promissory estoppel action:
- The plaintiff’s performance was bargained for and it already received consideration
- It was not reasonable for the defendant to rely on the plaintiff’s statement and the defendant is responsible for its own detriment
- Arguments based on the statute of frauds
- Statute of limitations
So what is the legal definition of Detrimental Reliance?
What does detrimental reliance mean?
Let’s look at a summary of our findings.
If you enjoyed this article on Detrimental Reliance, we recommend you look into the following legal terms and concepts. Enjoy!
Related legal terms
Cause of action
Good Faith Reliance
Non Reliance Clause