What is detrimental reliance?
Image courtesy of iosphere at FreeDigitalPhotos.net
Detrimental reliance is a legal concept under the law of contracts. Ordinarily, a valid contract requires a proper exchange of consideration between the parties. A mere promise to do something in the future is usually not enforceable unless the beneficiary of the promise also promises to do something in return. This is called consideration, and courts often find contracts to be invalid or unenforceable due to a lack of proper consideration.
Strict application of this rule can often lead to unfair results however. Imagine that Company A offers a job to Employee B. Before a written contract can be signed, Employee B moves his or her family across the country at great expense. When Employee B reaches the new job, Company A revokes the job offer.
Is Employee B out of luck merely because the contract had not yet been signed and there had been no formal exchange of consideration? No. The law recognizes that, in such situations, a person’s detrimental reliance on the promise of another can substitute for the requirement of consideration. This is called promissory estoppel.
To prove a case of promissory estoppel, a plaintiff must generally show the following:
1) a promise reasonably expected by the promissor to induce action or forbearance,
2) action or forbearance by the promisee in justifiable reliance on the promise (i.e.“detrimental reliance”), and
3) injustice can be avoided only through enforcement of the promise.
In cases of promissory reliance, damages are usually limited to those necessary to make the victim whole. In other words, in the example above, Employee B might not be able to recover the salary he was promised by Company A. Instead, he or she would be allowed to recover the costs he or she expended moving the family across the country etc. This is the measure of reliance damages.
Please Note: McCabe Rabin, P.A. provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.