HOME

TheInfoList



OR:

Reliance damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligation..


Scope

Reliance damages are valued by a party's reliance interest for the foreseeable amount. They put the injured party in the same money position as if the contract had never been formed. Reliance interest is one of the three prongs of interest discussed by legal experts Lou Fuller and William Perdue in their 1936 article, "The Reliance Interest in Contract Damages." The other two interests are
expectation interest Expectation damages are damages recoverable from a breach of contract by the non-breaching party. An award of expectation damages protects the injured party's interest in realising the value of the expectancy that was created by the promise of t ...
and
restitution interest Restitution and unjust enrichment is the field of law relating to gains-based recovery. In contrast with damages (the law of compensation), restitution is a claim or remedy requiring a defendant to give up benefits wrongfully obtained. Liability f ...
.


Application

Under
contract law A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
, in a
bilateral contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
two or more parties owe obligations to each other. Each party acts in reliance that the other party will fulfill their respective obligation. If one party fails to respect their obligation, then the other party or parties may suffer an economic harm. Reliance damages compensate the harmed party/ies for the amount of damages they suffered for acting in reliance on the other party's contractual obligations. They are most often rewarded when the aggrieved party's damages are not capable of accurate estimation and ordering
Specific Performance Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, ...
would be inappropriate.. In US law, reliance damages are the type of damages awarded in promissory estoppel claims, although they can also be awarded in traditional contract breaches. This is appropriate because even if there is no bargain principle in the agreement, one party has relied on a promise and thus is damaged to the extent of their reliance. These damages must be proven with reasonable certainty. It is not enough that one party simply guess as to how much they are actually damaged. In a losing contract, reliance damages will be reduced because the aggrieved party cannot be put in a better position had the contract been performed. Here, the losses from the contract will be subtracted from the reliance damages.


Example

Neal and Matt formed a
bilateral contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
. Neal spent $100 in reliance on the contract, which was foreseeable. However, Matt breached the contract. Reliance damages protect a party's reliance interest. Neal spent $100 in reliance on the contract, which constituted Neal's reliance interest. Since reliance damages equal to the value of the reliance interest of the injured party, Matt owes Neal $100. This puts Neal in the same economic position as if the contract never happened.


See also

*
Damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
* Expectation damages * Restitution


References

Contract law Judicial remedies {{law-term-stub