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Detrimental Reliance and Compensation Without a Valid Contract

Business and Commercial Disputes By Harvey Binnall PLLC - 2018/07/27 at 08:14pm

Individuals and businesses are frequently unaware of their rights under the law.  Misinformation in the contract dispute context is quite common — after all, many mistakenly believe that contracts are automatically invalid unless they are written.  Similarly misunderstood is the fact that certain non-contractual promises are enforceable against the promisor (i.e., the party that made the promise at-issue), pursuant to the doctrine of detrimental reliance.

What is Detrimental Reliance?

Detrimental reliance — otherwise known as promissory estoppel — occurs when a party is reasonable induced to rely on a promise made by another party.  In every state jurisdiction, a detrimental reliance claim is only actionable if the reliance itself caused the plaintiff to suffer some “detriment,” loss, or other harm.

To succeed in bringing a detrimental reliance claim, you will have to prove the following elements:

  1. A specific promise was made;
  2. You reasonably relied on the promise;
  3. You suffered a detriment as a result of your reliance; and
  4. Out of fundamental fairness, the promise should be enforced.

Whether the reliance is reasonable depends on the total circumstances.  If the defendant is well-known in your industry for making “empty promises” as a sort of joke, or simply as a conversation piece, then your reliance on their promise cannot necessarily be said to be reasonable, unless there are some other extenuating circumstances.

Let’s use an example to further clarify the contours of a detrimental reliance claim.  Consider the following.

Suppose that you are a toy manufacturer involved in a dispute with a distributor of toys.  You had a meeting with the distributor, but no contract was drawn up during the meeting.  Instead, the distributor promised that they would sell (to retailers) shipments of a particular, customized toy that you deliver to their warehouse.  Without a contract, you rely on the distributor’s promise and manufacture a shipment of toys (at a cost of $50,000).  The distributor refuses to accept the shipment, however.

Now, given the circumstances, its seems reasonable that you would rely on the promise made by the distributor.  Further, a clear detriment was suffered.  You would likely be entitled to damages of $50,000, out of fairness, as the customized toy might not sell to other toy distributors.

Damages in a Detrimental Reliance Dispute

In detrimental reliance lawsuits, plaintiffs are generally only entitled to “reliance” damages, which account for the losses directly suffered by the plaintiff as a result of their reliance.  The damages must only compensate the plaintiff by putting them in a financial position that closely approximates their financial position in a scenario where the promise had never been made.

Let’s return to the previous example.

In a standard breach of contract case, you might be entitled to expectation damages that account for the “value” of the shipment of toys in the event that the defendant had actually purchased them.  For example, if the toys would have sold for $100,000, then you would be entitled to receive that amount in damages.  In a detrimental reliance case, however, you can only recover reliance damages — the amount actually expended in reliance, which is the cost of manufacturing the shipment of toys ($50,000).

Contact a Skilled Alexandria Business Litigation Attorney for Assistance

If you are involved in a dispute over a non-contractual promise, then you may be entitled to bring an action for significant damages on the basis of detrimental reliance.  In the business context, parties are not absolved of all consequences simply because a contract has not been executed — by inducing a monetary commitment (or a commitment of other resources) from the plaintiff, the defendant may be exposed to damage liability.

Harvey & Binnall, PLLC is a boutique litigation firm with extensive experience handling contractual and non-contractual business disputes.  Our attorneys understand the contours of atypical detrimental reliance litigation, and how to proceed in a manner that is more likely to secure maximum compensation on behalf of clients.  Detrimental reliance claims may involve murky factual circumstances, which can make them a challenge for those who have limited experience with such litigation.  We are more than capable of navigating the inherent complexity of detrimental reliance litigation for your benefit.

Call (703) 888-1943 or submit an online claim form today to get connected to an experienced Alexandria business litigation attorney at Harvey & Binnall, PLLC.  We look forward to speaking with you further about your dispute.