Detrimental Reliance

Definition - What does Detrimental Reliance mean?

Detrimental reliance is a legal principle in which one party has an obligation to fulfill its obligations as per the terms of a contract in order to prevent the other party in the contract from experiencing injustice or losses. This principle can be used to enforce a contract whether or not the contracted party wants to fulfill its responsibilities. Detrimental reliance is also referred to as estoppel or promissory estoppel.

In order for a person or company to make a claim of detrimental reliance, they must have agreed on the exchange of money at some point in the future in order to establish the idea of a financial consideration over the contract. There has to be a gain on both sides to the consideration, i.e. money must be agreed to be paid for the item being contracted, but it would not have to have been exchanged at the point of the breach. Also, if the agreement is in relation to something that is part of a larger mechanism that is known to the contracting party, then they would likewise be held accountable under detrimental reliance.

The basic aspects of primary estoppel or detrimental reliance is the promise given, which is reasonably expected by the promisor to induce action or forbearance by the promise in a justifiable reliance on the promise, and that injustice can only be avoided through the enforcement of the promise.

Justipedia explains Detrimental Reliance

If two parties enter a contract together, then one party can be harmed if the other fails to fulfill its duties. For example, if an airplane engine manufacturing company needs parts from a part supplier, and it makes a contract with that supplier, then the airplane engine manufacturer could suffer substantial losses if the part supplier defaults on its obligations. This is because the engines may not be able to be built without the parts. This is why contracts can be enforced under detrimental reliance.

Areas that have been affected legally by the enforcement of detrimental reliance through landmark cases include charitable subscriptions, employment, franchises and gratuitous promises. Options contracts and subcontractor/construction contracts are also common users of the detrimental reliance clause.

Whatever the case of detrimental reliance, it is clear that a person should not promise something that they do not plan to commit to in the future; otherwise they risk the chance that someone takes them seriously and takes them to court. The determinations made by courts in relation to similar matters, such as gratuitous reliance, can be seen to be different between court jurisdictions. There have been some exact same cases that relied on the same law and were found for different parties, effectively rendering the use of such a law at the discretion of the court. Similar cases with contrasting outcomes that relied on detrimental reliance include Greiner v. Greiner and Kirksey v. Kirksey. There are also similar contrasting cases that appear from state to state in relation to the construction industry and subcontractors in particular.

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