Kara Sears
Reliance interest is a legal concept that defines the dependence of one party on the statements or actions of another party, particularly when the first party acts upon such dependence. In contract law, reliance damages refer to the monetary compensation awarded to a party (the promisee) that has suffered damages from relying on a reasonable promise made by the other party (the promisor) that was not kept. The purpose of reliance damages is to protect the injured party's reliance interest by compensating them for the amount of damage they suffered as a result of acting in reliance on the other party's contractual obligations.
| Characteristics | Values |
|---|---|
| Definition | Reliance is a legal concept defining the dependence by one person on another person’s or entity’s statements or actions, particularly where the person acts upon such dependence. |
| Purpose | To protect the reliance interest of the promisee by requiring the promisor to put her in a position as good as she would have been in had the contract not been made. |
| Calculation | Courts generally calculate reliance damages by assessing what amount of compensation would make the injured party whole. |
| Applicability | Reliance damages are awarded in promissory estoppel claims and traditional contract breaches. |
| Requirements | The reliance must be reasonable and result in detriment to the relying person. |
| Examples | Chicago Coliseum Club v. Dempsey; CCC Films (London) Ltd v Impact Quadrant Films Ltd. |
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What You'll Learn
Reliance damages
In law, reliance damages measure the compensation given to a person who has suffered economic harm by acting in reliance on a party that failed to fulfil their contractual obligation. The injured party should be put in a similar position as if the contract had never been formed. This is different from expectation damages, where the injured party should be indifferent between the fulfilment of the contract and never having entered into the contract.
Under English law, a claimant in a breach of contract case has a choice over whether to claim loss of profits or to recover wasted expenditure. For example, in CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985], a "legal presumption" was tested out, stating that where the plaintiff would not have wasted the expenditure if the Defendant had not been in breach of duty, the burden of proof was on the defendant to prove that, regardless of their breach of duty, the expenditure would not have been or may not have been recovered.
In another case, Chicago Coliseum Club v. Dempsey, the parties agreed on a contract for a boxing match. However, a month before the set date, the defendant informed the plaintiff that there was no contract to begin with and thus there would be no boxing match. The plaintiff argued for a breach of contract and moved for reliance damages. The court decided that not all the expenses incurred by the plaintiff were recoverable, but the plaintiff was awarded $300 that they paid the architect to prepare for the boxing match in the stadium.
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Promissory estoppel
For promissory estoppel to be granted, a court must determine that enforcing the promise is essentially the only means by which injustice to the promisee can be rectified. There are three key ingredients for a legal case involving promissory estoppel: the promisor, the promisee, and a promise that was not kept. To seek damages based on promissory estoppel, a plaintiff must show that the promisor made a promise with the intention that a reasonable person would act on it, and that the promisee believed the promisor and acted on that promise.
An example of promissory estoppel might be applied in a case where an employer makes an oral promise to an employee to pay a specified amount of money throughout the employee's retirement. If the employee then retires based on a reliance on the employer's promise, the employer could be legally estopped from not delivering on their promise to make the specified retirement payments.
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Restitution interest
Restitution can be awarded in both civil and criminal cases. In civil cases, it is often associated with unjust enrichment, where the defendant has gained at the expense of the plaintiff. The amount of recovery in such cases is typically based on the defendant's gain rather than the plaintiff's loss. For example, if a defendant has been unjustly enriched through a breach of contract, the plaintiff may be entitled to restitution to recover the benefits they conferred on the defendant.
In criminal cases, restitution takes the form of compensation for loss or damage paid by a criminal to a victim. This compensation may be ordered as part of a criminal sentence or as a condition of probation. By doing so, the law seeks to make the victim whole again by restoring what was lost or damaged due to the criminal's actions.
In summary, restitution interest in contract law focuses on compensating the victim for their losses and restoring them to the position they were in before the contract was formed or the promise was made. It seeks to undo any unjust enrichment or gains obtained by the breaching party and ensure that justice is served for the innocent party.
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Expectation interest
Contract law has traditionally focused on vindicating the expectation interest. Expectation interest is the actual worth of a contract to an individual, limiting any recovery to the loss already suffered due to a breach of contract. In other words, the promisee can claim damages that would put them in the same position as if the contract had been performed.
For example, if a company breaches a contract to sell goods worth $9,000 for $5,000, the selling company would be awarded $4,000 in damages. This is calculated by subtracting the contract price from the market price. The purpose of these damages is to compensate the harmed party for general damages, which are those that result from a breach of contract but are not directly linked to the harmed party.
In employment contract cases, an employee who has been wrongfully fired must mitigate damages by looking for a comparable job. Similarly, in sales of goods contracts, the buyer must attempt to find substitute goods when a breach of contract occurs.
Historically, contract law did not recognise reliance damages, focusing instead on expectation damages. However, this has changed in the past half-century, with scholars like Lon Fuller and William Perdue questioning why society should enforce a promise that no one has yet relied upon.
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Contract damages
The concept of reliance interest is a legal concept that defines the dependence of one person or entity on the statements or actions of another. In contract law, reliance damages refer to the monetary compensation awarded to a party (the promisee) that suffers damages from relying on a reasonable promise made by another party (the promisor) that breaks the promise.
Reliance damages are most often awarded when the aggrieved party's damages are not capable of accurate estimation, and ordering specific performance would be inappropriate. Specific performance is almost never purely financial and should never be associated with reliance damages.
Reliance damages are calculated by assessing what amount of compensation would make the injured party whole. For example, how much would the party make if the other party kept their part of the promise? The injured party should be put in a substantially similar position as they would have been if the contract had never been formed. This is different from expectation damages, where the injured party should be indifferent between the fulfillment of the contract and never having entered into the contract.
In the case of Chicago Coliseum Club v. Dempsey, 265 Ill. App. 542 (1932), the parties agreed on a contract for a boxing match. However, a month before the set date, the defendant informed the plaintiff that there was no contract and thus no boxing match. The plaintiff argued for a breach of contract and moved for reliance damages. The court initially found that there was a valid contract but determined that the damages suffered by the plaintiff were too speculative to assign an objective amount of compensation. The court did, however, award the plaintiff $300 that they paid to an architect to prepare for the boxing match in the stadium, as these expenses were reasonably relied upon the defendant's promise and were objectively determinable.
Another example is CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] 1 QB 16, where a "legal presumption" was tested out. The plaintiff would not have wasted expenditure if the defendant had not been in breach of duty, and the burden of proof was on the defendant to prove that, regardless of their breach of duty, the expenditure would not have been recovered. CCC Films provided no evidence that they would have recouped their lost expenditure, and the defendants also failed to provide evidence that they would not have done so. The court held that CCC Films' reliance claim succeeded in full, showing that a reliance claim for wasted expenditure can include costs incurred before the contract was entered into.
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Frequently asked questions
Reliance interests in contract law refer to the protection of the promisee by requiring the promisor to put the promisee in a position as good as they would have been had the contract been fulfilled.
Reliance damages refer to the monetary compensation awarded to a party that has suffered damages from relying on a reasonable promise that was broken.
While reliance damages aim to put the injured party in the same financial position as if the contract had never been formed, expectation damages aim to put the injured party in a position as good as they would have been had the contract been fulfilled.
